Sunday, December 26, 2010

The Bidders must be Crazy

Chart source:

In complete contradiction to my last post that COE Quota Premium is flattening out, we have seen the meteoric rise of the COE Quota Premium past the $70K mark (for Category B and E) over the recent bidding exercises have put "COE" on the top of Yahoo's trending.

The Sunday Times 12 December published a good article "The COE Story" by Christopher Tan (article is reproduced here) that looks at the history of the Vehicle Quota System and traces the ups and downs of Category E (Open) quota premiums. However, the piece that caught my attention is the graphical illustration to the article (text by Feng Zeng Kun and graphics by Marlone Rubio).

Here are the key highlights:
April 1990 - Start of the Vehicle Quota Premium

October 1991 - Car (except Commercial and Open categories) and motorcycle COEs made non-transferable to stop speculators buying and selling them later for a profit.

January 1993 to November 1994 - Most experts believe the rise in COE prices across all categories is fuelled largely by speculation. Some speculators even use the non-transferable COEs to register vehicles and then resell them.

December 1994 to March 1995 - COE prices fall in anticipation of new government measures after quota premium has broken the $100K mark. Between January and March, the government rolls out a slew of measures to stop speculation. These include disallowing reselling of new vehicles within 3 months of purchase and imposing an additional fee for resale in the next 3 months.

January 1998 - Asian Financial Crisis hits Singapore and quota premium dropped from over $70K to the $30-40K range in early 1998.

April 1999 - COE supply formula revised to correct supply and demand time lag. Previously, the number of COEs for any year was determined by how many vehicles were deregistered the previous year. The new system estimates how many will be deregistered for the current year and issues that number of COEs. Revisions are made every six months to correct over- or under-projections.

July 2001 - An open bidding system is introduced for greater transparency. For the first time people can see the number of bids and the quantum of each bid. The COE quota each month are divided equally between the open and closed bidding systems.

April 2002 - The open bidding system completely replaces the closed bidding system.

January 2005 to March 2010 - Over-supply of COEs leads to faster-than-expected growth in vehicle population.

January 2010 - COE prices start to soar in anticipation of sharp supply cut and new quota formula.

March 2010 - Government announces new supply formula, reverting to basing COE quotas on past vehicle deregistrations. But this time, quotas are set every six months, instead of annually.

April 2010 - COE prices reach highest levels in 10 years with premium hitting $49K.

December 2010 - News of another quota shrinkage sparks panic bidding, sending premium to $76K.

After anti-speculation measures and limits to car loans are rolled out in the first quarter of 1995, COE prices headed south. Besides the blips in 1997, the downtrend lasted more than a decade.

So what is causing the COE quota premiums to soar in 2010? Here are the top three causes in my opinion:

1. COE supply formula - the reversion to basing on actual deregistration has sharply brought down supply and that causes a vicious cycle of existing vehicle owners delaying their replacement purchase.

2. Car population growth allowance - the government reduced the allowable annual growth rate for vehicle population to 1.5% from 3.0% in 2008. The subdued rate simply cannot support the influx of new buyers and aspiring upgraders. Quota premiums have already started to creep up in 2009.

3. Singapore population growth - The latest 2010 census counted the population at 5,076,700. With about 1.3 million foreigners working here, there should be many professionals who can afford luxury cars. Do you know that Mercedes and BMW are in the top three makes for new registrations? The data is available at

It is extremely complex to balance usability, affordability and fairness in the Vehicle Quota System. We will definitely see new measures in 2011, especially with the General Election anticipated in the second quarter.

The option of changing the bidding system to pay what you bid is mentioned by the chairman of the GPC for Transport in a recent interview - I was wondering if he has gotten the idea from my recent blog post "Time for Pay as You Bid?". I feel that it should only apply to dealer's bid since individual bidder should not be penalized. It is also not possible to ban dealers from bidding as some buyers do not know how to bid by themselves (related post: Bid for your own COE)

Here's wishing you a Happy New Year and welcome 2011!

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