How will the new Certificate of Entitlement quota affect you buying a new car?

[ASEAN NOW News]

Parked cars on a street in Singapore. (File photo: iStock/tobiasjo)

 

SINGAPORE: The Land Transport Authority (LTA) announced on Friday (Jul 22) that the current method for computing the quota available for Certificate of Entitlement (COE) bidding will now be adjusted to reduce volatility in supply. 

 

According to CNA, from August, supply will be based on a rolling average of vehicle deregistration’s over two quarters instead of one.

 

Under the new counting method, the COE quota for August to October will be 10,581 – 11.5 per cent drop than the 11,951 COEs that were available for bidding in the May to July period.

 

With the surge in COE premiums in recent months and Open Category prices hitting an all-time high of S$114,001 in the latest bidding exercise, many have expressed concern that the new quota system will cause prices to rise further. 

 

How will the new counting method affect prices? 

 

Under the new rules, the available COEs will be based on the average of deregistration’s from the preceding six-month (two-quarter) period. This is unlike the current counting method, which simply takes deregistration’s from the preceding quarter, explained Dr Bryan Tan, chief scientist at online car marketplace Carro.

 

As such, the new rules “reduce the volatility” of COE prices, said Dr Tan. 

 

“In the short run, the COE prices will also be lower under the new system than the previous system. Under the adjusted method, the COE quota for August to October will be 10,581 versus 9,394 for the current system.”

 

COE prices will still likely increase as the COE quota for May to July was 11,951, which already led to COE premiums skyrocketing to S$114,001 for Category E recently, said Dr Tan. 

 

“This increase in COE quota under the new rules will moderate the price increase of COE. In short, there will still be a price increase but at a smaller extent compared to the current rules.” 

 

In the longer term, Dr Tan noted that the new rules imply that COE price peaks will not be as high as they would be under the current counting method. Conversely, however, the COE price troughs will also not be as low as they would have been. 

 

Together, these will reduce the volatility of COE prices, he said.

 

The move should also smooth out short-term fluctuations, and “counter-balance knee-jerk, short-term bidding behaviour that may accentuate small, random fluctuations”, added Assistant Professor Terence Fan from the Singapore Management University. 

 

The revised counting method is not a big change, but the hope is to better align COE prices with underlying demand, said the assistant professor of strategic management (education).

 

Why is the counting method being changed? 

 

Assoc Prof Fan suggested that the new counting method was probably introduced due to concerns over random fluctuations in available COEs and the knee-jerk reactions from bidders – and these may not necessarily be the same motorists who ultimately drive the cars. 

 

“The introduction of the new method is an example of smaller operational adjustments that may help better align COE prices with underlying demand. If after some time, say a few rounds of COE bidding, COE prices become moderate, then there is less need for more serious tweaking of the current system and policy,” he said. 

 

“The move shows that the Land Transport Authority is keenly aware of what is happening to COE prices and seeks to ensure they are truly reflective of the underlying demand.” 

 

With the rise of private-hire vehicles and food delivery services, Dr Tan added that COE is “increasingly a factor of production” where an increase in COE premiums would also lead to inflationary pressures.

 

Hence, the new counting method is also a targeted tool to lower inflation. 

 

“Inflation in Singapore is at an all-time high. Our core inflation hit 4.4 per cent in June which is the first time that it has breached the 4.0 per cent handle since end-2008. Headline inflation, which includes accommodation and private transport costs, is at a record high of 6.7 per cent, up from 5.6 per cent in May,” he said. 

 

“Of course, social pressures such as access to private transport for families with kids or invalids might be cause for consideration as Singapore changes its social compact to be more inclusive.”

 

At least two major private-hire companies, Tribecar and Lion City Rentals, earlier told CNA that they did not bid aggressively for COEs to increase their fleet sizes in recent months, rejecting suggestions they were the cause of record-breaking COE premiums.