COE quotas get one-time redistribution boost; long-term price uptrend likely to continue: Iswaran

THE Land Transport Authority (LTA) will bring forward deregistrations and redistribute about 6,000 non-extendable five-year certificates of entitlement (COEs) that are due to expire in the next projected supply peak, to reduce supply volatility.

The one-off redistribution, starting from the next bidding exercise beginning May 15, will be done over several quarters and will increase quota supply in the next bidding exercise by about 24 per cent in Category A (for smaller, less powerful cars) and 15 per cent in Category B (for larger, more powerful cars), said Minister for Transport S Iswaran in Parliament on Monday (May 8).

In a separate statement, LTA said the COE quota for May to July 2023 will be increased from 9,575 to 10,431. There are five remaining bidding exercises for this quarter.

“This does not change the zero vehicle growth rate on the overall car population. LTA has identified the specific vehicles in the vehicle registry with these five-year non-extendable COEs. When the identified vehicles are deregistered in future, their quota will not be returned to the pool for bidding,” said LTA.

Iswaran made the announcement in a ministerial statement where he addressed questions by Members of Parliament (MPs) about COEs, even as he stressed that private cars are “but one aspect” of Singapore’s land transport system, with mass public transport being “the core of our transport strategy”.

In response to supplementary questions, he said the expiring five-year COEs will be returned to their relevant categories. There is no need for cross-employment – this is enough to smoothen supply, and the market has its own dynamic, he added, when asked about reallocating COEs across categories.

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The redistribution comes even as the COE supply is expected to start increasing substantially in the coming months, as more cars reach the 10-year mark.

In April, COE premiums for Cat A cars crossed the S$100,000 mark for the first time, while Cat B premiums also grew.

“COE prices reflect demand for a limited supply of COEs,” said Iswaran, noting that car deregistrations have recently been relatively low.

The Ministry of Transport (MOT) now uses the moving average of deregistrations in the four preceding quarters to compute COE quotas, to reduce supply volatility, he noted.

“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.”

The reallocation move is not about expecting prices to ease but rather smoothening supply, he said. While industry watchers generally expect COE prices to come down as a result, many do not expect the decrease to be considerable. A managing director of a used car and service workshop believes the “best-case scenario” would be “a S$10,000 drop”.

Eurokars Group executive director Charmain Kwee said it “may be premature to predict a price decrease since there are many different factors to consider”, flagging overall pent-up demand and possible additional demand from sources such as private hire or ride-sharing companies.

Komoco Motors commercial director Ng Choon Wee added that there is “little transparency on fleet size and age” for private hire companies.

Iswaran said demand from these companies has been moderating. Averaging around 70,000 since 2019, private hire cars make up about 10 per cent of the total car population.

Still, car dealers welcomed efforts to reduce volatility. A lack of longer-term transparency drives prices up, said Sabrina Sng, managing director at Wearnes Automotive, Polestar.

“Without clear information to act on, it’s a case of ‘Buy expensive now, or even more expensive later’,” she said.

Iswaran said between 2018 and April 2023, the median Open Market Value for Cat B cars was about 75 per cent more than the median for Cat A in the same year, indicating “clear differentiation” in the market.

On Category D COEs for motorcycles, where dealers bid and hold temporary COEs (TCOEs) in their own name before transferring them to motorcycle buyers, he said more than 50 dealers held the 450 TCOEs that were secured when prices were close to or above S$13,000; these TCOEs were subsequently left to expire when COE prices fell.

“The TCOE utilisation rates subsequently went back up, with the market correcting when it could not support the prevailing prices.”

He reiterated that MOT has nevertheless increased the bid deposit from S$800 to S$1,500 and shortened the TCOE validity period from three months to one month, “to improve allocative efficiency and deter any speculative bidding”.

Addressing other causes for rising COE prices, Iswaran said the proportion of car COEs secured by foreigners remains low and stable.

The percentages of multiple-car owning households also remain unchanged from last October: of the 471,000 households that own cars, 12 per cent own two, and less than 3 per cent own three or more. This marks a steady decline since 2012.

Iswaran also responded to several suggestions for changes to the current COE system raised by MPs in supplementary questions.

A “pay-as-you-bid” system may create a great deal of price variation in the market for the same car in the same exercise; while introducing balloting or a points-based system could also make pricing COEs challenging.

As for the suggestion of disallowing loan financing for COEs, with only the cars payable by loans and COEs payable by cash, the minister said the COE and the car are indivisible, with the standalone COE “of little value until it’s applied to register a car”.

“As we seek to improve the efficiency of the COE system with these measures that we have already undertaken over the years, we should not lose sight of our goal of becoming a ‘car-lite’ society with accessible and inclusive transport for all Singaporeans,” he added.