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Not all quotas went up, future bumper crop of COEs unlikely
2014 saw a rise in the annual quotas for the Certificate of Entitlement (COE) in the different categories of Cat A (mass-market cars), Cat B (luxury cars) and Cat C (commercial vehicles). Despite the quota increase, however, COE prices underwent a slight moderation but prices have not fallen to pre-2011 levels. This indicates that there is a persistent and pent-up demand for car ownership in Singapore.
The annual quotas and average prices of each category are shown in the following charts. The average price is computed by averaging the COE quota premium across the 24 bidding rounds in a year. All data can be found in this Google Spreadsheet.
Quotas and Prices - Cat A (mass-market cars)
The quota for Cat A increased from 8,534 last year to 12,230 (43% increase). The average price of a Cat A COE is $67,675, which is lower than 2013 ($74,690).
However, just four years ago in 2010, the average price of a Cat A COE was $30,405.
Furthermore, the average price of a Cat A COE is just $5,606 less than Cat B. It is hard to imagine Cat A as a ‘mass-market’ category with a social equity purpose when its average price is 92% of Cat B.
Quotas and Prices - Cat B (luxury cars)
The quota for Cat B increased from 8,230 last year to 11,205 (36% increase). The average price of a Cat B COE is $73,282, which is lower than 2013 ($78,712).
However, just four years ago in 2010, the average price of a Cat B COE was $39,834.
Quotas and Prices - Cat C (commercial vehicles)
The quota for Cat C increased from 5,706 last year to 6,618 (16% increase). The average price of a Cat C COE is $50,768, which is lower than 2013 ($60,342).
However, just four years ago in 2010, the average price of a Cat C COE was $29,788. The average price of a Cat C COE is $22,514 less than Cat B (still a sizeable 69% of Cat B’s average price).
High Cat C prices may see businesses transferring the costs to consumers, and place a strain on Small-to-Medium Enterprises (SMEs), such as school bus operators. Specific questions on this topic were sidestepped in Parliament.
Quotas and Prices - Cat D (motorcycles)
Cat D prices sky-rocketed to $4,800 in October. This is the highest on record since the Vehicle Quota System started in 1990 [PDF]. At the beginning of the year, Cat D prices climbed steadily to the $4,000 mark and remained around that level since March.
Just one year ago, the average price of a Cat D COE was $1,757. Now, the average price has more than doubled to $4,027 (2.3 times). Before 2014, the last time Cat D prices have exceeded the $4,000 mark was in 1995, almost 20 years ago.
What caused the wild price swing in Cat D?
The National Environment Agency (NEA) had announced in March 2013 that the emission standards for all new motorcycles will be raised to the Euro III standard from October. People rushed to buy because a Euro III compliant motorcycle typically costs 20% to 30% more than the Euro I models.
To make things worse, the Cat D quota shrunk by 30% (quota plunged from 12,149 last year to 8,501). This also affected dealers who were given 18 months to clear their old Euro I stock. Thus, Cat D prices were driven up by the double whammy of reduced COE quota and panic buying ahead of the new emission standards.
Quotas and Prices - Cat E (open category)
The quota for Cat E decreased from 6,247 last year to 6,031 (3% decrease). The average price of a Cat C COE is $73,436, which is lower than 2013 ($80,278). However, just four years ago in 2010, the average price of a Cat C COE was $41,424. As a Cat E COE can be used for any vehicle type, it is typically used for luxury cars in Cat B. Thus, Cat B and Cat E usually have comparable prices.
Bumper Crop of COEs Unlikely
Despite this year’s quota increments, current quota levels are still a far cry from the bumper crop of COEs in the last decade. It’s not tenable for Singapore to grow its vehicle population at the breakneck pace of yesteryears.
From 1999 to 2008, the vehicle population grew by 30% from 670,000 to 872,000 [PDF]. After this period of heady growth, the Ministry of Transport has kept a tight lid on the number of vehicles on the road.
Since 2009, the vehicle population stayed in the range of 902,000 - 932,000 [PDF]. The following tables compare the COE quota levels under different Transport Ministers.
Annual Quotas under Mr Lui Tuck Yew (2011 onwards) vs. Mr Yeow Cheow Tong (2001 - 2006)
Annual Quotas under Mr Lui Tuck Yew (2011 onwards) vs. Mr Raymond Lim (2006 - 2011)
The data shows that there has been a general decline in quota levels since 2006; it took two Transport Ministers to rein in the burgeoning vehicle population after Mr Yeow Cheow Tong.
The quota reductions began when Mr Raymond Lim took over as the Transport Minister in 2006. But in his first three years in office (2006 - 2008), there seemed to be some reluctance to cut quotas as quota levels still remained high. Quota reductions (and the resultant price ascent) became more dramatic from 2009.
Quotas are determined based on three key parameters: (1) vehicle population growth rate; (2) actual deregistrations; and (3) other adjustments. Two of the three parameters, vehicle population growth rate and adjustments, are set by the Ministry of Transport. 2009 was an important milestone as the Ministry further tightened COE quotas by halving the vehicle population growth rate from 3% to 1.5%.
Since February 2013, the vehicle population growth rate has shrunk even further to 0.5%, one-sixth of its original value.
Net increase allowed - Percentage of vehicle population per annum
- May 2000 - April 2009: 3.0%
- May 2009 - July 2012: 1.5%
- August 2012 - January 2013: 1.0%
- February 2013 - January 2015: 0.5%
Interestingly, quota adjustments made to correct for over-projections that preceded the current Transport Minister. There was a total adjustment of -17,558 for over-projections in Quota Years 2008 and 2009, as well as expired COEs from 2009.
These adjustments were administered over a period of five years to smoothen the impact. An adjustment of -12,769 was made in the quota from April 2010 to July 2012. All remaining adjustments have been made in the quota from August 2013 to January 2015.
Finally, quotas are also determined by vehicle deregistrations every quarter. COE holders can deregister their vehicles anytime before the COE expires in ten years, or they could renew the COE in the tenth year without bidding for a new one. The LTA recycles deregistrations back into the new pool of COEs for bidding.
Hence, the more deregistrations there are in a given year, the higher the COE quota. Let’s examine the deregistration data in 2014 and compare that to the quotas in 2004:
*Deregistration data for the October - December 2014 period is not available yet.Source: LTA, Overview of Vehicle Quota System, Quota Allocation
The majority of the COEs awarded in 2004 was not deregistered this year. The low number of deregistrations is one reason why the 2014 quota is only a fraction of 2004’s bumper crop. Similarly, the quotas for 2012 and 2013 are nowhere near the quota levels 10 years before. Combine the low deregistration rate and the throttled vehicle population growth rate, it is unlikely that future quotas will ever return to the COE bonanza of the last decade.