New annual vehicle growth rate for Singapore in 2018 and what it means for car buyers and more

Singapore
The Land Transport Authority (LTA) announced today that the vehicle growth rate will be reduced from 0.25 percent per annum, to zero percent, starting in February 2018.

The growth rate has been steadily dropping over the years: In February 2015, it was halved from 0.5 percent to the current 0.25 percent. In 2009 the growth rate was 1.5 percent, and previously tagged to the rate of expansion of Singapore’s road network.

The new rate applies to all passenger cars (Category A and B) and motorcycles (Category D). Category C, for commercial vehicles, will remain at 0.25 percent until the first quarter of 2021 to “improve the efficiency of their logistics operations and reduce the number of commercial vehicles that they require.” The total vehicle growth rate will be re-evaluated again in 2022.

In its official statement, the LTA said, “In view of land constraints and competing needs, there is limited scope for further expansion of the road network.” It also quotes the expansion of the public transportation network –  and the emphasis on a car-lite approach to transportation.

What does this mean for carbuyers, and the rest of us?

1. Certificate of Entitlement (COE) prices, and thus car prices as whole, won’t skyrocket. That’s because the growth rate is already very low – 0.25 percent of anything isn’t very much.

Growth rate will affect car prices by limiting supply through COEs. The COE quota is determined by two main factors, the rate of de-registrations, and the growth rate. 

As explained in the LTA’s COE quota breakdown, it accounts for a measly 198 units for Cat A, and 176 units for Cat B over the entire three-month COE quota period. In other words, for Cat A and B, who have a monthly quota of 3,360 and 2,748 units respectively, the nil growth rate results in 66 and 59 units fewer, respectively, per month.

The LTA itself says as much, “The adjustments to the vehicle growth rate are not expected to significantly affect the supply of COEs, as the COE quota is determined largely by the number of vehicle deregistrations.”

In other words, in future the COE supply will be entirely based on how many cars exit the system (or are ‘scrapped’). To allow for a new vehicle to come in, an older one has to go out. 

It’s this characteristic which has led to boom-and-bust cycles in the car industry, as sales in some years (and thus de-registrations a decade later) are higher than others, as the age chart of Singapore’s vehicles show.

If anything, the short term increase in car prices is going to come from the Vehicle Emissions Scheme (VES) which begins in 2018. As a result of its more stringent metrics, you can expect the prices of all cars to go up, across the board.

2. The approach to vehicle growth finally makes sense. That’s because, as mentioned, the growth rate used to be tied to the rate of expansion of the road network. That was, in a nutshell, nonsensical.

New roads are typically built in new areas – such as Punggol – so to justify more vehicles on Singapore’s limited land-space because of this made no sense. Also, Singapore’s total vehicle population came close to hitting the magic one-million vehicles mark in the early 2000s, which is why a sudden about-turn on vehicle loans and more made COEs prices skyrocket after 2007.  

Roads currently make up 12 percent of Singapore’s 719.7 square km land area, with 9,310 lane kilometres of road here. According to the Ministry of National Development, defence requirements take up the most space, 19 percent, behind that comes housing and industry/commerce which make up 14 and 13 percent respectively. Additionally, while road space itself takes up 12 percent, we also need space to park Singapore’s 956,430 vehicles. 

3. If we have any complaints about the new rulings, it’s that the categories are still not treated equally. Category C gets a free pass (#becausebusiness, presumably) and while Cat C vehicles are now subject to Euro VI requirements too and there’s an Early Turnover scheme, consider that commercial vehicles spend a lot more time on the road than privately-owned ones, which are parked for most of their lifetime. This is important given our air quality is not as good as you might think.

Also it shows that the LTA is continuing its ‘motorcycles are cars with two-wheels’ approach to decision making. Motorcycles have been struggling with high COE prices, new ARF taxes, despite the fact that they do not contribute to congestion. It’s ‘car-lite’ not ‘motorcycle-lite’ if anyone’s listening.