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HomesingaporeMore COE quota will be brought forward from peak years in 'cut-and-fill'...

More COE quota will be brought forward from peak years in 'cut-and-fill' move to tackle supply trough

SINGAPORE: More Certificate of Entitlement (COE) quota will be brought forward from peak years to fill the current supply troughs while maintaining the zero-vehicle growth policy, said Acting Minister for Transport Chee Hong Tat on Monday (Nov 6).

The zero-growth policy, implemented to manage traffic congestion in land-scarce Singapore, means that the number of COEs available for bidding is based on the number of deregistered vehicles.

Addressing questions from Members of Parliament about rising COE prices, Mr Chee noted that the large difference in quota supply during the peak and trough years results in higher volatility in prices across different years, assuming demand remains relatively constant.

Under the current system, the moving average of deregistrations in the four preceding quarters is used to compute COE quotas for the next quarter.

Currently, Categories A, B and C face a “tight supply situation” because many of the existing vehicles have not reached the end of their COE lifespan and are not due for deregistration, said Mr Chee.

But COE supply for these categories will increase significantly from the second half of 2024 before reaching the peak supply years from 2026 to 2027.

“A better outcome can be achieved for all stakeholders, while still allowing the COE system to play its role as an allocation mechanism, if we can reduce the peak-to-trough ratio by using a ‘cut-and-fill’ approach to shave off future peaks and using this supply to fill the current troughs,” he said.

The Transport Ministry announced in May that it would bring forward quota from “guaranteed deregistrations” in the peak years, which has helped to increase COE supply over the last six months.

And on Friday, the Land Transport Authority announced that the quota supply for both Category A and B in the November to January quarter increased by 35 per cent compared with the third quarter.

“With the increase in supply, we hope that COE prices would moderate. However, we know prices will also depend on market demand, and demand is not within the government’s control,” Mr Chee added.

“I need to be upfront with everyone that it is not possible to predict how prices will move in the next few rounds of COE bidding, but I want to assure Honourable Members and the public that MOT and LTA are doing what we can to address the concerns.”

49:52 Min

TRADE-OFFS

However, Mr Chee acknowledged the “trade-offs” to the “cut-and-fill” approach, in response to MP Saktiandi Supaat (PAP-Bishan-Toa Payoh) who asked about these compromises in a supplementary question. 

This method relies on “borrowing from the future”, Mr Chee explained. The supply is cut from future peak years to fill the current troughs even before existing cars are deregistered, which could mean having more cars on the roads in the next few years.

“This is a trade-off that we have to make in order to strike a balance between the volatility and to be able to do some ‘cut-and-fill’ to raise the supply in the current trough years. And that is also why because of this trade-off, we have to be quite calibrated and not overdo this ‘cut-and-fill’ because there will be downsides in the short term.”

MP Gan Thiam Poh (PAP-Ang Mo Kio) in another supplementary question then asked if the high COE prices would lead to fewer cars being deregistered.

While there has been some such behaviour, along with those who choose to extend their COE beyond the 10-year mark, these are largely individual decisions, Mr Chee noted.

“From a system’s point of view”, most people do not extend their COE as their road tax will be higher beyond the initial 10-year COE lifespan. They instead choose to deregister their cars, whether COE prices are low or high.

QUOTA FOR COMMERCIAL VEHICLES, MOTORCYCLES

Addressing questions about how COE prices affect commercial vehicles, Mr Chee assured businesses and commercial vehicle owners that the quota supply for Category C (goods vehicles and buses) will continue to increase in 2024 and beyond, before reaching a peak in 2026.

The Land Transport Authority announced on Friday that the quota supply for Category C in this quarter will now be 65 per cent higher than the preceding quarter.

Meanwhile, for Category D which is for motorcycles, the Ministry of Transport has “no plans” to increase the growth rate of motorcycles in line with the zero-growth policy, reiterated Mr Chee.

Responding to Leader of the Opposition Pritam Singh’s (WP-Aljunied) question on allowing a marginal growth in the number of motorcycles given the approach for commercial vehicles, he pointed to the ministry’s response to MP Murali Pillai’s (PAP-Bukit Batok) similar suggestion last November.

As those who own motorcycles may use them for both commercial and personal purposes, “such use of motorcycles is similar to private hire cars, as compared to commercial vehicles which are used predominantly for business needs”, he added.

That said, the government recognises that “some Singaporeans rely on motorcycles for their livelihoods, and there are higher proportions of lower-income individuals among motorcycle-owners compared to car-owners”, said Mr Chee.

This is one reason that motorcycles have lower Additional Registration Fees, road taxes, and Electronic Road Pricing (ERP) charges compared with other vehicles, he noted.

03:01 Min

Related:

Car leasing companies 'unlikely' to be the main factor for rising COE prices: Transport Ministry

Five suggested tweaks to the COE system and what the government and experts say

Measures that brought motorcycle COE prices down will not work in the car market, analysts say

To prevent speculative bidding behaviour for Category D, the Transport Ministry introduced several measures in the last two years, including raising the Temporary COE  bid deposit to S$1,500 and reducing its validity period to one month.

As such, prices for Category D have come down from more than S$13,000 in November 2022 and have stayed at around S$11,000 in recent bidding exercises.

The government will continue to study ways to improve the COE system for Category D, “including ideas which share the same intent as what Mr Singh and Mr Murali have raised”, added Mr Chee.

TAXES ON FOREIGNERS, HOUSEHOLDS WITH MULTIPLE CARS

Mr Chee on Monday broke down the demographic of driver demand over the last three quarters of COE bidding from February to October this year, to address concerns that the rising prices were due to foreigners.

The largest driver of demand has been from Singapore residents, with 75 per cent of Category A COEs and two-thirds of Category B COEs going to them. In comparison, foreigners won 1 per cent of Category A COEs and 4 per cent of Category B COEs, making it “clear that the increase in COE prices was not due to foreign buyers”, he said.

Mr Chee also addressed concerns on whether the high COE prices were caused by households who own multiple cars and if additional taxes should be imposed on such households when they buy their second or third vehicle.

He pointed out that the percentage of multiple-car-owning households is on the decline. They comprise about 19 per cent of car-owning households in 2012 to less than 15 per cent presently – translating to just 5 per cent of all households in Singapore since about one-third of households own cars.

“Given the low proportion, demand-measures such as imposing additional taxes on foreigners or households that own multiple cars would have little effect on COE prices,” he concluded.

Also read:

With soaring COE prices, why do families with young children still want to buy a car?

'A 33-year-old system has to be tweaked': Analysts on why the COE system needs a review

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

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