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Commentary: Debate over COE system will go round in circles if we don't accept reality that car ownership is exclusive

SINGAPORE: Singapore is the most expensive place in the world to own a car. Make that motorcycle, van, truck, and anything that moves on the road.

How much more costly than elsewhere? For a typical car like the Toyota Altis or the Honda Civic, at least four times as much. Surging Certificate of Entitlement (COE) prices in recent months will increase that gap even more. 

Yet, every month more than 2,000 people bid for car COEs, which is more than the government is willing to allocate, so in trying to outbid each other, they push up prices, now at record levels for every car category.

There is absolutely nothing unexpected or unusual about this given the policy and the circumstances surrounding it.

It is quite predictable.

Income and wealth distribution is shaped like a pyramid. The fewer the number of COEs allowed, the higher you go up the structure occupied by an ever-smaller group of high-income people wanting their set of wheels.

At this level, they are willing to pay a lot for a COE. Near the top of the pyramid, the buying power is enormous. Another S$10,000 (US$7,275)? It is water off a Porsche’s back.

Here is a simplistic back-of-the-envelope calculation to illustrate this point: Every year, between 30,000 and 40,000 car COEs are allocated.

There are roughly 1 million households in Singapore, which means COEs for only 3 to 4 per cent of those households, if you go by buying power alone.

It doesn’t take a genius to work out that unless you are in a high-income group, at least the top quarter, you will eventually be priced out of the car market.  

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TOP OF THE PYRAMID

There are now many existing car owners who obtained their COEs earlier at much lower prices but they will no longer be able to do so when it is time to renew those certificates

There will be an ownership shake-up favouring those in the top half of the pyramid. 

I am afraid this reality of the COE system has not been adequately explained to the public.

Or they are unwilling to accept the reality.

To put it bluntly, under the present zero-car growth policy and given the way income is distributed at the top, car ownership is exclusive and for the wealthy.

There is no running away from this. 

Any discussion on the COE system and whether to make any changes to it, or scrap it altogether, should start with this basic premise.

Otherwise, the debate risks going round in circles with the same points being raised repeatedly about making the system fairer, for example, by giving preference to those who really need a car or restricting it to one per household.

None of these will work because the people suggesting it want prices to come down, which they will not, as I have explained above. 

If you don’t like this outcome, there is only one solution: Scrap the COE system.

But since the government is unlikely to do so as it is intent on ensuring there is no gridlock on the roads, Singaporeans have no choice but to come to terms with it.

Doing so will enable them to think about the issue in a different and more constructive light.  

In fact, the vast majority should welcome higher COE prices. 

The higher they are, the more restrictive the supply, which means more space on the roads for buses which, together with the MRT, the vast majority commute in. With faster travel times, commuters should have more pleasant journeys.

It also means more COE money in the public coffers. 

Better still if some of it is channelled to subsidise public transport. Even better still, if part of it could be placed in a special account and used specifically to delay fare increases.

That would strengthen the link between high COE prices and the subsidy for public transport which benefit most Singaporeans. 

The amount is not small. Last year, almost S$4 billion was collected from COE premiums. 

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THE DEBATE OVER PRIVATE HIRE CARS

There is one other criticism that has surfaced recently and it is another example of the failure to understand the basic features of the COE scheme.

Private hire cars are said to be responsible for the surge in demand and hence the price of COEs. They are blamed because they are big businesses with financial power to outbid ordinary people.

This might be true but it misses the larger point.

Think of Grab and Gojek as companies that distribute the ownership costs of the world’s most expensive cars among the thousands of people who use them. 

You want to travel in a car but without paying the high COE price? Private hire cars enable you to do so.

They are the ultimate usage-based vehicles as you pay only when you use them.

Those who argue that Singapore should move from an ownership-based car policy to one based on usage – which I believe is the right way – should support having even more private hire cars on the road.

I own a car (Ouch! It is painful!), but on weekends I pass the keys to my daughter who has a young child, with another on the way. They need it more than me on weekends when I rely on public transport and Grab to move around.

Whenever I use private hire cars, I have found them convenient and usually reliable. With the current high ownership costs of cars, they are a godsend. 

Is the COE scheme perfect?

It isn’t but there is no other alternative that is as effective in preventing traffic congestion which is a major problem in many cities.

When travel is delayed, the time spent in a jam is lost forever and cannot ever be reclaimed.

In contrast, the money collected from COE premiums can be used to benefit the public, for example, by subsidising public transport.

For me, the biggest drawback of the scheme has to do with fluctuating prices from month to month. 

I believe that policy ought to be stable and predictable. It should not result in vastly differing prices when the product or service has not changed.

For example, the recently announced COE quota increases from November to January 2024 might result in prices dropping.

But it will be a temporary adjustment and will do nothing to the longer-term trend. These sort of price movements which are arbitrarily introduced merely introduce more volatility.

Instead, the government should attempt to make prices more stable and predictable by evening out the quota numbers over a long period, say five years.

Every five years it should announce the COE numbers for the next five. This will send a strong signal to the market that the numbers have been fixed and discourage wild biddings.

One group I am sympathetic to are motorcyclists who tend to be from lower-income households. High COE prices hit them harder in proportionate terms.

I think the authorities should be more liberal on the COE quota for this group as there is a natural limit to their numbers. Not everyone wants to ride a bike for various reasons and it may well be that a slight quota increase might bring prices down to more affordable levels.

It is worth trying and will bring significant relief to low-income households. As for the other categories, the road ahead will likely be jam-packed with record-breaking price levels.         

Han Fook Kwang was a veteran newspaper editor and is a Senior Fellow at the S Rajaratnam School of International Studies, Nanyang Technological University.

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