Friday, January 10, 2014

Singapore Roads for the Rich

An entitlement to pay a fortune

A 3-series BMW in Singapore can cost $213,000, six times the price in the US. And yet, Mercedes and BMWs led car sales in 2013, making up one third of all vehicles sold in the island state. Such is the consequence of Singapore’s controversial car ownership policy intended to manage traffic congestion and encourage use of public transportation. What does the policy entail? At the heart of it is the government-mandated Certificate of Entitlement, or CoE, which confers the authorization to own a private vehicle for ten years. The CoEs are rationed according to a formula tied to a strict vehicle growth limitation. The selection process and value of CoEs are set at auctions that are open to the public and occur twice a month.
The result is a classic case of unfettered capitalism’s effect on prices and on wealth disparity. As a general rule, without caps and constraints, scarcity for highly desired products make them vastly more dear, particularly in economies with borders that allow the free inflow of money and investment. As wealth has increased in Singapore, the winning bids for CoEs has crested $80,000, even for run-of-the mill Toyotas. So naturally, as CoE prices rise into the stratosphere, more and more of those who can afford it also prefer luxury cars rather than Hondas and Peugeots. Carried to an extreme, this trend can lead to the odd sight of wide, leafy tropical boulevards populated only by either bling-mobiles or public buses. But such societal oddities are what observers have come to expect from everyone’s favorite nanny-state.
Bloomberg article with full details:

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