I agree with the report on certificate of entitlement (COE) prices ("COE prices 'likely flat in first half of 2014'"; last Wednesday).
The COE system was set up to regulate the car population and congestion, with the expected growth in population and road expansion.
With road expansion, the Government has stipulated that a 3 per cent growth in the car population a year is acceptable.
Recently, this was reduced to 1 per cent and subsequently, to 0.5 per cent. This has worked well for the past 20 years to control car population and road congestion. In fact, many countries have emulated our model in varying ways.
To understand the fluctuation of COE prices, we have to look at the absolute quantum of COEs released.
The quantum depends on new COEs released plus the number of old cars scrapped. The availability of COEs depends on how many years the COEs are held, how many COEs are renewed and the growth of the car population.
This is, in turn, affected by COE prices and economic conditions. In short, market forces and government policies determine COE prices.
The number of passenger car COEs was about 70,000 a year from 2000 to 2003. Between 2004 and 2009, the number jumped to above 100,000 a year. From 2010 to last year, it plunged to about 35,000 a year, and there are only about 25,000 this year.
From these figures, it is easy to explain the jump in COE prices for the past three years.
As stated in the report, the number of COEs released should jump during the second half of next year, peaking between 2015 and 2017. When this happens, COE prices should drop, or even plunge.
But this will happen only if the Land Transport Authority does not reduce the COE supply in order to maintain the revenue from high COE pricing.
Since the Government has allowed COE prices to rise for the past few years when the quantum of COE fell, it should let market forces play out when the quantum rises too.
Ng Kim Boon
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