THE AFFORDABILITY AND CATEGORIZATION OF CERTIFICATES OF ENTITLEMENT (COES) IN SINGAPORE

Abstract

In light of Singapore’s limited land space, rising population as well as affluence, demand for cars have been relentless in recent years. In the context of the Vehicle Quota System (VQS), dissatisfaction among the public with the system has culminated to a public consultation in May 2013. The paper seeks to discuss the pertinent issues that have been widely discussed, namely, affordability and categorization. More specifically, the paper seeks to answer three questions, namely – how the recategorization of cars whose power exceeds 97kW to Category B affect COE prices, how a change in quota for different categories affect COE prices, and lastly, whether changes in the average cost of a car through taxes will have an effect on COE prices and the number of bidders. Through a VAR model, the results conclude that the recategorization does aid in increasing affordability for Category A premiums that changes in quotas do not have a sizeable impact on COE prices, and last but not lease, that the price of car costs does have a significant impact on COE prices and the number of bidders. However, it is noted that these effects are more often than not short term, and are unlikely to have any long-lasting impact. For policy makers, the findings are useful in better optimizing and tweaking of the VQS system in the future. Similar models can also be used in future, with a more complete set of data, for policy simulation.