The Straits Times
www.straitstimes.com
Published on Nov 14, 2012
 
CURBING VEHICLE POPULATION

Ways to reflect true cost of buying a car

 
 

WHILE I agree with Mr Louis Francis Albert ("Lowering COE prices: Drastic steps needed"; Monday) that the current arrangements are not working, I do not think that we need drastic solutions, much like what Beijing did to ease congestion in the run-up to the 2008 Olympics.

These are short-term measures that will eventually become minor inconveniences that car owners will learn to get around.

The twin problems of rising certificate of entitlement (COE) prices and vehicle numbers can be solved by tweaking the existing system.

Much like how the Government has dealt with rising home prices, we can start by reducing the amount of leverage available to car buyers.

With the low current interest rates of 1.88 per cent, high level of financing of up to 90 per cent and long loan tenure of 10 years, the financing environment is extremely favourable for car buyers.

These are the three variables we can work with to curb the vehicle population.

At first glance, the interest rate of 1.88 per cent looks extremely attractive, but the actual rates are much higher - and higher still if the buyer decides to sell his car and repay his loan prematurely.

We should be vigilant about misleading representations of borrowing rates.

The other solution is to eliminate financing for COEs.

Under the current system, every $10,000 increase in COE price will cost the buyer only an additional $1,000 in upfront cash payment - hardly a significant deterrent.

If COE premiums have to be paid upfront in cash, I expect that buyers will be more circumspect and rational when bidding for new COEs.

Similarly, loan tenures should be correspondingly cut.

All these adjustments should serve to more accurately reflect the true cost of a car purchase and, hopefully, lower COE premiums.

Tan Suan Jin