Chee Hong Tat dispels notion of car leasing firms fueling COE price surge

SINGAPORE: On Monday (6 Nov), Acting Minister for Transport Chee Hong Tat stated that the rise in Certificate of Entitlement (COE) prices is "unlikely" due to car leasing companies, who bid for vehicles to lease out as private-hire cars.

Responding to 10 parliamentary questions filed by Members of Parliament expressing concerns over climbing COE prices, Mr Chee explained that the data shows that COE prices “have gone up in a period when demand from car leasing companies has come down”.

In the last three quarters, these companies secured around 21% of Category A COEs, which dropped to 16% in the latest bidding exercise, compared to 27% in 2022. Similarly, their winning bids in Category B decreased from 24% in 2022 to 23% in the last three quarters.

On 18 Oct, Singaporeans were left reeling as the COE premiums in Singapore defied market predictions and soared to unprecedented heights, COE premiums for Category B crossed the S$150,000 mark for the first time, while Open category COEs hit a record S$158,004. Just a month earlier, premiums in Category B and Open Category had surpassed S$140,000.

Category A COEs also closed at a record S$106,000 on Oct 18.

Trade-offs involved: Mr Chee cautions on creating separate category for car leasing companies

In response to suggestions about creating a separate category for car leasing companies or treating them akin to taxis, Mr Chee emphasized the trade-offs involved.

Considering the backdrop of Singapore's zero-growth policy, Mr. Chee clarified that reallocating a quota from existing categories to establish a new category could potentially exacerbate COE prices or lead to shortages in point-to-point services.

“As (private-hire car) demand is still evolving and could vary from quarter to quarter, it is difficult to ascertain what is the exact quota required to meet the needs of drivers and commuters. "

Mr Chee added, "If we move too much of the existing quota from Categories A and B to this new category for (private hire car) companies, it will further reduce the supply in these categories and there is a risk that COE prices may spike further."

“On the other hand, if we do not move enough quota to the new category, drivers will end up with insufficient vehicles to rent and commuters could be affected by shortages in P2P (point-to-point) services.”

In September 2022, the Transport Ministry highlighted that removing private hire cars from the regular COE bidding pool could ultimately escalate costs for consumers.

Nonetheless, Mr Chee mentioned on Monday that the government would explore additional measures beyond COE bidding to address the concerns associated with car leasing companies.

He acknowledged the extended travel distances covered by private hire cars on Singaporean roads and their crucial role in facilitating point-to-point services for the community.

According to Mr Chee, the demand for point-to-point services is increasingly met by private hire cars as opposed to taxis. As of September 2023, approximately two out of every three point-to-point trips were serviced by private hire cars, marking an increase from three out of every five trips pre-pandemic.

As of September 2023, the total population of private hire cars stood at around 78,000, with two-thirds being chauffeured private hire cars, including those from ride-hailing companies, and the remainder being self-drive private hire cars, encompassing car-sharing vehicles.

Moreover, approximately 53,000 individuals held a private hire car driver’s vocational license (PDVL) as of September 2023, enabling them to offer ride-hail services.

Among the PDVL holders who conducted at least one ride-hail trip in September 2023, two-thirds drove company-owned cars, while the rest used individually-owned vehicles.

Government to release more COE quota from future peak years to address supply trough

Nonetheless, Mr Chee revealed the government's plan to expedite the allocation of COEs scheduled to expire in the future peak supply years of 2026 and 2027. This initiative aims to address the current scarcity in supply, with the objective of curbing the escalating premiums associated with car and commercial vehicle ownership in Singapore.

While adhering to Singapore's zero-vehicle growth policy, Mr Chee expressed the expectation that this measure would contribute to a moderation of COE prices.

“We will also ensure that the COE supply in the upcoming quarters will continue to increase in 2024 till the peak supply years in 2026 and 2027,” he said.

Mr. Chee underscored the influence of market demand on COE prices, emphasizing that this aspect remains beyond the government's direct control.

“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 (we) are doing what we can to address the concerns.”

Elaborating on the government's strategy to mitigate supply volatility, Mr. Chee referred to it as a "cut and fill" approach.

The initial instance of implementing this strategy occurred in May when the Land Transport Authority (LTA) announced the "one-off excercise" of redistribution of approximately 6,000 five-year car COEs scheduled to expire during the projected supply peak.

Mr Chee highlighted on Monday that despite the increased COE supply resulting from this initiative over the past six months, the persistent robust demand has led to a continual surge in COE prices.

Consequently, last Friday (3 Nov), the LTA took similar action by announcing the injection of an additional 1,614 COEs for cars and commercial vehicles between November and January 2024, effectively bringing forward more COE quotas.

Mr Chee addresses concerns about dealers' bid behaviour in COE market

Responding to MP Saktiandi Supaat’s concerns over speculative demand, including by dealers, Mr Chee highlighted that dealers typically not in the interests of dealers to bid higher than what is necessary to win the bid”.

He emphasized that the majority of bids for cars tend to cluster within a small range around the clearing price, with most bids occurring during the final hour of the bidding process.

This pattern suggests that bidders closely monitor the clearing price and base their bids on their willingness to pay, without overpaying unnecessarily.

Given the restrictions in Categories A and B, temporary COEs must be registered in the buyer's name, with no allowed transfers.

The temporary COE remains valid for six months, and failure to register a vehicle within this period leads to the expiration of the temporary COE, along with the forfeiture of the bid deposit of S$10,000. For the Open Category, the temporary COE's validity period is three months, and vehicles in this category are typically registered within an average of 14 days.

Mr Chee highlighted that only one Open Category temporary COE has expired since the beginning of the year.

Mr. Chee also emphasized the government's commitment to take enforcement action against dealers making false claims or misleading representations to consumers regarding their transactions.

He cited instances where dealers might misrepresent ownership arrangements or financing terms to consumers, leading them to believe they own the vehicle outright when, in reality, they are only leasing it from the dealer.

Furthermore, the government pledged to continue closely monitoring the COE market and implementing additional measures to discourage speculative behaviour, if deemed necessary.

Mr Chee says no plans to raise the growth rate of motorcycles, citing congestion concerns

In a separate discussion, Mr Pritam Singh, the Leader of the Opposition, raised a query about the Ministry of Transport's stance on the potential for a marginal increase in the number of motorcycles in Singapore, considering their relatively smaller road footprint compared to commercial vehicles.

In response, Mr Chee acknowledged the smaller space motorcycles occupy on roads in comparison to cars.

However, he also emphasized their potential contribution to traffic congestion, referencing similar situations in other cities.

Consequently, he clarified that there are no plans to raise the growth rate of motorcycles, in line with the country's zero-growth policy.

Nevertheless, he acknowledged the importance of motorcycles for the livelihoods of some Singaporeans, especially among the lower-income groups.

This recognition is reflected in the relatively lower main vehicle taxes, additional registration fees, road taxes, and Electronic Road Pricing charges applicable to motorcycles compared to other vehicle types.

Mr Chee highlighted that measures have been implemented to prevent speculative bidding in the motorcycle COE category.

He also assured that the government remains committed to exploring avenues for enhancing the COE system for Category D (motorcycles).