Are COE Prices Really Going To Explode With a 0% Vehicle Growth Rate?
Singaporeans on car forums found themselves despairing when the LTA announced that they would cut the vehicle growth rate to 0%. The vehicle growth rate for private passenger cars and motorcycles will be adjusted from the current rate of 0.25% to 0% in February 2018.
Of course, the biggest gripe on everyone’s lips is the impending rise of COEs. But are cars really going to instantly become ten times more expensive in February?
What does a 0% vehicle growth rate really mean?
A 0% vehicle growth rate sounds scary, but it isn’t as massive a change as many people believe.
At present, the vehicle growth rate for private passenger cars and motorcycles is only 0.25%.
If we take the number of all registered cars in 2016, 575,353, a 0.25% vehicle growth rate means the car population would have increased by just 1,438, which isn’t much when you consider the entire car population is more than half a million.
Of course, this doesn’t mean that new car owners are fighting over just 1,438 COEs. Thousands of COEs are returned to the system each month when existing COEs expire or when cars get deregistered.
By cutting the vehicle growth rate to 0%, the LTA will be keeping the number of COEs stagnant. The effect on the total number of COEs in the short-term will not be that great, since the vehicle growth rate was already relatively low to begin with, and the stock of COEs will continue to be replenished by expiration and deregistration.
How does this affect COEs?
In the short-term, the number of vehicles on the road won’t be too drastically affected.
There will be some lag-time before the effects of the cut in vehicle growth rate are felt, because the main supply of COEs is deregistration of existing vehicles. In the next few years, the vast majority of deregistered vehicles will be those that were bought before the vehicle growth rate was cut to 0%.
In the medium- to long-term, the supply of cars will indeed shrink relative to the population, as Singapore’s population is likely to continue to grow through immigration (what did you think? Singaporeans giving birth? Please). That means a smaller and smaller percentage of the population will be car owners.
But the price of COEs is dependent also on demand, which isn’t so easy to predict. If there is an economic recession or the MRT suddenly stops breaking down, demand for cars might actually fall. Big “ifs” for sure, especially the latter, but just a sample of the different external factors that might influence COE prices more significantly than a 0% growth rate.
What will happen in the future?
As the car supply stagnates, a rising number of existing car owners might choose to hang on to and renew their existing COEs.
This could happen because renewing your COE for another ten years is usually cheaper than getting another car, especially for more expensive car models which tend to have a longer shelf life.
The higher COE prices soar, the higher the proportion of cars that are high-end models—the very cars whose owners are more likely to renew COEs. What’s more, with COEs in shorter supply, existing car owners may prefer to renew their COEs due to fear or not being able to successfully bid for one on the open market.
Another factor influencing COE prices will be private hire car companies buying cars off the public market. If the proportion of car owners in the population falls, demand for Grab and Uber rides will soar, which could push private car hire companies to grow their fleets—at the expense of the COE supply.
What should the government do?
0% vehicle growth means that car ownership will increasingly be concentrated in the hands of the rich and private car hire companies in the longer term.
Class divisions will be all the more stark, and we could soon find ourselves in a society where middle class families are unable to afford cars, while the super wealthy elite own several. To add insult to injury, those who are unable to afford cars will, at least in the short- to medium-term, have to deal with the discomfort and stress of using an unreliable public transport system.
In order to mitigate social tensions caused by increasing inequality, the government might want to consider carving out different classes of vehicles so that those who need cars—such as families with young children and motorcycle delivery riders, to mention a few, are not competing directly with rich ministers and tycoons for COEs.
How do you think 0% vehicle growth will affect car buyers? Share your views in the comments!