RECENT INCREASE IN COE PRICES

RECENT INCREASE IN COE PRICES: 7.

Dr Lim Wee Kiak asked the Minister for Transport in view of the recent hike in the Certificate of Entitlement (COE) prices (a) whether there is any evidence of speculation; (b) what measures, if any, are being taken to control the sudden surge in COE prices; and (c) what is the expected trend of COE supply over the next 12 months.

The Minister for Transport (Mr Raymond Lim Siang Keat): Sir, the COE system has been modified many times to curb speculation and increase its transparency since its introduction in 1990. Let me explain why speculation, or attempts to profiteer from the COE system, is not likely to be significant with the existing measures in place.

Firstly, all COE bids made in the two car categories (Categories A and B) and the motorcycle category (Category D) must be made in the name of the buyers.

Column: 1990

Once the COE is obtained, the vehicle has to be registered in the name of the bidder. Therefore, there must be a genuine buyer behind each bid, and the buyer cannot subsequently re-sell the COE to another buyer to profit from a rising COE market. In fact, the Land Transport Authority (LTA) has made the rules so tight that cars registered using Categories A and B COEs cannot be transferred within the first three months, and should the ownership of the car be transferred between the 4th and the 6th months, LTA would impose an additional levy to prevent any possible gain.

However, to provide some flexibility and convenience for those who require their vehicles urgently, successful COE bids in Category C (Goods Vehicles and Buses) and Category E (Open Category) in the name of individuals are transferable. However, these can only be transferred once within the first three months, while successful bids by companies are not transferable at all.

To discourage speculators, especially for the Category E COEs, we have put in place a number of deterrent measures. In the past, there were instances of speculators with Category E COEs who, when caught in a falling COE market, limited their losses by using these COEs to register cheaper vehicles such as motorcycles and immediately de-register them to claim a near 100% COE rebate. To close this loophole, the COE rebate for vehicles registered using a Category E COE is now computed based on the lower of the Category E COE price or that of the corresponding vehicle category in the same tender exercise, and any pro-rated COE rebate is also subject to an 80% cap if the vehicle is de-registered for export within two years from registration.

While these measures do not make it completely impossible to speculate in Category E COEs, we must also bear in mind that any would-be speculator must

Column: 1991

be prepared to fork out $10,000 for the COE bid deposit. They would then have at most three months of the COE validity period to try to sell off the COE for a profit, failing which they would lose the $10,000 deposit. The full details of the existing anti-speculation measures can be found at the LTA website.

Dr Lim asked if any measures will be taken to control the surge in COE prices. The objective of the COE system is to ensure that the vehicle population grows at a sustainable rate so that our roads do not become gridlocked. The supply of COEs is fixed by the quota which takes into account the allowable vehicle growth rate, the actual vehicle de-registrations in the preceding period and the one-time adjustments to compensate for over-projections in de-registrations in 2008 and 2009 under the old methodology. The quota is subsequently distributed through a bidding system, and the prices for the COEs are ultimately determined by the supply of COEs, and the demand for them. In 2010, the supply of COEs was reduced due to the relatively lower de-registrations and the adjustments. This reduction in supply, together with the rising demand for COEs in a strong economy, naturally pushed prices up.

LTA has carefully studied the many suggestions given by the public and motor industry recently. In particular, the Motor Traders' Association (MTA) suggested spreading out the adjustments for the over-projections over a longer period. LTA is prepared to do so, to give the industry and car buyers more time to adjust. These are one-time corrections, and will not affect the long-term growth in the vehicle population. LTA will therefore spread out the remaining 9,577 COEs to be corrected over a period of three years, instead of the remaining one year. This will be factored into the quotas for the bidding period of February 2011 to July 2011, which LTA will announce later today.

Column: 1992

Dr Lim asked about the expected trend of COE supply in the next 12 months. The LTA no longer forecasts future COE supply. However, it has been providing updated information on the latest monthly de-registration data to help those who wish to make their own projections.

Dr Lim Wee Kiak (Sembawang): Sir, I would like to thank the Minister for the comprehensive reply. I have two supplementary questions.

First, the gyration of the COE prices. There are years where more than 100,000 COEs are released, and there are years where fewer than 50,000 COEs are released. Over the 10-year life cycle period, I would like to ask the Minister how does his Ministry intend to even out this sudden surge and sudden drop in COE supply, because this will result in the gyration of prices.

Second, regarding some of the suggestions that were given by the public. Will the Ministry consider each COE as a separate bidding, which means that you pay as you bid? That will actually control some of the elements whereby people will tend to outbid one another. The other point is to limit COE financing so as to encourage prudence in car financing.

Mr Raymond Lim Siang Keat: Sir, as explained earlier, the COE policy is to control the vehicle population growth rate. This is to prevent, as I said, gridlock on our roads. It is not a policy which seeks to stabilise COE prices. We do not really control that because the bulk of the supply comes from de-registration. So, it really depends on Singaporeans' decisions on whether to de-register their cars or not.

On the second question raised, which is a suggestion on pay-as-you-bid, the GPC for Transport discussed this some years back. It was a suggestion which they looked into in great detail and they

Column: 1993

came to the conclusion that there were certain shortcomings in the system. It would add complexity to the system, in particular when you have one particular model with multiple values on it, depending on what you bid for the COE, because different bidders will pay different COE prices. What was important was that they studied the spread of prices. Right now, we have the lowest successful bid which clears the COE quota. When they looked at the spread, they found that there was a clustering towards the lowest successful bid, about 20%-30% above it. LTA looked at it again, and again the clustering was there. It was not as though the highest bidders were pulling up all the prices.

The Member's final question was on COE financing. MAS has looked into this, and studied this. There is no evidence that existing car loan financing rules that are in place pose a systemic threat to the financial system. The non-performing loan is extremely small. So MAS, at this stage, will not be acting to change the car financing rules but expects financial institutions to, of course, exercise prudence when granting car loans.