SINGAPORE — Before the Certificate of Entitlement (COE) bidding exercise was suspended in April 2020 due to the circuit breaker imposed back then, prices for some of the categories were at levels that would not be seen again since.
In March that year, COE premiums for small cars (up to 1,600cc & 97kW), or fully electric cars with output of up to 110kW, were at S$31,210, while premiums for large cars (above 1,600cc or 97kW), or fully electric cars with output over 110kW, cost S$30,012.
This was a far cry from the prices at the most recent COE bidding result on April 19 this year, where premiums for small cars, or Category A, shot up for the first time past the S$100,000 mark to S$103,721.
COE prices for large cars under Category B also rose to S$120,889.
Both these categories set new records for the third round running.
The COE system, which turns 33 years old on Monday (May 1), was set up to control the vehicle population in a small and densely populated country and has been associated for years with higher car prices.
Still, the recent record-breaking prices have been met with shock and dismay by some motorists, such as Mr Isaac Tan.
The 31-year-old had bought a second-hand Honda Stream in 2017 near the end of its COE’s 10-year validity, and so had to renew the certificate at the end of 2018.
Back then, COE prices for Category A cars like his were at about S$32,000. However, he had been juggling part-time work with his studies back then, and so did not have sufficient savings to foot the cost of the entire COE.
So, he made the fateful decision to extend the car’s COE by five years, instead of 10, and paid only about S$16,000 for it.
Now, with COE prices at record highs, he looked back at that decision with regret.
“I was thinking that we might hit another bottom again. I was looking at the five and 10-year cycles of lows and highs, and by right, this year was supposed to be a low year,” the interior designer said.
Now, he has only six months of COE validity left on his car.
As he believes that COE prices are unlikely to fall anytime soon, Mr Tan is in two minds about buying a new car, as a COE now would cost over three times the value of one in 2018.
“I’m still in shock, because this means that the middle income (like me) will find it difficult to afford a car,” he said.
He added that this dilemma applies particularly to his family, as he and his wife had just welcomed a baby girl into the family late last year, making public transport a relatively inconvenient option.
“Being a parent, sometimes you will have four bags, one stroller and a kid to carry while using your phone to navigate.”
Mr Tan said that not being able to access a car affordably could “discourage” families like his from having more children, due to the sheer logistical challenges.
The skyrocketing COE prices are also bad news for 26-year-old Russell Yap, who is a research assistant at Nanyang Technological University (NTU) and is concurrently pursuing his Master’s degree in Asian studies.
Mr Yap, who lives in Changi, said that he had considered buying a car as he finds it inconvenient to use public transport for the commute from his home in the eastern end of Singapore to NTU in the western end.
One-way travel to NTU by bus and train can take up to 90 minutes, while taking a private hire car or taxi will take about half the time, but cost at least S$40 one way.
He had thus looked into buying either a second-hand car or an “entry-level” car, but as COE prices rose further and further, Mr Yap is now undecided whether it’s worth getting one.
“With the news coming out on the Category A prices, it’s just crazy and increasing quite substantially,” he said.
He had been thinking of getting a Suzuki Swift, a Category A vehicle, but calculated that the cost of the car plus the COE will add up to S$180,000.
“In the long run, if you add up maintenance and fuel (costs)… it’s just crazy,” Mr Yap said. “The daily operating cost is something that we need to factor in as well.”
The same phenomenon was observed in 1994, when COEs for luxury cars 2,001cc and above reached an eventual high of S$110,500. Back then, the Government intervened by limiting car loans, as well as imposing tighter transference policies.
However, the fact remains that car prices here still remain astronomical compared to the rest of the world, in part due to the country’s policy of zero growth rate for cars and motorcycles.
According to a research released by Swiss private bank Julius Baer last year, Singapore had the most expensive cars in the world.
While the latest COE prices may appear jaw-dropping due to the sheer sums involved, transport economist Walter Theseira said that the highs that are being observed now is part of the cyclical nature of the COE policy.
Generally, the 10-year validity of a COE means that vehicles get scrapped after a decade of use, leading to an increase in quotas and falling COE prices mostly in 10-year cycles.
“I think that we will grumble a lot about it, as we are doing now, and this will continue till late 2024, and then we will forget about it due to the expected surge in COE supply then… Then, we’ll restart this debate 10 years from now,” the associate professor from the Singapore University of Social Sciences (SUSS) said.
“Without COE policy reform, the 10-year cycle will continue.”
Member of Parliament (MP) Lim Biow Chuan, who sits on the Government Parliamentary Committee for transport, said that ultimately, aspiring car owners need to recognise that it is difficult to allow everyone to own a car in Singapore.
“This would mean massive congestion on the roads, like what we see in other major cities.
“However, we need to strike a right balance so that our citizens are still able to aspire towards owning a car for their own personal reasons,” added Mr Lim, who is MP for Mountbatten Single Member Constituency.
LIMITATIONS OF COE POLICY
Amid the sighs and hand-wringing by aspiring car-owners, there are signs that the COE system is not working as intended, according to transport experts and car dealers.
The COE was introduced in 1990 as part of the Vehicle Quota System, to impose a cap on the number of new vehicles that can be registered in land-scarce Singapore, so as to keep a check on the growth of the vehicle population.
Mr Eddie Loo, managing director of CarTimes Automobile, noted that the COE policy’s original intention of managing the car population might have seen some success.
However, from his observation on the ground, the limited quota of cars are going mostly to those who have the money to buy them, rather than those who need the vehicles the most, such as Mr Tan and his young family.
Mr Loo said that during the Covid-19 period when COE prices were low, only about 10 per cent of his buyers were those he considered as “super rich”, and could afford to pay for the vehicle upfront without loans.
As the pandemic subsided, the percentage of such “super rich” customers had risen to about 40 per cent, which he attributed to more foreigners coming to Singapore as borders reopened.
Mr Loo said that while some Singaporeans are among those who can afford a car without taking loans, “the majority of them are still waiting at the sidelines for COE prices to subside in one to two years”.
He added that while the COE system’s Category A was initially meant for smaller and more affordable cars, this has lost its purpose in recent times, as more “higher-end” car brands such as BMW or Mercedes have launched car models that qualify for Category A COEs.
These include the BMW X1, a sports utility vehicle with a 1,499cc engine that produces 90kW of power. Its list price, inclusive of COE, is S$260,888.
A seven-seater Mercedes GLB180 with a 1,332cc turbocharged engine that produces 96kW of power also qualifies for Category A COE. Its list price starts from S$258,888.
“Category A is meant for people who want to own a simple, small car to meet their needs, (but) no way can they get the COE at a low premium if they need to fight with those looking to own a Mercedes or BMW,” Mr Loo said.
Singapore used to have two more COE categories for cars, including one for small cars below 1,000cc. But the four categories were merged into the current two in 1999 to remove distortions that could arise from the small number of COEs in the previous small-car and luxury-car categories.
While some motorists bemoan what they feel is an ineffective utilisation of vehicles as “status symbols”, one economist said that a byproduct of higher COE prices could also inadvertently lead to higher vehicle usage.
A 2019 study, conducted by researchers from the National University of Singapore (NUS) and NTU, showed that people who bought cars when COEs were high tended to use their cars more.
“Our interpretation of the behaviour is that (drivers) felt that, having spent so much money, they ought to make full use of their cars,” said Distinguished Professor Ivan Png from the School of Business and Departments of Economics and Information Systems and Analytics at NUS, who was part of the study.
He told TODAY that COEs are “a very crude way” of managing congestion and emissions.
“Controlling the number of vehicles is not the right way, controlling usage is the correct way.”
Prof Png said that while the Electronic Road Pricing (ERP) system seeks to control usage, it could be improved. He noted that the authorities had planned to introduce a satellite-based ERP system, but that it had been continually delayed.
LTA had said in 2021 that the new ERP system would be delayed for at least one-and-a-half years owing to the worsening global shortage of microchips.
Mr Lim, the MP, said that it is not necessarily true that car owners would want to drive their vehicles more regularly just to maximise the value of the COE.
“At the end of the day, LTA uses a mix of measures to manage traffic on the roads.”
Other than the ERP system, drivers also need to pay for their petrol and parking which is “still fairly expensive”.
Mr Lim added that while many do perceive a car to be the most convenient transport mode, the fact is that LTA has also taken measures to ensure that public transport remains affordable and accessible, and is encouraging more people to take public transport or even cycle to reduce their carbon footprint.
“All these measures will take time to be effective and I think we should allow these policies to have greater impact in the mid and longer term.”
And while some may see their vehicles as a status symbol, others are also keen to do their part to “save the environment by not driving”, he added.
Mr Lim said that given time, he hopes that COE prices will gradually settle down due to the stabilisation measures introduced at the start of the year.
“However, if prices remain sky high, as an MP, I will engage LTA to review the measures to manage COE prices,” he added.
MAKING SYSTEM WORK BETTER
As COE prices soar in recent months, there has been no shortage of suggestions from motorists and car dealers on how to improve the system.
These range from imposing additional costs on those who buy more than one car to putting a cap on the private-hire vehicle fleet.
But how feasible are the proposals, some of which had been mooted some years back and have resurfaced amid the spotlight on the record COE prices?
Suggestion #1: Introducing an additional tax for people who buy more than one car, much like the Additional Buyer’s Stamp Duty for properties
Associate Professor Raymond Ong, from the Department of Civil and Environmental Engineering at NUS, said this suggestion could be feasible to implement, but questioned its impact on COE prices.
“It would be a differentiator between those who can buy the first car and those who own more than one car, with a tiered additional car fee for the (subsequent car purchase).”
He added that the effectiveness of the policy would depend on how many such owners exist in the market.
“If this is the minority, it will have little impact on COE prices.”
Suggestion #2: Ensuring each family has no more than one car
This is not feasible, given that currently, the car ownership per household ratio is less than one, which means that on average, a household owns less than one car, said Assoc Prof Ong.
“This will create a totally wrong signal that one household can own a car, which is contrary to our car-lite policy,” he said.
Suggestion #3: COE rebates for certain groups that really need a car, such as young families, or families with elderly or people with disabilities (PWDs)
Assoc Prof Ong said that such a policy will be difficult to implement, as it would be challenging to make a distinction between those who are deserving of the rebate and those who are not, and the rebate amount itself.
He added that the current policy is favoured towards improving the public transport system and shared mobility network to help young families and families with elderly folks or PWDs, rather than providing them rebates.
This is partly because, from a usage perspective, it is still unclear what is the proportion of trips and average trip distance per week that families with young children, the elderly, and PWDs need to travel.
“We need more data to evaluate if there is indeed a need on a daily basis or on a seasonal basis to evaluate the viability of this option.”
Overall, Assoc Prof Theseira from SUSS said that suggestions #1 to #3 are ineffective, as they hinge upon the identity of the buyer, and any benefits gained from them can easily be abused.
“Unlike property, cars are movable, tradeable, and utilisable by people who are not the registered owner,” he said.
For instance, should suggestion #3 come into effect, a car buyer who wishes to obtain a car at a cheaper COE rate could simply pay a family with young children to help them obtain a car with a COE rebate.