Certificate of Entitlement

The Certificate of Entitlement or COE is the quota license received from a successful winning bid in an open bid uniform price auction which grants the legal right of the holder to register, own and use a vehicle in Singapore for a period of 10 years. When demand is high, the cost of a COE can exceed the value of the car itself.^[1]

History

On 1 May 1990, the then transportation unit of Singapore's Public Works Department (PWD) instituted a quota limit to vehicles called the COE when rising affluence in the city-state catapulted land transport network usage and previous measure to curb vehicle ownership by simply increasing road taxes was ineffective in controlling vehicle population growth.^[2] The premise was that the small city-state had limited land resources and with demand for vehicle ownership spiralling out of control, would result in traffic conditions exceeding the criterion of a healthy road network that is sustainable by developments in land transport infrastructure resulting in gridlock. Along with a controversial congestion tax called Electronic Road Pricing, the COE system is one of the key pillars in Singapore's traffic management strategies that aims to provide a sustainable urban quality of life.

System

Before buying a new vehicle, potential vehicle owners in Singapore are required by the Land Transport Authority (LTA) to first place a monetary bid for a Certificate of Entitlement (COE). The number of available COEs is governed by a quota system called the Vehicle Quota System (VQS) and is announced by LTA in April of each year with a review in October for possible adjustments for the period of one year starting from May. Approximately one-twelfth of the yearly quota is auctioned off each month in a sealed-bid, uniform price auction system and successful bidders pay the lowest winning bid.

Vehicle Quota System (VQS)

The number of COEs available to the public is regulated by the Vehicle Quota System (VQS) that is calculated every 6 months based on the following conditions:^[3]

Actual number of vehicles taken off the roads (i.e. number of vehicles de-registered)
Allowable growth in vehicle population
Adjustments arising from temporary COEs that have expired or were cancelled.

Formula

Since the change in the total motor vehicle population is given by the number of registrations minus the number of de-registrations and any unallocated quota in a given year may be carried over to the following year, the quota formula^[4] is as follows:

\begin{align} (\text{Total COE Quota})_{qy} = &g.(\text{Motor vehicle population})_{y-1} \\ &+ (\text{Projected de-registrations})_{y} \\&+ (\text{Unallocated quota})_{qy-1} \end{align}

In the formula above, the subscript $y$ denotes calendar year and the subscript $qy$ denotes quota year (May to April). Initially, projected deregistrations for (calendar) year $y$ were simply taken to be equal to actual deregistrations in $y-1$ but from quota year 1999–2000 onwards, a projected number of deregistrations has been used.

Each year, the quota is set to allow for a targeted $g$ percent growth in the total motor vehicle population, plus additional quota licenses to cover the number of motor vehicles that will be deregistered during the (calendar) year, plus any unallocated quota licenses from the previous quota year.

Validity

The holder of a COE is allowed to own a vehicle for an initial period of 10 years, after which they must scrap or export their vehicle or bid for another COE at the prevailing rate if they wish to continue using their vehicle for an intended remaining lifespan (7 more years).

At the end of the 10-year COE period, vehicle owners may choose to deregister their vehicle or to revalidate their COEs for another 5 or 10-year period by paying the Prevailing Quota Premium, which is the three-month moving average of the Quota Premium for the respective vehicle category. You do not need to bid for a new COE to renew the existing COE of your vehicle. A 5-year COE cannot be further renewed, which means that at the end of a 5-year COE, the vehicle will have to be de-registered and either scrapped or exported to another country other than Singapore.

Depending on the value of the COE at the time of renewal vehicle owners are subjected to a somewhat emotional dilemma of whether to pay for a new COE which can amount to more than the market value of the vehicle or to deregister their vehicle. The emotional dilemma is certainly enhanced when the vehicle owner is forced to deregister and scrap an otherwise road worthy vehicle due to lack of time or insufficient funds to afford the COE at the prevailing rate.

For comparison in terms of vehicle value to COE value a Second Hand 2007 Mercedes-Benz C200K with a COE expiring in 2017 was advertised at S$86,800. As of November 2013 for a category B Car with a cc above 1600 the COE is priced at S$84,578.

Auction process

COE biddings starts on the first and third Monday of the month and typically lasts for three days to the following Wednesday. Bidding duration will be pushed further in some circumstances, including public holidays. Bidding results can be obtained through the local media on the same day or on a website.

All COE bids made in the two car categories (Cat A and B COEs) and the motorcycle category (Cat D COEs) must be made in the name of the buyer. Once COE is obtained, the vehicle has to be registered in the name of the bidder, i.e. Cat A, B and D COEs are non-transferable. To provide flexibility, successful COE bids in the Cat C (Goods vehicles and Buses) and Cat E (Open Category) in the name of the individuals are transferable. However these can only be transferred once within the first 3 months, while successful bids by companies are not transferable at all.

An additional restriction on car ownership is the requirement that motor vehicles more than ten years old, known as 'time expired' vehicles, must be either renew the COE for either 5 or 10 years or de-register the vehicle for scrapping or exporting from Singapore, usually to neighbouring countries. For vehicles which have a renewed COE for 5 years the owner of the vehicle has to scrap the vehicle at the end of the period with no option to renew the COE.

Some of these vehicles have been exported farther to other right hand drive countries like New Zealand, which has traditionally imported such vehicles from Japan. The result of the peculiarities of the Singapore car market has resulted in Singapore being the second largest exporter of used cars in the world after Japan. Cars are exported to many countries, including Libya and Trinidad.^[5]

Owners of such vehicles are given financial incentives to do this, which include a Preferential Additional Registration Fee (PARF). This program was implemented to reduce traffic congestion and it complements other measures to curb road usage such as the Electronic Road Pricing (ERP) program.

COE Category Refinement in 2013

In September 2013, The COE system has been refined to include a new criterion for Category A cars. Under the change, the engine power of Cat A cars should not exceed 97 kilowatts (kW). This is equivalent to about 130 brake horsepower. This is in addition to the previous criterion of engine capacity of Cat A cars not exceeding 1600 cubic centimetres. However, cars with engine power output exceeding 97 kW will be classified under Category B in COE bidding exercises starting February 2014 despite having engine capacity below 1600 cubic centimetres. The review of the COE categories' criteria was because LTA wanted to differentiate and regulate the buying of mass market and premium cars under Cat A in a bid to control COE prices that hovered closer and closer to S$100,000.^[6]

Category	Vehicle Class
Cat 1	Cars 1000cc & below
Cat 2	Cars 1001-1600cc & Taxis
Cat 3	Cars 1601-2000cc
Cat 4	Cars above 2000cc
Cat 5	Goods Vehicles & Buses
Cat 6	Motorcycles
Cat 7	"Open" (for any kind of vehicle)

Category	Vehicle Class
Cat A	Cars 1600cc & below, and the engine power should not exceed 97 kilowatts (kW)
Cat B	Cars 1600cc & above, or the engine power output exceeds 97 kW
Cat C	Goods Vehicles & Buses
Cat D	Motorcycles
Cat E	"Open" (for any kind of vehicle)

Historical records

Quota Premium

March 2009 2nd Open Bidding

Category	Current Quota Premium	Previous Quota Premium	Difference
A (1600cc and below), taxi	S$5,116	S$4,890	S$226
B (1601cc and above)	S$5,001	S$5,101	S$100
C (Goods Vehicle and Bus)	S$5,600	S$5,300	S$300
D (Motorcycles)	S$912	S$958	S$46
E (Open)	S$5,982	S$5,700	S$282

April 2010 1st Open Bidding

Category	Current Quota Premium	Previous Quota Premium	Difference
A (1600cc and below), taxi	S$34,001	S$28,389	S$5,612
B (1601cc and above)	S$45,501	S$36,089	S$9,412
E (Open)	S$49,000	S$42,001	S$6,999

December 2011 1st Open Bidding^[8]

Category	Current Quota Premium	Previous Quota Premium	Difference
A (1600cc and below), taxi	S$50,001	S$52,357	S$2,356
B (1601cc and above)	S$70,003	S$72,317	S$2,314
E (Open)	S$71,000	S$74,345	S$3,345

2013 results:

Vehicle growth rate

Period	%	Remark
May 1990 to May 2009	3.0	3.0% + deregistrations as per last annum
Jun 2009 to Jun 2010	1.5	Reduced to 1.5% + deregistrations as per last annum, partly due to low price COE
Jul 2010 to Jul 2012	1.5	1.5% as per last annum + recent half-yearly deregistrations, rate are extended to July
Aug 2012 to Jan 2013	1.0	Taxi are moved to Cat E
Feb 2013 to Jan 2014	0.5	Reduced to 0.5% and expected to last till Jan 2015
Feb 2014 to Jan 2015	0.5	Change to recent quarterly deregistrations
Feb 2015 onwards	0.25	Reduced to 0.25%

From April 2010, the COE quota calculation was amended. Under the new methodology, the Land Transport Authority (LTA) recycles the COE quota from the actual vehicle deregistrations in the most recent six-month period back into the system. Instead of an annual quota, figures will be revised every six months. For example, there are 800,000 vehicles as of January. Based on the allowable growth rate of 1.5 percent, there will be an additional 6000 COEs for sale every six months. On top of the number of vehicles deregistered in the same period (for example, 20,000) this means the COE quota for July to December will be 26,000.

In early October 2011, Singapore Minister for Transport Lui Tuck Yew has said that Singapore's annual vehicle growth cap would be cut further from 2012. The annual vehicle population growth rate will be lowered from the current 1.5% to 1.0% in 2012, and then to 0.5% in 2013 and 2014, and then to 0.25% in 2015.

The lower vehicle growth rate will be more closely aligned to the pace of road growth going forward. However, in May 2012, Lui Tuck Yew did an about turn and said that more COE may be released and the plans to quotas cut car growth would be delayed.

COE range

Previous Category	Highest		Lowest¹		Current Category	Highest		Lowest		Remarks
May 1990 – Apr 1999	SGD	Period	SGD	Period	From May 1999	SGD	Period	SGD	Period	Remarks
Cat 1 (1000 cc & below)	41,008	Jul 1997	210	Feb 1991	Cat A³	92,100	Jan 2013	2	Nov 2008^a	a. Major historical plunge partly due to 2008 financial crisis and over-projections of vehicle de-registrations in 2008/09 b. Major historical plunge partly due to 1997 Asian financial crisis
Cat 2 (1001 – 1600 cc) & taxi	62,208	Jul 1997	909	Mar 1991	Cat A³	92,100	Jan 2013	2	Nov 2008^a
Cat 3 (1601 – 2000 cc)	83,500	Dec 1994	50	Jan 1998^b	Cat B	96,210	Jan 2013	200	Jan 2009^a
Cat 4 (2001 cc & above)	110,500	Dec 1994	800	Apr 1991	Cat B	96,210	Jan 2013	200	Jan 2009^a
Cat 5 (Goods Vehicle & Bus)	39,000	Dec 1994	1	Apr 1991	Cat C	76,310	Oct 2013	1	Dec 2006– Mar 2007^c	c. Partly due to strict emission standards from Oct 2006
Cat 6 (Motorcycle)	3,506	Aug 1997	1	Jan 1994, Feb 1994^d	Cat D	6,801	Apr 2015	1	Nov 2002– Mar 2003^d	d. Mainly due to higher quota and lower than minimum bidders
Cat 7 (Open)	95,986	Dec 1994	998	Mar 1991	Cat E	97,889	Jan 2013	3,200	Jan 2009	–
Cat 8 (Weekend Car)²	45,300	Sep 1994	1,110	Oct 1991	OPC					COE rebate up to $17,000
1. Excluded initial quote for first 3 months (May~Jul'90). Previous lowest record due to higher quota for year 1991 2. It was stopped on Sep 1994, the scheme was replaced by the Off-Peak Car rebate 3. Taxi are moved to Cat E from Aug 2012

Average vehicle pricing

Detailed cost structures when buying a car can be found at this site.
All prices are in Singapore dollars dated March 2012

Compact : S$71,999 – S$89,500
Mid-size : S$81,999 – S$149,000
Full-size sedan : > S$150,000

In popular culture

"Despair", a song on The Observatory's Leslie Low's solo album, No Such Thing As Ghosts (2014), plays on the double meaning of "Certificate of Entitlement" in the lyric, "No there is no heart here / Just a certificate of entitlement", as part of its indictment of the elitist and uncaring side of Singaporean society.^[9]

Criticism

The COE system has received the following criticisms:

The auction-style system that the COE system is based on favors the wealthy who can afford to bid with higher prices for COEs and the wealthy elite who can even afford a few COEs for multiple cars they own, while lower income families, which need a car more, are forced to pay the COE prices that are driven up by demand.
The COE price paid becomes a significant overhead which has to be amortized in ten years. Because of this, owners feel compelled to use the car intensively before the COE expires. This has led to Singapore cars clocking up as many kilometers as those in the US or Europe, though Singapore is only 45 kilometres (28 mi) across its widest part, and there are several routings similar to the buses and the mean time distance between failures.
The COE prices vary from month to month and the differences can be in the tens of thousands of dollars depending on the quota issued by LTA.
Critics have suggested that the system could be changed to a pay-as-you-bid model such that successful bidders would pay the same figure they bid rather than pay the lowest bid among all the successful bidders.
The COE system discourages car owners from keeping road-worthy cars, because COEs expire after 10 years and need to be renewed by paying a Prevailing Quota Premium. In addition, there are financial incentives for scrapping or exporting a car before its COE expires. As a result, Singapore roads are overwhelmingly populated by models under 10 years old, and cars do officially depletes after completing either 17 years of lifespan (typical vehicle), coupled with between two and three years extension. An ex-gratia's payment will also be needed, called PARF value.
The COE system does not consider why the person wishes to own a car by need. For example, if a businessman was using the car to drive for business purposes then the usage of the vehicle becomes an element of the business model. Having high COE prices discourages growth of a business which is reliant on vehicular transport, although land transport costs typically form only a small component (about 1.5%) of business costs for manufacturing companies in Singapore.
COE also impacts transportation business with a lot of vehicles.
Only by addressing why the owner of the car needs the vehicle can a more robust system be developed to cater for the public. If the vehicle was required for the person to the daily commute from Malaysia, for example, the person may end up having to pay a COE sum which amounts to more than the value of the car.
COE prices also affect VEP (Vehicle Entry Permit) and GVP (Goods Vehicle Permit) prices for Malaysian-registered vehicles entering Singapore.
Since Malaysia and Singapore depend on each other, border crossing is essential. Businesses, logistics, commuting, transportation and cross-border activity are affected if COE prices are steeply high, causing the GVP and VEP price increased also affordability among Singaporeans are affected which vehicles they are needed to cross the border.

References

↑ Grant, Jeremy (4 March 2014). "Singapore overtakes Tokyo as world's most expensive city". FT.com. Retrieved 7 July 2014.
↑ http://eresources.nlb.gov.sg/infopedia/articles/SIP_1005_2006-04-07.html
↑ "Overview of a Vehicle Quota System". Land Transport Authority of Singapore. Retrieved 24 January 2013.
↑ Ling, Hui Tan (September 2001). "Rationing Rules and Outcomes: The Experience of Singapore's Vehicle Quota System" (PDF). IMF Working Paper: 5.
↑ Farah Abdul Rahim (23 October 2005). "100,000 used Singapore cars expected to be exported this year". Channel NewsAsia.
↑ COE System to Include Engine Power for Cat A Cars Archived 19 November 2013 at the Wayback Machine.
↑ "Taxis out of COE bidding process from August". Channel News Asia. 27 July 2012. Retrieved 27 February 2013.
↑ Royston Sim (21 December 2011). "Certificate of Entitlement premiums fall for all categories". Straits Times: Motoring, A Singapore Press Holdings Website.
↑ "Despair". Leslie Low on Bandcamp. Retrieved 17 September 2014.

External links

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