Is speculative trade in motorcycle COEs helping to push them to record highs?

Is speculative trade in motorcycle COEs helping to push them to record highs?

Dealers need to put in a deposit of only S$200 to initially secure a COE, and this low cost has allowed some of them to stockpile COEs which can then be sold for a profit to other dealers who need the certificate quickly, according to some in the motorbike community.

Motorbike pic 2
A motorbike for sale at a local dealer. (Photo: Noor Farhan)

SINGAPORE: As Certificates of Entitlement (COEs) for motorcycles continue to reach record highs, hitting S$8,081 in March, questions are being asked about the reasons behind the relentless rise, with some claiming that speculative bids by dealers as well as shortcomings with the bidding process are to blame.

Bike owners and dealers Channel NewsAsia spoke to suggest that a key reason for the increase is that a deposit of only S$200 is needed to initially secure a COE, with dealers able to make bulk bids.

This allows them to stockpile motorbike COEs which can then be sold - before they have been assigned to a specific buyer - for a few hundred dollars of profit to dealers who need a COE quickly, according to Mr Ong Kim Hua, who owns bike shop Dirt Wheels.

It is “easy money”, said Mr Ong. “There is indeed a trading market where everybody buys and sells COEs. Anyone can do it. Even you can do it, as you don’t have to be from the motorcycle trade to bid for COEs.”

He pointed out that motorbike COEs are limited, with only around 300 released every two weeks or so. He said this means that demand can outstrip supply, creating the conditions for speculators to profit. “Whoever has a COE quota on hand, if any bike shop owner or dealer wants to sell a new machine, (they) would definitely have to buy it from you,” said Mr Ong.

Mr Michael Ang, the owner of bike shop S1 Motoring, agreed that other dealers are definitely stockpiling COEs. He said: “We don’t play (the system), and we only bid for sufficient use. For us, we do have customers who require the bike sooner rather than later. In those cases, we will definitely bid a certain amount whereby we feel that it will definitely be used up.

“But there are also instances where we would have to buy COE quotas from other dealers.”

DEALERS HAVE LITTLE TO LOSE

There is little financial risk for those dealers who want to carry out speculative trade in COEs, as putting down the S$200 deposit to initially acquire the COE commits the holder to nothing - there is no rule to say that the full amount has to be paid eventually. Instead, dealers can simply let the COE lapse after six months if they cannot find another dealer to sell the COE to, do not have enough bike buyers or if COEs go down in value.

“When nobody wants to buy the COE, these dealers will simply throw it away at a small loss. Every COE they throw away is S$200, but every time they gain, it’s a big number,” said Mr Ong.

Singapore University of Social Sciences (SUSS) economist Dr Walter Theseira also pointed to the low deposit as a reason why motorbike COEs are vulnerable to speculators. He said: “Someone who attempts to speculate and loses - for example, they buy COEs at a high price and the price collapses - doesn't lose much from letting a COE expire without a buyer."

In addition, the availability of motorcycle COEs is quite low in number relative to car COEs, said Dr Theseira. “This means that the impact of a few dealers attempting to speculate in the market by holding on to COEs without a ready buyer is greater."

The ease and lucrativeness of the speculative trade is being seen by some in motorcycling circles as a reason for the increase in COEs, Mr Ong said.

“To secure new quotas for themselves, all bidders have to do is to keep bidding higher and higher, hence pushing up the cost of the COEs as a whole. (COE speculation) is a very simple and open 'investment' - anyone can buy and anyone can sell without incurring the actual cost of that COE premium,” he said.

Mr Ong questioned why measures used to curb COE speculation in cars have not been applied to motorcycle COEs. “Cars used to be the same way as you’d only need S$200 to bid for a single COE quota, but the LTA (Land Transport Authority) increased it to S$10,000. I don’t know why LTA isn’t doing anything about this for bikes.”

Dr Theseira also explained why motorbike COEs are more likely to be the subject of speculative activity. He said: “Whether this happens all the time is another matter. But the motorcycle market is much more vulnerable to this practice than the car market, because the car market's scale and other rules mean that dealers would find it much more expensive to attempt to skew the market.”

PROFITING FROM COE INCREASE

An additional reason being pinpointed as a possible cause for a spike in motorbike COEs in the past few exercises is that dealers do not have to be transparent with customers about when their COE was obtained at the point of purchasing a new bike.

"If you have a COE quota premium from six months ago, all you have to do is look at how much it costs then, and minus this off from the amount which it is now - that is how much those bike dealers can possibly make,” said Mr Ong.

In particular, COEs obtained before February’s new three-tiered Additional Registration Fee (ARF) ruling kicked in could be of high resale value in the COE trading market, according Dr Theseira. “The high value of pre-February Category D COEs comes from the fact that they allow registration without paying tiered ARF.”

Mr Ang from S1 Motoring agreed that this means some dealers are hanging on to older motorbike COEs obtained before the ARF ruling as they have a higher potential value in the COE trading market.

“People are still definitely hanging on to older COEs which are unaffected by the ARF rulings,” he said. “There will probably be such cases where these COEs will be sold at a marked-up cost.”

Dr Theseira explained further: “Any dealer with one of these COEs can effectively pocket the difference between a bike's price with tiered ARF and without tiered ARF. A buyer who doesn't want a pre-February Cat D COE will have no choice but to get a COE today, and pay the tiered ARF.

“In turn, this means that dealers with these COEs will be quite reluctant to release them except for the highest valued bikes. This contributes to the current tight market condition.”

The net result of dealers hoarding these “higher value” COEs is that demand has been outstripping supply even further, which means that anyone in the market for a motorbike COE - whether it is a dealer looking to secure one for a confirmed buyer, or someone looking to make money from the trade in COEs - will need to bid high.

PROFITING FROM LOAN FINANCING

While some dealers have complained that higher COEs may be pricing some customers out of the market, Dr Theseira believes that others may be happy about the current situation with no desire to bring down premiums, as in-house loan financing is another way dealers profit from high COE prices.

He said: "Some dealers provide financing for their bikes. Since the total price of the bike is financed, every additional dollar means more profits from financing.”

Dr Theseira added: "To some extent, the car industry suffers from the same problem - that dealers are quite happy to sell more expensive COEs and hence cars because they benefit from financing - but the problem is not as severe because car dealers usually provide financing from banks, and so their profit on financing is limited only to the commissions they get from banks.

"But in the motorcycle market, dealers often provide in-house financing, so they directly benefit from the interest charged on a larger loan."

It is therefore in the interest of dealers to keep COE prices high, said Dr Theseira. “Some of the dealers are sitting on inventory of COEs and bikes. This inventory value, if purchased at higher COE prices, would fall if COE prices were to go down.”

He added: “To avoid taking this loss, dealers with large stocks of COEs, or with stocks of motorcycles already registered with COEs, would prefer it if COE prices were maintained or even rose. When the COE price rises, they can justify selling a motorcycle with a COE obtained at a lower price at a high price, and book the difference as pure profit.”

“CUSTOMERS CAN ALWAYS WALK AWAY”: SMCTA

The reason behind the rise in COEs is an increasingly hot topic for Singapore’s motorcycling community and LTA is also making attempts to drill into the issue. Responding to Channel NewsAsia’s queries, a spokesperson said: “The LTA is meeting some of the major motorcycle dealers to better understand the recent trends in COE prices and motorcycle purchases.”

Meanwhile, Singapore Motor Cycle Trade Association (SMCTA) honorary general-secretary Norman Lee played down the potential impact of COE speculation. He said: “There are a lot of netizens who are saying that motorcycle dealers are speculating the system. With that, I think the question is, how much trust do we have in the integrity of the COE bidding? If it can be speculated, we have to question the integrity of the system.”

The onus is still with the buyer on whether or not the sale will go through, said Mr Lee. “When it comes to a sales agreement, the COE value is always stated in the sales agreement. If the COE cannot be bid on the agreed terms, the customer can always walk away. We’ve never seen a customer who has brought this issue up to CASE to say that they have been cheated of a high COE.”

He added: “We went through all the reports and we found dealers who indeed had buyers who cancelled their orders, back when the COE was (initially) pegged at S$6,800 during their sales agreement. When the COE prices later shot up to S$7,400, buyers decided to back out of the sales agreement - which can be done.

“Those buyers who are thinking of bailing out (however) ... would have to decide between simply accepting the COE despite the high current price, or wait it out and risk the COE jumping even higher in the next two weeks.”

With the next COE exercise due on Wednesday (Apr 12), the focus once again will be on whether motorbike premiums reach another record high.

Source: CNA/fr

Bookmark