Ask not if it's a good time to buy a car

People viewing new cars at the Audi showroom.
People viewing new cars at the Audi showroom.PHOTO: ST FILE

But ask: How soon do you need to scrap your car?

Is it a good time to buy a car?

I get that question a lot but, in recent months, it has almost become a de facto greeting. Instead of "hello", "how are you?" or "it's a hot day, isn't it?", I get: "Is it a good time to buy a car?"

I will try my best to answer the question which has obviously been keeping many Singaporeans awake at night.

I will start by saying it is an irrelevant question - for the vast majority, anyway. Today, your decision to buy a car depends much less on where certificate of entitlement (COE) prices are at, than how old your current vehicle is.

More than half of Singapore's private car population is currently more than seven years old.

That is quite a phenomenon, especially when you consider that we had one of the youngest car populations in the world merely a decade ago.

The state of affairs has to do with how COE supplies are determined here, but more on that later.

So, with so many old cars on the road, the pertinent question is: How many more months do you have before you need to scrap your current ride?

Got it? Now, just before the end of that period would be a good time to buy.

Going by anecdotal evidence, this is how motorists have been behaving. Because COE prices are so high, most people are keeping their cars until the last possible day of the vehicle's 10-year statutory lifespan.

I say most people because there are those with means who will buy regardless of price. These folks do not ask "is it a good time to buy a car?" Rather, their de facto greeting tends to be "what is a good car to buy?" If you belong to that group, you can stop reading now and go to Life! Motoring to check out this week's suggestions.

For the rest of you, and I count myself among you, I stand by my earlier recommendation: Use your car to the fullest - it not only makes good economic sense, but it is also environmentally sound.

That is exactly what I am doing with my Toyota Wish, which is 91/4 years old now. I bought it in 2006, with a $9,000 COE.

COE premiums are highly unlikely to ever go back to that level. Singapore's human population has grown by 23 per cent - or one million people - since 2006.

So, demand for cars has gone up significantly.

The way COE supply is formulated has also changed. Today, supply - determined every three months - hinges on the number of vehicles scrapped in the preceding three months.

Thus, supply tends to lag behind real demand. In the past, the allowable annual growth of 3 per cent might have masked this lag. But now, with the allowable growth rate at 0.25 per cent, any new injection of COEs is too minuscule.

To illustrate, this rate translates to merely 134 fresh car COEs per month in the current quota period. Or 3.5 per cent of the total number of COEs available to car buyers.

It is not a pretty picture. Nevertheless, the quota is poised for a dramatic growth between now and 2017, before it starts to taper again from mid-2018.

With this supply explosion, prices will be on a downward trend. They could be as low as $30,000 for Category A (cars up to 1,600cc and 130bhp) and $40,000 for Category B (cars above 1,600cc or 130bhp). When? Sometime between 2016 and 2017.

But that is irrelevant if your car is due to expire earlier.

If your car has a couple more years before its time is up, you are in a good position because the ensuing COE bonanza is likely to translate to prices substantially lower than at present.

This will happen provided the Government does not hold back some certificates for the next "dry spell", which is due to start in late 2019.

Even though Transport Minister Lui Tuck Yew first mooted this three years ago, there has been no word yet on whether he will do it.

There has been much speculation. One recurring theory is that the Government will not do anything that is as unpopular as this before elections.

And indeed it will be unpopular even though, over the long term, it will lead to more stability for car buyers and sellers. Unpopular because it will lead to tens of thousands of car-owning households not being able to own a car, at least in the medium term. And it will lead to COE prices heading for the moon in the near term.

This implies that any decision to hold back COEs will be made after the polls.

I know what you are thinking now. Better buy soon, before the election is called. But that would be foolish. One, very few people know when elections will be called. Two, a pre-election rush to the showroom will lead to only one thing: higher prices.

Barring systemic changes, I stick to my original advice: Buy only when your car is near expiry. And if prices are still high then, consider revalidating your COE for another five or 10 years. It may still be a costly move but, in the long run, far less expensive than buying another car.

christan@sph.com.sg