CERTIFICATES OF ENTITLEMENT (Increase in tender prices)

Mr Chiam See Tong asked the Minister for Communications whether he intends to take any action in regard to the unabated increase in the tender prices of Certificates of Entitlement.

The Minister of State for Communications (Cdre (Res) Teo Chee Hean) (for the Minister for Communications): Mr Speaker, Sir, the prices of Certificates of Entitlement (COEs) are determined by market forces of supply and demand. As the supply of COEs is fixed, the increase in COE prices simply reflects the higher demand for vehicles in the market.

The strong demand for vehicles, and hence COEs, is a reflection of public confidence in the economy. So long as our economy continues to do well, we can expect demand for cars, trucks and buses to remain high. This means that COE prices will continue to face upward pressure from high market demand.

The only way to moderate COE prices is to increase the supply of COEs. To do so, we must be able to allow higher vehicle growth without leading to widespread road congestion. The Ministry of Communications is therefore looking into various road-pricing measures, such as the whole-day ALS and Electronic Road Pricing, which will control congestion better to allow a higher level of vehicle ownership, and hence, more COEs to be released.

Mr Chiam See Tong (Potong Pasir): Sir, one of the reasons for the increase in the car population is the availability of cheap finance. Will the Minister consider curbing cheap and liberal finance which finance companies are offering to motorcar purchasers?

I have a related question to that. Will the Government also consider cutting down the practice of offering generous car loans to its officers?

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, I am not sure what the Member is suggesting. But if he is suggesting that we increase the price of loan artificially, then I think that may impact unnecessarily on people who want to buy cars. We should let the market set the price for loans.

With regard to his second question on whether or not the Government provides generous loans, I do not think the loan conditions of the Government for cars are generous. I think they are adequate.

Mr Chiam See Tong: Obviously, the Minister has not understood my question. The purpose of COE, as stated by the Government, is to curb or reduce congestion on our roads; in other words, to bring down the car population. Does he not agree with me that one of the reasons why there are so many people buying cars is the easy availability of cheap car loans? If the Government has a policy on car loans by the finance companies that you must provide upfront 70% or 80% cash to buy a car, I am sure the number of car purchasers will be very much less than today.

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, the purpose of the COE system and the Vehicle Quota System is to limit the growth in the vehicle population to a manageable level. Whether or not the financing aspect for COE ought to be manipulated in a way which makes the financing cost different from what the market sets is a separate issue from whether or not the car population can be controlled. I think the car population is being controlled satisfactorily by the system and there is no necessity to interfere with the financial market in order to cater to this particular requirement.

Mr Chiam See Tong: Can I say that if you do not control the financing aspect and more people are buying cars, the Government will get more revenue by issuing, in fact, more COEs? Am I not right?

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, the decision on whether or not individuals wish to bid for a COE at the prevailing prices is really up to them, and it is the decision of the individual and the upward pressures being provided by the generally good economic conditions that are much stronger than any of the measures that the Member has suggested.

Mr Leong Horn Kee (Thomson GRC): I would like to ask the Minister of State whether the Government will consider other forms of bidding for COEs since, as we all know now, the COE is very high. Are there other alternatives that we can consider for the bidding of COEs? For example, one method that is often suggested is the pay-as-you-bid system.

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, this question has been raised a number of times. The pay-as-you-bid system is in no way superior to the current system, which is the single strike price system. There is a good body of knowledge on this subject which has been developed by economists and the theory shows that the present bidding system is a fair system, and the price should not be affected, whether or not you use this bidding system or a pay-as-you-bid system. But we would be willing to accept any reasonable suggestion which Members may have to improve the system.

Mr Leong Horn Kee: Mr Speaker, Sir, whether the pay-as-you-bid system will be higher or lower compared to the present Dutch system has not been tested as yet. But could the Government consider putting it on trial for a few months just to see how it will work out? Because in the pay-as-you-bid system, those who can afford will actually pay a bit more, but those who cannot afford will pay a bit less. So for those who can less afford the COEs, they may end up paying a bit less. But you may actually have an average that is similar to the present system.

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, the present bidding system is a fair one because everyone who bids for a COE in the same category pays the same price for the same Certificate of Entitlement. If you have a system in which you pay as you bid, then there will be, for the same item, for the same Certificate of Entitlement, for the same class of cars, a variety of prices, and I am not entirely sure that that is a fairer system than the one we have.

Mr Heng Chiang Meng (Cheng San GRC): Sir, I have a supplementary question to ask regarding the use of financing to curb high prices of COEs. Such suggestions are tantamount to credit control allocation by the Government. May I ask the Minister whether, in the past, in Singapore we had any credit allocation scheme of this type to affect other industries such as shipping or property, and whether such credit allocation by Government had been successful in achieving the objectives or not?

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, I am not quite sure what is the relevance of this particular question. I do not have the information at hand. But, as a matter of principle, it is better not to interfere with the financial market in the way that loans are let out.

Mr Heng Chiang Meng: Sir, my point is that experience has shown that credit allocation by Government never worked in achieving desired objectives. This is to answer a point by Mr Chiam.

Mr Chiam See Tong: Sir, I shall not attempt to ask a question and answer it at the same time.

Can I ask another supplementary question? Does the Minister agree that the COE, instead of dampening demand, is, in fact, increasing it by virtue of the fact that there is a huge residual value in each car?

Cdre (Res) Teo Chee Hean: Mr Speaker, Sir, the price of the COE is linked with the demand for it. And if there is strong demand for COEs, the prices will go up. I think that is a simple balance between supply and demand. The market will find its equilibrium. You can advance many other theories why price goes up and goes down. But it merely reflects the balance of supply and demand at the point in time.

Mr Chiam See Tong: The issue is, in fact, not supply and demand here. In fact, it is in-built in your COE system, because you have now given each car a residual value. It has even been reported that people who buy cars are making money on them. So why do people not go into the market to buy? And as for foreigners or expatriates who bought a Mercedes in 1990 and if they leave Singapore today, they will sell it at a handsome profit. So the demand for cars will be increased because of this.

Mr Speaker: Mr Chiam, could you ask your question? Are you making a speech?

Mr Chiam See Tong: I am asking the Minister whether or not COE increases demand by virtue of this in-built fact of the residual value.

Cdre (Res) Teo Chee Hean: The prices of COEs have gone up and they have gone down as well. And it depends on a variety of factors. One of the strongest factors is the economic situation as was shown in the recession of 1985 and 1986 as well as some seasonal factors. So the prices go up and go down. While the Member may be advancing a particular theory, I am not sure that it holds a very strong basis for it.

Mr Chiam See Tong: I will leave it at that, but I still have not got my answer. Can I go on with the next question? With the rapid increase in COE prices, would taxi fares have to be increased soon to cover the increase in COE prices?

Mr Speaker: Mr Chiam, I suggest that you file that as a separate question. Do you have any other questions related to the matter?

Mr Chiam See Tong: That is all.