Why the COE System in Singapore Benefits Only the Rich

Why the COE System in Singapore Benefits Only the Rich

Welcome to Singapore. A country where there’s always someone complaining about how much a car costs here, thanks to COE. The automatic response to this is, “Yeah, but who asked you to buy a car?” And then if that’s not enough, someone else will chime in, “You want us to have traffic jams like the ones in Bangkok, issit?” And they’re not wrong. The COE system has definitely meant that there are a lot less cars on the roads in Singapore. But is it the best way to reduce cars in Singapore?


Sorry ah, I’ve been hiding under a rock – how does COE work again?

It’s not easy to understand the COE system. In fact, we wrote a whole article on it and it barely scratched the surface. If we had to put it simply? The Certificate of Entitlement is a license that makes it more expensive to buy a vehicle in Singapore.

The cost of the COE is decided via a bidding exercise that occurs twice a month. A limited quota of COEs are made available during these bidding exercises, based on the number of cars on the road. COE prices rise when the demand for COE is high, or when the supply or quota is limited, or both.

We’ve also taken a look at how COE prices have changed in the past 10 years. It’s dropped as low as $2 almost 7 years ago, though it never came close to that number ever again. These days, COE for Cat A and Cat B cars are hovering around the $60,000 mark.


So… COE is how the government controls the number of cars in Singapore?

Yes, but it’s not the only method they’re using. Back in 2013, they introduced new rules and restrictions for car loans that essentially made it harder to afford a car. In fact, earlier this week, we took a look at the types of in house car loans that some dealers and financial institutions are using to get around these loan restrictions.

While we can’t say whether these methods are right or wrong, the fact that people are looking for loop holes means that the system is broken.


Broken? That’s a little harsh isn’t it?

We say it’s broken because the current system makes it easier for the rich to buy cars, and penalises those who need a car but can’t afford it. Now, before you accuse me of being anti-government, let’s look at it objectively.

Say you want to buy a car in Singapore today. Thanks to COE, it’s not entirely clear how much you might end up paying. COE runs on a bidding system that depends on the quota of licenses available. This supply is controlled by the government and is generally determined by how much they want to expand the volume of cars on the road.

However, the COE for each particular exercise is set according to the lowest bid across the board. That means that those who can afford to pay $120,000 in COE for their new Mercedes-Benz? They only need to pay half that amount – about $60,000.

On the other hand, because the supply of COEs are controlled, that means those who can’t afford the $60,000 COE will end up losing out. In the latest COE exercise, 592 out of 2,276 Cat A bids were unsuccessful. That’s more than 26% who won’t be getting a car this time around.

And even if you do successfully bid for it, then you may find yourself in a bit of a financing problem. According to MAS, your car loan can only cover a maximum of 60% of the purchase price (for an OMV of less than $20,000). That means you’ll need to come up with at least 40% of the car’s purchase price as a downpayment. That’s no small sum. We’re saying you’ll need to cough up anything from $40,000 to $120,000 for a new car, depending on the model.

What’s more, because you can only take up the car loan for a maximum of 5 years, you may find yourself repaying a sizeable amount each month. That’s definitely going to put pressure on your finances.

To put it simply, in a hypothetical situation:

  • Government decides to decrease COE quotas even more under the premise of controlling car numbers
  • COE price skyrockets
  • Who can afford it? Yup, you get the idea

Now, before you start taking up pitchforks and torches and marching towards the LTA or MAS offices, it’s also important to note that they may not be the only ones responsible. Have you noticed that it is the dealers who, besides selling you your car, also offer you car loan packages AND help you bid for COE? Do you think they really have your interests at heart?


But… if you can’t afford it, then you shouldn’t be buying a car!

So we’re back to this question. The truth is, for many people, the desire to buy a car is exactly that – just a desire. Many people are actually perfectly capable of utilising Singapore’s public transport system without too much inconvenience.

But for some, a car is more than a status symbol. It’s a necessity.

For example, ask anyone who has school-going children, aged parents or family members with disabilities. They’ll tell you that Singapore’s world-class public transport system just isn’t enough for their needs. Yet, because they need their income to pay for education and medical fees, they can’t afford the hefty financial burden of a car.

True, there currently is some flexibility in the rules when it comes to the physically disabled, but these have to meet very strict criteria, and are often excluding the very people they should be helping. For example, you have to prove that you are incapable of taking the bus or MRT before you can be considered “physically disabled”!


Okay, enough complaining, how do you propose the COE system should change?

Firstly, we need to get rid of the idea that making cars more expensive is the only way to reduce the volume of cars on the road. We need to start treating cars the way Singapore treats property – by giving benefits to those who need it and penalising those who don’t.

There should be a comprehensive suite of COE rebates. These should be primarily given to families with young children, as well as those living with people with disabilities and aged parents. Such information is readily available – after all, they should already be receiving other benefits and grants that they are eligible for.

For example, a family living in a multigenerational home should be given rebates when buying a car because they probably need it for both their children and aged parents.

Secondly, we should consider penalising those who buy more than one car, similar to the way property buyers are currently penalised for buying more than one property. We’re not saying that you shouldn’t buy another car, especially if you feel you need one, but the penalty would definitely deter potential car buyers who want a second or third car just because they can afford it.

Also, they could stop banning alternative transport… But that’s a different side of the coin. Follow us on Facebook for more opinions on what matters to Singaporeans.


Do you think our COE system is broken? How would you improve it? We want to hear from you.

Image Credits:
TCL 1961