The Singaporean Dream got a little more out of reach when the LTA announced recently that they were cutting the vehicle growth rate to zero, down from the current 0.25%, starting in February 2018.
In 2020, the vehicle growth rate will be re-examined, but many fear that the government will then implement a negative vehicle growth rate.
This means that starting in February, no new Certificates of Entitlement (COEs) will be issued for private cars and motorcycles. For every new car to be allowed on the road, another car will have to be deregistered.
Of course, the question on everyone’s lips is: how will this affect COE prices? Will they spiral out of control, thus putting cars completely out of reach for anyone but the gilded elite and foreign billionaires?
The direction COE prices take will depend on interaction between various factors affecting vehicle demand. Lets take a look at the factors that will raise and lower the demand for those precious COEs.
1. Population growth
The real problem isn’t that the number of cars is going to stay the same from now on. It’s that the population is going to keep increasing.
The growing population means that there will, over time, be more and more people fighting over the fixed supply of COEs. While total population growth in 2017 was slower than in previous years, the government has been quite transparent about their intention to continue raising the population through immigration.
Of course, the incomes of new immigrants matter when assessing the effect of population growth on COE prices. But given the attractiveness of Singapore to billionaires and tycoons looking for a low-tax environment in which to stash their wealth, it’s safe to say the prognosis doesn’t look good.
2. Satisfaction (or lack thereof) with other transport options
Many foreigners ask quizzically why so many Singaporeans are willing to fork out a 6 figure sum to drive a car for ten years when we have such a great public transport system.
The answer, as any Singaporean will tell you, is that the public transport system isn’t as great as some guy who’s here on a 3-day vacation thinks.
The MRT system has been plagued with breakdowns and delays the past few years, a problem which has been getting worse with time.
Unless you live and work near an MRT station, travelling time on public transport is still considerably longer than it is by car.
On the other hand, the opening of new MRT stations and lines does mean that travelling time in the absence of breakdowns has been cut for many Singaporeans. For instance, the Downtown line has been a lifesaver for residents of Upper Bukit Timah, who previously had to rely on frustrating feeder bus services.
The scramble for COEs will depend in large part on Singaporeans’ perception of and trust in the public transport system in the years to come.
3. Growth in alternative forms of transportation
For the time being, it looks as though public transport is going to remain unreliable.
Therefore, the only thing that can coax a fall in demand for cars would be growth in alternative forms of transportation.
The most obvious development we’ve enjoyed in recent years is the rise of private car hire services like Grab and Uber. However, due to surge pricing, most people won’t be able to rely on this option all the time.
The introduction of bike sharing has been an encouraging development that has enabled some people to cut their travelling time to MRT stations, while the first electric car-sharing programme is set to launch in December.
In addition, the authorities have been trying to turn cycling into a viable transport option for Singaporeans, and there has also been a spike in the number of people using Personal Mobility Devices like kick scooters and foldable bicycles, which are now allowed on public transport.
Still, Singaporeans have been slow to adopt these alternative forms of transport, many citing the weather and safety issues as reasons for not wanting to use bicycles and PMDs. And at present, bike sharing and electric car sharing with be largely limited to certain areas.
The development of these alternative modes of transport is likely to have a strong effect on the demand for cars in the coming years.
4. The economy and purchasing power of Singaporeans
No matter how gently or violently COE prices rise, cars will never be cheap in Singapore.
How aggressively Singaporeans bid for COEs or whether they’re able to afford to renew their expiring COEs depends on how the economy is doing.
When the economy enjoys strong performance and Singaporeans’ incomes grow, COE prices are likely to go through the roof, while they might fall during a recession.
5. Demand from private car hire companies
Private car hire companies have the power to drive up COE prices should they decide to grow their fleets.
As the proportion of car owners in the Singapore population falls, it is likely that commuters will become more and more reliant on private car hire services like Grab and Uber.
This could eventually lead to Grab and Uber holding an even larger proportion of the available supply of COEs, which would create an upward pressure on COE prices and cause individuals to face stiffer competition.
6. Panic buying
All of the above factors point to COE growth in the long term. But in the short-term, LTA’s announcement is likely to produce panic buying, as Singaporeans rush to get their hands on a vehicle before it’s too late and COE prices spiral out of control. We’ve already caught a glimpse of this in the most recent bidding exercise today, but this might only increase until people realise there’s nothing to really rush for.
Do you intend to buy a car in light of the 0% vehicle growth rate? Tell us in the comments!