So what is the COE system?

It is a way of restricting car ownership. It is a mandatory permit that grants the holder of the COE to register, own and use a vehicle in Singapore for a period of 10 years. The COE system was implemented in 1990 to control the number of vehicles on the road. The purpose is to manage traffic congestion.

We do not want Singapore traffic to become something like the traffic in Bangkok…

Yes that is my friends and I walking. It can be faster to walk to some location in Bangkok as compared to taking a taxi.

Not let us move back to the discussion about the COE system in Singapore.

Essentially, the COE is a form of tax on the car owner. Let me explain how taxes work.

Taxes are monies that the government collects and it goes into its coffers. The government would then use this money to improve Singapore in general. For example, public services like street lighting and the police force require monies for them to be running efficiently. As this is a free good, there will not be any private individual or entity that is willing to fund these services. Therefore, the government will have to fund them. The government needs money to do so and taxes provide them with the money to do so. In some cases, taxes are in place to discourage individuals or entities from partaking in certain activities. For example, the Singapore government taxes cigarettes very heavily. This is to discourage people from smoking or probably if they need to smoke, to smoke less. The thing that the Singapore government is trying to prevent people getting illnesses like cancer. Or at least reduce the number of people. In the case of smoking, lung cancer specifically as it has been proven that smokers have a higher chance of developing lung cancer. In the case of road behaviour, the government is trying to reduce congestion. In economics, we call this a negative externality.

Negative externalities can be prevented or reduced with carefully targeted taxes. Taxes on cigarettes are one such example. You want to reduce smoking rates and therefore you tax cigarettes. Through taxes, you change behaviour. People may find it too expensive to smoke and may either smoke less or not smoke at all. In this case, the taxes on cigarettes are targeted. According to the Ministry of Health, smoking prevalence in the Singapore population dropped from 13.9% in 2010 to 10.1% in 2020. In that same time, taxes on cigarettes have been steadily increasing.

Applying this same concept of targeted taxes, we can actually understand why the COE system is flawed.

The negative externality that the Singapore government was trying to reduce is traffic congestion. In this case, the tax should be on the usage of vehicles as the negative externality is due to excess usage. However, the COE is a tax on the ownership of the vehicle. My personal take is that the policy of the COE was something that seemed to be haphazardly put together as the consensus of the day is that if someone owns a vehicle, he will use the vehicle. This is a very flawed way of thinking. I am sure there are many things that all of us own but we do not use. If that is the case, then the government can ensure that every Singaporean owns a pair of running shoes and all of us will be running very often. That neatly brings me to my next point. The way you obtain ownership also determines how you will use that item. If the Singapore government gifts every Singaporean a pair of running shoes, it is unlikely to be a very effective encouragement for many to pick up running because they did not pay for the pair of running shoes. However, if someone pays for a very expensive pair of running shoes, he or she is likely to think that because of the large expense, they should use the pair of running shoes more often to extract as much value as possible. This is the same thinking when someone pays a very high price for a vehicle. If you pay $250,000 or more for a vehicle in Singapore and you can only use the vehicle for 10 years, will you consider leaving your vehicle at home and taking public transport? Highly unlikely. You will want to use the vehicle as often as possible to extract as much value as possible.

Consider car rental companies that purchase vehicles to lease these vehicles for individuals who want to work as private hire drivers. The rental rates will go up if the acquisition cost of the vehicle goes up. This would mean that the driver will have to drive longer hours to make money from his rental vehicle.

Take a look at the traffic congestion that happens so very frequently on our roads. It is a result of many road users wanting to extract as much value as possible from their expensive vehicles.

So then, what is the solution?

We have a solution sitting right in front of us. It is to tax road users based on how much they use their vehicles. We have the ERP 2.0 system that can track vehicle usage on public roads. We have gantries in our central business districts that are lying idle. We are able to tax road users high rates in areas like the central business district and perhaps a lot less on roads that are far away from the city centre. We do not have to do away with the COE system. Yes we can have a hybrid system that taxes both ownership and usage. However, with carefully calibrated taxes, we can increase vehicle growth without increasing traffic congestion. Imagine a scenario where COE is say SGD$30,000 and you purchase an entry level vehicle for maybe SGD$120,000. Yes you are paying maybe $10,000 per annum for your vehicle. However, if the road usage tax that you have to pay to drive to your office in Raffles Place is $30 a day, it is likely that you will consider taking the MRT if that is going to cost you less than 5% of the cost to use the road. Add in parking fees and the savings are even greater. Remember, we never had an issue where we had an insufficient number of carpark lots. The issue was that the roads in certain parts of Singapore, namely the central business districts, were getting increasingly congested.

There are always those who need a vehicle. Some families may have handicapped or elderly family members. Getting them to always take public transport during family outings is not ideal. Yes they can call for a taxi or a private hire vehicle but then some of them have a large amount of things to carry along with them. They may also require vehicles with ramps or vehicle boots that can accommodate items like wheelchairs. If we have progressed truly as a nation, should a vehicle not be something that a family should be able to afford? We can implement highly prohibitive usage taxes on weekdays especially to discourage usage. We can then lower or reduce the usage taxes on weekends and do away with them altogether in certain areas to encourage those with vehicles to visit certain parts of the island.

There are also those who need a vehicle for work. For example, a company that does aircon servicing will need a vehicle. They cannot be carrying all their tools and taking public transport. High COE prices will invariably lead to them having to pass on at least some of this cost to the everyday consumer. Hence while we say that COE is a tax on the wealthy, there are certain costs that are also passed on to the middle and even lower class in Singapore.

One interesting point to note is that while car prices are included in the Consumer Price Index (CPI) calculation under the private transport category, when the MAS monitors core inflation, they exclude car prices from their calculation.

Anyway, my proposed solution may not be the most elegant but at least I am trying to target the behaviour that is causing the externality.

So should we scrap the COE system? 

No we should not. We should control the number of new registered vehicles that come onto the road every month. This allows the government to calibrate the vehicle growth and respond to trends. Imagine if Tesla decides to slash prices of its latest Model Y to take a foothold in the Singapore market. This is likely to cause a large number of buyers of the vehicle. If this is unchecked, it could unexpectedly spike the vehicle growth. Ownership, while not directly linked to the root of the problem, is still helpful to a limited extent, in managing traffic congestion.

So why is this archaic policy that was implemented in 1990 still prevalent today? 

Well, this is one of the policies which I think need changing. There is no way any transport policy maker can say that taxing ownership is the best way to reduce a negative externality that is caused by usage. It just does not match. So while I generally agree with the government on many of its policies, this is one example of an inefficient policy that remains. Why? Maybe because there is no one who dares to stand up and question the COE system in depth.

Something for the next batch of parliamentarians to think about…

Yours sincerely,

Daryl

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Just about six years ago, I chanced upon the corporate secretarial business. This consists of the work of incorporating companies and managing the corporate compliance matters of companies. I had the fortunate opportunity to take over a corporate secretarial practice. At that time, the business only focused on corporate filings and incorporation work. Over the past few years, I expanded the business to include services like bookkeeping, GST and tax filing, application for corporate grants and even application for the various work passes through the setting up of an associated Ministry of Manpower employment agency.

This is extremely different from real estate work. However, I always wanted to own businesses. I wanted to run companies. I have always been investing in stocks and this was essentially owning a part of a business as a shareholder. Albeit a small part as a relatively insignificant shareholder. I always knew that I owned the shares of the company in my name and being a real estate agent is not me owning shares of a real estate company. I have always helped others grow their businesses so I felt that since I was, at that time, nearing 40 years of age, it was time for me to grow my own business. The business should be in the form of companies where I could always seek funding and execute expansion and mergers through the flexibilities that the share structure of a typical private company limited by shares would offer to me.

The usual growing pains of running a company did not elude me. Hiring was always an issue especially when your company is in essence a start-up. Man management is extremely difficult and remains a challenge to me today. However, I believe I have gotten better over time. I will perhaps share the lessons which I learned over the past few years on man management in a separate blog article. The company grew from having a mere 40-50 corporate clients to over 300 clients. I merged the practice with another practice on 1st January 2023 and all corporate secretarial, accounting and tax-related work would be done under the company Raffles Corporate Services Pte Ltd. The team is now 10 strong and we are growing. Recently a few of the local universities wrote to me to ask whether my company would be interested in offering internships to their students. Some of our clients are of a certain calibre. I can walk through many shopping malls and spot my clients’ businesses. We also do the filings for quite a few law firms. We are perhaps cheap and cheerful and hence many do look for our company because our prices are attractive. However, if we do not do good work, I believe that clients will not remain with my company.

On top of running this practice, I also managed to establish a real estate company in Bangkok dealing with Bangkok properties. It is registered in Thailand and we have a small team dealing with international clients. The company does the sale and rental of Bangkok properties but it also does property management where international clients can leave the management of their Bangkok properties to the team. The maintenance and property tax filings will be managed by the local Thai team. The business has been around for over 6 years, surviving the pandemic and we have perhaps a hundred or more clients. I never counted how many clients we dealt with. The YouTube channel is ever-growing. We have grown it to a respectable size. We have over a thousand videos. Mostly location videos where we walk viewers through the property and even the journey from the property to the nearest train station to illustrate the location of the various properties. We have more than 5000 subscribers and I would say a large proportion, if not all of the subscribers are genuine Bangkok property buyers. The response to the content posted is very good which illustrates that the content the viewers are watching is highly relevant to what they are interested in.

Then there is the steakhouse of which I am or was a shareholder. It is located along East Coast Road across the road from i12 Katong Shopping Mall. There are also other outlets and collaborative F&B outlets in Dempsey and Horne Road and outlets in Vietnam. My co-shareholder was my secondary schoolmate. I decided, for ethical reasons, to not eat meat. As a vegetarian, it looked weird that I would be a shareholder of a steakhouse. The business was and is doing well today. However, selling my shares to my friend would remain the best option for me as a vegetarian. I am of course rooting for him to do well in the F&B scene.

When I turned or was about to turn 40, I decided that it would be good for me to add on to the first degree that I obtained. I initially wanted to do a postgraduate course which would add on to my current degree and perhaps become an academic. Maybe lecture in one of the local polytechnics. However, for some reason, a friend managed to convince me that I would make a decent lawyer. I took his advice and now I am in my final year of studies in the SUSS School of Law. I am doing well in law school. For some reason, I find law modules much easier to digest as compared to my studies in my first degree in Economics. I will be taking the bar exam in 2025 and transitioning to practising law. I have aspirations to do corporate work (which is what I am already doing) as well as family law. This year, one of my modules would be to gain some experience with the local courts. I am looking forward to this and will take a few week’s leave off from my company to complete this portion of the module. Yes, my company, of which I own a portion of the shares, is run like a proper business and it employs me. Hence I will still need to apply for leave to be out of the office. I started a blog about my life in law school. You can read my blog here: https://www.justfollowlaw.com/.

So what next? In 2025 I will be joining a law firm (I’ve already secured this) and handing over the reins of my company to the remaining members of the management team. Hopefully, God willing, in time, I will be able to have my own law firm. I do not think I am motivated by money although when running a company, the company’s bottom line is always at the back of my mind. I have always been interested in standing on the side of the less fortunate and I have some ideas about the direction which all my companies and my purported future law firm will take.

In 2025 the corporate secretarial, accounting and employment agency business will have our own permanent office in Manhatten House. This is located very close to the state courts in the Chinatown area. We are presently renting an office along Orchard Road but we purchased a property in December 2023 and will move over after the completion of the sale and purchase at the end of February 2024.

I will be working on more content on investing in stocks and property. I finally have some time I can squirrel away to spend on improving my blog and YouTube Channel. I will be attempting to get back into peak fitness as I reengage with the beautiful sport of cycling. I have always had the mantra that all information should be free. Opinions can be safely shared especially when it comes to investing. The internet has been a great enabler for me in terms of knowledge and I believe that I should be contributing to it as well. As a declaimer, many have come to me asking me for recommendations when it comes to opening a trading account for stocks. I do not have anyone to recommend. As for property, my wife and soon my stepdaughter, are both property agents. So are my close friends. Whenever someone asks me for recommendations, I do refer that someone over. Whatever the case, my articles are free for anyone to read. I will always aim to be as unbiased as possible and speak freely about what I think about whatever forms of investments I blog about.

Have a great 2024 everyone. Thank you for reading my blog. May everyone stay healthy and happy and hopefully the world will become a more peaceful place in 2024.

Yours sincerely,

Daryl

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When the Singapore government raised the Additional Buyers’ Stamp Duty for foreigners purchasing residential property from 30% to 60% on the 27th of April 2023, many property analysts were up in arms. Many considered that such a move was draconian and that the government failed to understand the nuances of the property market. Property agents were trying to make sense of this increase.

“buy now before the ABSD increases even further!”

Fear-mongering does work. Many times I’ve had friends who remarked that they would not rush into a property purchase decision only to commit to a property purchase when innocently walking into a sales gallery of a new project launch. These are not people devoid of intelligence. These are smart individuals with the financial capability to purchase properties in excess of millions of Singapore dollars. How they achieved such financial capabilities is due exactly to their intellect in their relevant professions. Just like the Lehman Brothers collapse in the US was not due to people with a lack of intellect running the investment bank. Instead, it was a culmination of many extremely intelligent individuals who were enshrined in a system that told them that prices could only trend in an upward direction. It was a culmination of greed fueled by easy money and commissions.

“if you say something to yourself often enough, it will become the truth.”

Well, it will not exactly become the truth but you will believe that it is the truth. This is true for information on the Internet. I realised that when I search for any news on the Singapore property market, the bulk of the results that I obtain will be one of immense optimism. That is not to say that it should be all doom and gloom when the market is clearly not veering in that direction. The questions I pose are…

“is property the sole stable investment available?”

“Is there something behind this boom that has been going on for the better part of the last 15 years?”

Let us break down the ABSD increase five months on.

There can be a barrage of considerations when it comes to why the ABSD was increased from 30% to 60% for foreigners. For starters, foreign buyers never made up a huge proportion of the local property market. The local property market was always driven by local demand.

Let us consider a foreigner who makes a purchase of a typical 3-bedroom property which costs about SGD$2 million. The ABSD that that foreigner will have to fork out would be SGD$1.2 million. This of course disregards the usual stamp duty as well as any other acquisition costs. For this discussion let us focus on the ABSD alone. There will always be some who will comment that the foreigner believes that Singapore property will increase by more than 60% in the medium to long term.

My personal take would be that it is still perhaps reasonable for someone to make the case if it were 30% ABSD. Properties in Singapore, on quite a long stretch, might still increase by about 30% in the next five years from 2023. However, to say that it will increase by 60% would be optimistic to the point that it would be illogical. Even if the foreigner had such cash to burn, his property market is not confined to Singapore. He has options aplenty across the globe. He does not have to purchase a property in Singapore. Even if he would like to live in Singapore, renting is much more affordable as compared to forking out SGD$1.2 million ABSD on that SGD$2 million property.

My conclusion: I’ve sat down, appreciated the silence and thought about it. There is almost absolutely no legitimate reason for the foreigner to want to fork out 60% ABSD.

It did not become clear until the news about the SGD$1.8 billion money laundering case came to light.

A money launderer’s primary motivation for purchasing an asset is to allow his ill-gotten gains to see the light of day. It might be money from bribes obtained by corrupt officials for favours or maybe money obtained from illicit human trafficking. Even if he has millions of dollars sitting in his home, he cannot spend the bulk of it. Sure he can use the money to fulfil his daily needs but then if he was an official he most probably would already not have to think much about how he can survive on a daily basis. What money launderers want to achieve is great wealth and the ability to enjoy this great wealth. The former can already be achieved through their illicit activities. However, the latter is something that needs a system to achieve.

Let us consider this proposition from the Wall Street Journal:

A new watch costs less than a second-hand one. The rationale that was given by the Wall Street Journal was that the demand for Rolexes is so high that people are willing to pay more for a used watch as compared to a brand-new one. Not just a bit more. A lot more.

This does not make any sense. This is also happening in Singapore. A luxury watch would cost more in the second-hand market than it would in the retail outlet itself. Imagine this, all the money that was spent by Rolex to build up the customer experience when a customer visits a Rolex outlet. Yet the customer would rather purchase from a second-hand shop at a much higher price. Let us leave out the risk that the watch at the second-hand shop might not be authentic.

There is a rational explanation for this. When a customer goes into the Rolex boutique and makes a purchase, his details are recorded. Be it if he pays via credit card or if he brings cold, hard cash to the boutique. The boutique is obligated to report a suspicious transaction if a client were to pay a significant amount in cash. These details can be extracted by the authorities whenever required. However, in the second-hand market, there is no such requirement. If a luxury watch is traded on the second-hand market, there is no need for the seller to collect details of the buyer. Imagine you selling something on an online platform. In Singapore’s case, it would be a platform like Carousell. Sellers do not ask where the buyers get their cash from. All they are concerned with is that they get the money which they are due. A money launderer would need such anonymity and the second-hand market provides it.

Now look at what was seized in the SGD$1.8 billion money laundering case. There were luxury goods which included luxury watches and designer handbags. These designer handbags came from fashion houses such as Hermes, Chanel, Dior, Louis Vuitton and Prada with some bags costing in excess of $100,000. The sheer value of the total amount of luxury goods seized is staggering. The second-hand market serves a very legitimate purpose for such money launderers.

So why do news agencies, property agents or investment analysts fail to see that what they propagate in the public domain may not be an accurate representation of the truth? The fact is when prices go up or down, we tend to gravitate to what we learned from the textbooks. Does it make sense? Human behaviour dictates that we can use what happened in the past to explain or predict the future. Also, if you are the source of credibility and have some sense of authority in a particular subject matter, then what you propagate would likely become the truth. This is why the Wall Street Journal creates such content to explain a particular phenomenon. It uses what it knows from the past to explain the strange present. If the present is strange enough it should be setting off alarm bells which obviously did not happen. The truth then becomes what the Wall Street Journal propagates. The logic is because the Wall Street Journal is a credible source rather than actual logic itself. It is easy to jump on the bandwagon of what every analyst is saying. It may be in the stock market or the property market. Everyone has a theory. However, in many cases, the theory was conceived not using actual logic itself but was plagiarised from a source of authority.

Investing in such a climate is truly a challenge. Sit down, appreciate the silence, and think about what is truly going on…

Yours sincerely,

Daryl

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I have been painstakingly building the corporate secretarial and consulting business. It is a few companies dealing with corporate compliance, accounting and tax-related matters as well as consulting work. After toiling for a number of years, I would like to declare that entrepreneurship is not easy. Nor is it for everyone. That being said, the joy of seeing something that you’ve worked on take off in ways that you would least have imagined is something that you can never fathom. Our clientele is a mix of small to mid-sized companies in Singapore and we assist them with their corporate work like the incorporation of entities, tax filings, accounts, annual returns. On the consulting side, we worked with companies to help them to restructure their operations, implement cost-saving methods and even assisted them with structuring some investments. While this may seem rather remote when compared to real estate and equities, dealing with corporate structures in Singapore has made me realise that Singapore is an extremely business-friendly country. We have comparatively low corporate taxes, extremely business-friendly practices and we are generally welcoming to foreign investment. Of course, the pandemic has caused an outflow of foreign talent due to the restrictions that are imposed on the movement in and out of Singapore but otherwise, Singapore is an extremely business-friendly country. If you are in business, you will be able to sense when foreign investments are moving into Singapore. I can perhaps tell you that I personally experienced companies shifting out of the UK because of Brexit and out of Hong Kong because of its zero COVID stance and moving into Singapore. The next other financial centre of notable significance is perhaps Shanghai and I do think that their similarly strong stance towards achieving zero COVID cases will be a push factor for foreign companies that are thinking of entering Shanghai. The viable option is none other than Singapore.

This then brings me to my point that investing is about being as multidisciplinary as you can possibly be. If you are well versed with the property market alone, your data points are typically historical. You tend to make your predictions based on past price movements without really understanding the true reason for the price movements at that point in time. There were spikes in population growth which led to sharp price increases in property prices. However, a myopic viewpoint of such a spike would be to conflate the population spike with “it’s time for property prices to rise because it has been low for so long”. It’s like treating the root cause of the illness rather than treating the symptom. My personal take to those who are looking for that pot of gold would be to take a more expansive view of investing. While the equities market may not be something you are looking to get into, their price movements will be a good barometer as to where property prices are headed. That being said, even cryptocurrencies, which exhibit a strong correlation for the risk appetite of the market, tend to be a good indicator as to how buoyant a market is.

Another reason for my lack of posts would be that I am furthering my studies. I am perhaps at a stage in life where I would like to pursue something more than what I have academically. This is perhaps what has been taking up my free time. That being said, I have acclimatised to the required rigour that is required of me and I should be able to contribute more towards my blog and YouTube channel. I will be adding content from my experience running companies and my business dealings to try to expand what I post on my blog and YouTube channel. The content will be less focused on property and equities and perhaps a little more philosophical when it comes to my posts on business-related matters. This is why I’ve changed the title of my blog from “Daryl’s Investment Blog” to just plainly “Daryl’s Blog” I will remain objective in my reviews and as educational as I can when creating knowledge-based content. As always, if you found my content useful, do subscribe and share my work.

Stay safe everyone and have a great year ahead!

Yours sincerely,

Daryl

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