The Straits Times
Oct 14, 2011
Shopping for new car? Expect high prices next year
By Christopher Tan
SINGAPORE'S vehicle population growth rate is likely to fall within the prescribed ceiling this year - the first time since 2004.
Going by estimates based on vehicle population figures in the first eight months of the year, there will be about 954,000 vehicles on the road by year-end, 0.9 per cent more than last year.
The increase would be well within the 1.5 per cent growth cap implemented during the 2009 COE quota year.
Before 2009, the allowable annual growth rate was 3 per cent.
It was the halving of the growth rate, as well as measures to counter an oversupply of certificates of entitlement in 2008, that has slashed the number of COEs available for vehicle buyers and sellers.
From an annual supply of more than 130,000 COEs in the mid-noughties, the quota is now barely 45,000.
Last week, Transport Minister Lui Tuck Yew said the annual vehicle growth rate will be cut further from next year.
If the rate is again halved, to 0.75 per cent, it is probable the COE quota for next year will fall to an all-time low of 40,000. Or even lower.
If there is no drastic change in external factors such as the state of the economy or employment rate, COE premiums will head north with the supply shrinkage.
Even if external factors turn bearish, COE prices may not dive, despite a weakening appetite for cars. History has shown that the biggest influence on premiums is the supply of certificates.
With the COE quota expected to slide below the previous record low in 1996, the underlying demand for cars - even if dampened by economic factors - is still likely to far outstrip supply.
More so now that Singapore's population has grown by 41 per cent since 1996.
Also, unlike before 2003, the taxi companies have become a major COE bidder. This is because the taxi population has grown significantly over the last decade, and there are now more players. These factors fuel competition for COEs.
So, for those in the market for a new car next year, be prepared to pay record prices. Quite likely, more than the $100,000 sellers are asking for a compact Japanese model.
For those willing to exercise some restraint, the old adage 'what goes up must come down' will still hold true.
COE supply will start to increase as the big cohort of cars registered during the COE boom years of 2003-2008 come of age and are scrapped.
While the allowable annual growth rate determines COE supply, the biggest factor is still the number of vehicles taken off the road, as new COEs are issued to replace expired ones.
Going by the age profile of passenger cars on the road today, it is quite likely that COE supply will start to rebound from as early as the second half of 2013.
This does not mean premiums will plummet in 2013. It just means that supply - which will hit rock bottom next year - would begin to recover.
It will take a couple more years before COE supply becomes sizeable again. 'Sizeable' would be around 60,000-80,000 a year.
This should happen in 2014-15. And by 2016, COE supply could be back to the six-digit region. The supply will stay generous for a couple more years before starting to shrink yet again.
Barring a fundamental change to the COE supply formula, the car market will continue to experience this see-saw effect. COE premiums and corresponding new car prices will continue to fluctuate with COE supply.
By 2016, distance-based electronic road pricing - now being tested - could be ready for implementation. The system will charge drivers not only for when and where they drive, but also for the kilometres they clock.
This will make for a more precise and equitable way of controlling congestion.
Perhaps by then, more COEs can be released - as was the case when the current ERP system was implemented in 1998. This will allow Singapore to accommodate a higher car-ownership rate, while maintaining a relatively free-flowing road network.
Those who choose not to jostle for a COE will also have more alternatives by 2016. The first two stage of the Downtown MRT Line would be up and running.
So would the Tuas Extension, which hopefully will reduce traffic to the huge industrial area in the west.
Until these pieces of the transportation plan fall into place, consumers and commuters should temper their expectations.
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Fewer scrapped
THE number of vehicles taken off the road plunged to an all-time low last month.
The sharpest shrinkage was for smaller cars. Only 363 units were deregistered - less than one-tenth August's figure.
The number of taxis scrapped has also more than halved to merely 43 units.
On the whole, 2,017 vehicles were taken off the road, according to just released data from the Land Transport Authority. That is fewer than half August's total of 5,503.
This does not bode well for the next six-monthly supply of certificates of entitlement (COE) starting February.
COE supplies are determined largely by the number of vehicles taken off the road in the immediate preceding six-month periods.
On top of that, the Government had indicated that the annual vehicle population growth cap would be cut from the current 1.5 per cent from February.
Hence car buyers and sellers are likely to face a double whammy, which will translate to fewer COEs and, consequently, higher prices.
Although the drop in deregistrations was not entirely unexpected, the severity of the shrinkage shocked many in the motor trade.
If the low numbers persist, next year's COE supply - already expected to be the smallest since the COE system started in 1990 - will be even smaller.
Trade observers say most, if not all, of the older cars which had their COEs revalidated 10 years ago have been scrapped by now. Going forward, motorists with cars that are below 10 years of age are expected to hang on to them because buying a new one has become too costly a proposition for many.
CHRISTOPHER TAN
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