During his ministerial statement to reply to Members of Parliaments’ question on the Certificate of Entitlement (COE) on Monday (8 May), S Israwan, Singapore’s Minister for Transport, warned that as household incomes continue to rise in the coming years, coupled with our policy of zero-growth in the car population, Singaporeans must expect the long-term trajectory for COE prices to be upwards.
Ten MPs from the People’s Action Party and Workers’ Party raised over 20 questions on the issue of rising COE premiums, with some presenting their proposed solutions to tackle the root cause of rapidly increasing COE prices.
The COE premiums experienced a significant increase in the latest bidding exercise, with Categories A and B reaching new record highs, breached $100,000 and $120,000 respectively.
In response to PAP MP Yip Hon Weng’s question on the cause of rising COE prices, he said fundamentally, the COE prices reflect demand for a limited and falling supply of COEs.
“Demand in all categories has remained resilient, especially as the economy recovers post-COVID-19. Incomes have also been rising over the long term. ”
During his statement, Mr Iswaran referred to an article written by Professor Raymond Ong in The Straits Times on 7 May.
He highlighted that the ratio of COE price to median monthly household income has fallen from 11 to 1 during the previous COE price peak in 2013 to 9 to 1 today.
Mr Iswaran explained that even though the absolute price is higher now, the COE price is relatively lower when compared to the median income because household income has risen.
He said as household incomes continue to rise in the coming years, coupled with our policy of zero-growth in the car population, we must expect the long-term trajectory for COE prices to be upwards.
However, Mr Iswaran said over the past decade, the proportion of multiple-car owning households has been steadily declining from about 19% of households in 2012 to less than 15% today.
As of 31 October 2022, of the 471,000 households that own cars, 12% own two cars, and less than 3% own three or more cars.
“I had also, in a PQ in response to Mr Gerald Giam last year, pointed out that it is worth noting that multiple-car owning households live across HDB, condominiums and landed properties, including some households that own more than three or more cars.”
Iswaran rejected NCMP’s Hazel Poa alternative proposal “point-based system”
One proposed solution came from Ms Hazel Poa, a Non-constituency Member of Parliament from the Progress Singapore Party (PSP), who suggested that the Transport Minister explore alternative ways to allocate vehicle quotas.
Ms Poa suggested a point-based system that considers factors such as nationality and needs-based criteria for families with young children or persons with disabilities, instead of relying solely on the bidding price.
“And secondly, would the Minister consider, in the same way as we have the additional buyer stem duty for the purchase of second or higher residential property? Would the Minister consider additional levy on additional vehicle purchase?”
In response, Mr Iswaran raised concerns about the challenges of implementing a points-based system for COE allocation, as well as the potential for such a system to be arbitrary.
“Does that mean that if someone has got more points, then they are entitled to a different price when it comes to their COE? Or does it mean that they go into a different pool?”
“And if they go into a different pool, how do we segment the pools?” he asked.
Mr Iswaran defended that here are existing schemes to assist individuals with special needs or disabilities who require vehicles for work or other purposes.
These measures, including assistance with COEs, are highly targeted. However, he believes that such initiatives are best achieved by reducing the cost impact on specific groups rather than making changes to the COE allocation system.
In response to another suggestion on balloting like suggested by PAP MP Liang Eng Hwa, he said if the government implements a balloting system, they would need to determine the pricing of COE for segments with a secure quota versus segments that depend on luck.
“Do you price it at the same price as the COE in that period? Or do you say no, it’s a discounted price?”
“Then the question is, what justifies such a ballot? Who qualifies and how do we do it?” He emphasized that a balloting system may not be a solution and may even worsen existing problems, particularly if the concerns revolve around price and market disparities.
Mr Iswaran also points out that while the idea of an ABSD (Additional Buyer’s Stamp Duty) may be popular, it may not actually address the root cause of volatility in COE prices.
He suggests that there may be other solutions to consider, such as car sharing services and point-to-point operators like Grab.
Pritam Singh asked whether the Ministry intended to examine the loopholes regarding car loan restrictions
Meanwhile, Pritam Singh, the Leader of the Opposition, questioned whether the Ministry intends to look at the loopholes regard to car loan restrictions.
He said despite the current restrictions being at seven years and 70% of the selling price, it is not uncommon to hear about companies and dealerships offering 100% loans.
He also questioned the relevance of the Categories E, the open category.
“Unlike Cat A and Cat B, which we know are tied to car registration numbers, the Cat E COE can be traded, I think for up to three months, if I recall correctly. And so there is a potential speculative vector in Cat E COE.”
“I would like to inquire about the Ministry of Transport’s perspective on the ongoing significance of Category E COEs, and whether the complete removal of this category can potentially contribute to a smoother COE system.”
Iswaran: managing COE supply is “not to address price volatility”
In response, Mr Iswaran clarified that the objective of managing COE supply is not to address price volatility, rather it is to “smoothen supply volatility” and ensure that the market functions as intended, given the long-term trajectory of increasing demand and capped supply.
“It is not about price volatility, although that I know that is a political concern. It is about supply volatility and how much we can smoothen that so that the market can function.”
“So if every time COE prices go up, we approach it as some kind of new phenomenon, I think we should take pause and understand that these are the fundamentals that we are dealing with.”
“It’s a hard choice we have to make and the decision to have zero vehicle growth rate is a very hard choice. But what is the alternative? ”
With regards to the relevance of Category E COEs, Mr Iswaran explained that it serves an important purpose as a valve to redistribute preferences among different categories and that its usage has been progressively reduced over time.
He added that the design and features of Category E COEs are tied specifically to the intent behind having the category, and any changes to it would require revisiting the system’s design.
On the issue of car loan restrictions, he noted that it falls under the purview of the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI), depending on the type of loan.
Pritam Singh further pressed on the matter, directed the question question to the Prime Minister and the Monetary Authority of Singapore (MAS) regarding curbs on car loans.
Mr Singh acknowledged that car loans take the form of quasi money-lending arrangements, including higher purchases under the Ministry of Trade and Industry (MTI).
“So just to confirm whether this would be a whole of government exercise to look at car loans or vehicle loans, including even motorcycle loans, and whether there is any prospect of a review to ensure that the loopholes with regard to the financing of vehicles can be further looked at and even tightened if need be.”
In response, Minister of State for Trade and Industry Alvin Tan stated that MAS would collaborate with the Ministry of Transport to monitor the situation in the COE market.
The land and carbon constraints and toward a ‘car-lite’ future
Citing the land and carbon constraints, Mr Iswaran said Singapore going ‘car-lite’ is a key strategy that the Government’s aim is to build an accessible, inclusive, and sustainable land transport system that meets the needs of all Singaporeans.
“The best way to achieve this is through mass public transport. It allows the greatest number of people to get to their destinations with the least land take and carbon emissions. ”
“Our rail network serves around 3 million journeys a day and takes up less than 1% of our total surface space. In contrast, roads take up 12% of our land, for 7 million journeys a day. ”
Cited a Straits Times survey, Israwan said, the percentage of youth who aspire to own a car has fallen from around 65% in 2016 to around 50% in 2022.
“Proportion of car COEs secured by foreigners remains low”
In response to questions from two MPs, Dr Lim Wee Kiak and Ms Joan Pereira asked about the impact of foreigner, Mr Iswaran said that the proportion of car COEs secured by foreigners remains low – at less than 3 per cent – and has not changed significantly over the years.
“As I shared in January this year, from July 2020 to December 2022, on average, less than 3% of car COEs were allocated to foreigners. This number has remained stable. ”
On COEs for private hire cars, the number of private hire cars has remained at about 10 per cent of the total car population for the last four years, and has averaged around 70,000 since 2019.
“While COE prices have been rising over the past several quarters, demand from PHC companies has in fact been moderating.”
