Questions abound as the November-January supply of certificates of entitlement dips unexpectedly.
Questions abound as the November-January supply of certificates of entitlement dips unexpectedly.
CHRISTMAS is here once again. But you won’t be getting any presents from Santa, regardless of whether you have been naughty or nice – at least not presents that are automotive in nature. The COE supply for the November-to-January quota period is marginally smaller than the previous three-month quota. This is despite wide expectations that supply will keep increasing till some time in 2018. There are two main reasons for the phenomenon – one, motorists are extending the lifespan of their cars; and two, rental companies are snapping up old cars in response to demand whipped up by the likes of Uber and GrabTaxi.
Because COE supply is determined largely by the number of vehicles scrapped in the preceding three months, a slowdown in scrappage translates directly to a shrinkage in COE supply. Does this mean that COE supply will stagnate now? No. In all likelihood, supply will be back on the growth path when the 2016 February-to- April quota comes along. That is because a sizeable cohort of the car population will reach the 10th year in the next couple of months. The numbers will be too huge even for Uber and GrabTaxi.
These companies, incidentally, are likely to face some form of regulation soon – a development that is likely to crimp demand from people who want to drive for them either because they want access to a car on the cheap, or because they are disenchanted with driving a regular cab for a living. So, what will this do to COE prices? While it might be pretty obvious for premiums to rise when supply shrinks, it may not happen. This is because those who extended the lifespan of their cars or those who took to driving for Uber and GrabTaxi will not be in the market for fresh COEs. Premiums would probably rise initially on sentiment alone, because the mere knowledge of a dip in supply (no matter how small) is enough to drive dealers to bid more aggressively.
The pattern of the commercial vehicle category already attests to this. Because buyers responded to the Early Turnover Scheme, there were fewer fresh Category C COEs available. Premiums rose initially, but stabilised soon after. In the scheme, buyers junk their old, polluting trucks for “clean diesel” models at a discounted COE premium. As this move is equivalent to a COE revalidation, no fresh COE is released for the clunker that was scrapped. Now, the problem is the huge cohort of people who are scrapping their cars in the next couple of months. Most (not all) will be in the market for a new car. This might neutralise the factors that keep premiums stable, if not drive them down outright. The question is, how powerful will this neutralising component be? Going by historical evidence, it would not be powerful enough to halt a downward trend in premiums.
Consider this: There has been a lag in supply and demand since five years ago, when the Government reverted to basing quota size on past deregistration figures instead of forecast deregistrations.This means those who scrapped their cars between, say, August and October will have fresh COEs assigned to their deregistered vehicles only between November and January. That means a three-month lag. Despite that, COE premiums have been on the downtrend since supply started growing last year (2014) after a sevenyear contraction. From highs of over $90,000 in 2013, premiums slid to $70,000-$80,000 in early 2014 and to $60,000- $70,000 by late 2014. By the time of writing in October 2015, they had settled to below $60,000.
THE (COE) POWERS THAT BE
How will Mr Khaw Boon Wan (above, left) – a strong advocate of cycling, walking and public transport – alter the COE system? For as long as we can remember, every transport minister has made his own modification (or modifications) to the 25-year-old system. Or it could be that COE tweaks are so frequent that no ministerial tenure, no matter how short, can possibly run out without one happening under his watch. Mr Khaw’s predecessor, Mr Lui Tuck Yew (above, right), said before he stepped down that there would not be any saving of COEs for the next supply “dry spell”. That’s good news for those who have been waiting for supply to surge. Mr Khaw is unlikely to overturn Mr Lui’s pronouncement. In Singapore, the Government acts as one fairly unified entity, unlike other countries, where public policies are sometimes personality-driven.
So, that is a good $30,000 drop in just two years or so. Hence there is more than a fair chance that prices will continue to drop when supply gets back on the growth path. Of course, the slide in premiums would have been sharper if we still had the forecast deregistration method of allocation. The forecast method, if carried out well, is more responsive to actual demand. All eyes are, meanwhile, on new Transport Minister Khaw Boon Wan (see box story on previous page). The annual allowable growth rate for the car population is already at 0.25 percent. But in actual fact, the car population has been shrinking – from 607,292 in 2013 to 581,208 as of this September.
That works out to a 4.3 percent shrinkage over two years. This is because the 0.25 percent growth rate is not large enough to off set the threemonth lag between scrappage and COE allocation. If this continues, the car population will, by 2020, shrink to around 523,000 – or back to 2007 levels. Even lower, if the Government decides to go with zero growth (as Senior Minister of State for Transport Josephine Teo declared recently). But by 2020, road capacity would have grown noticeably with new underpasses and viaducts, a new semiexpressway through Bukit Brown, followed by the new North-South Expressway, which runs almost parallel to the Central Expressway.
So folks who are fortunate or wealthy enough to own a car by 2020 will have lots of road space to themselves. The next-generation electronic road pricing system (ERP), which uses satellite technology that allows the number of priced roads to scale up liter ally overnight, would also be in place by then. Ironically, if the car population were to revert to 2007 levels, and the road network designed to cater to demand in 2020 and beyond, will there still be a need for such an invasive ERP system? But here’s the thing: Motorists may not mind the occasional beep from their in-vehicle unit because the roads will be more freeflowing than they are today. For them, Christmas could well be every day.
