Cars are notoriously expensive in Singapore. In fact, Singapore is the most expensive country in the world to be owning one. However, contrary to popular thinking, it’s not the price of a car that makes it expensive to own, but rather, how quickly it depreciates and subsequently, its scrap value.
After all, if you can buy a car for $100,000 and sell it after ten years for $90,000, then a car wouldn’t actually be considered too expensive.
Of course, that is just a hypothetical and not the actual case. In reality, cars in Singapore suffer a high depreciation from the moment you drive them out of the showroom, until the 10-year mark.
Read Also: Why Are Cars In Singapore So Expensive?
Buying A Brand-New Car & Owning It For 10 Years
If you intend to buy and own a car for ten years before deregistering it, the scrap value of the car at year 10 will be 50% of your Additional Registration Fee (ARF). This is also known as your Preferential Additional Registration Fee (PARF) rebate.
You also receive the COE rebate, but since you are deregistering after ten years, there is no CEO value left.
| Age Of Vehicle When Deregistered | PARF Rebate |
| < 5 years | 75% of ARF |
| 5 to 6 years | 70% of ARF |
| 6 to 7 years | 65% of ARF |
| 7 to 8 years | 60% of ARF |
| 8 to 9 years | 55% of ARF |
| 9 to 10 years | 50% of ARF |
| More than 10 years | No ARF rebate |
The ARF is calculated based on the Open Market Value (OMV) of the car as assessed by Singapore Customs. It uses the following formula.
| OMV Of Car | ARF Rates |
| First $20,000 | 100% of OMV |
| Next $30,000 (i.e. $20,001 to $50,000) | 140% of OMV |
| Above $50,000 | 180% of OMV |
For example, a car with an OMV of $30,000 will have an ARF of $34,000. If you deregister the car after 10 years, your Preferential Additional Registration Fee (PARF) rebate will be $17,000 (50% of $34,000). The PARF rebate can be considered as your scrap value at that point in time since there is no COE value left after ten years.
In Singapore, the cost of a car comprises many factors. These include the OMV, ARF, GST, Registration Fees, Vehicular Emission Scheme (VES) Surcharge (if any), dealer markup and COE. So, a car with an OMV of $30,000 can cost $150,000 or more.
With a sales price of $150,000 and a scrap value of $17,000 after 10 years, this means your annual depreciation would be $13,300 [($150,000 – $17,000)/10].
As a potential buyer, it’s worth noting that while factors such as OMV, ARF and COE do have a significant impact on the sales price of a car, an increase in any of these variables does not necessarily mean the sales price of cars have to go up. Likewise, a decrease in sales prices does not necessarily translate into any of these cost factors going down.
For example, if you get a discount of $5,000 from your dealer for buying the same car, your ARF does not decline, and thus, the scrap value of your car still remains the same after ten years. This means your annual depreciation is now lower by $500 at $12,800.
Higher Depreciation Incurred If You Buy A Brand-New Car & Deregister It In 5 Years
If you deregister your car within five years, you will enjoy a PARF rebate of 75%.
Based on the example above, your PARF value rebate would be $25,500 (75% of $34,000). You will also receive a COE rebate since there are five years remaining on your current COE. If your COE costs $60,000, this means your CEO rebate would be $30,000. In total, your scrap value would be $55,500 ($25,500 PARF value rebate + $30,000 COE rebate).
As such, your annual depreciation would have been $18,900 [($150,000 – $55,500)/5] over the 5-year period that you were driving the car.
Since the depreciation is so high, it makes more sense to sell the car in the secondhand market where you can probably get more for it, rather than deregister it after five years.
Lower Depreciation If You Buy A 5-Year-Old Used Car
If you buy a used car, your depreciation generally tends to be lower. However, this isn’t automatic and is very much dependent on how much you pay for the car.
If you buy the same car mentioned above for $75,000 with 5-year left on its COE, your annual depreciation will be $11,600 [($75,000-$17,000)/5]. This would be slightly lesser than the annual depreciation of $13,300 that you would have incurred had you bought it new and owned it for ten years. It’s also the reason why some car owners prefer to let another owner incur the high depreciation of owning a car in the earlier years, and to buy it in the used car market when the depreciation becomes lower.
However, if you pay $80,000 for the same car, your annual depreciation is now higher $12,600. In such instances, from an annual depreciation standpoint, you might be better off just trying to negotiate a better price with the dealer and to buy the car new. In our example, a $5,000 discount off a brand-new car would lead to an annual depreciation of $12,800, which is just $200 a year more.
Read Also: 5 Things To Know Before Buying Pre-Owned Cars In Singapore
What Happens To The Scrap Value/PARF Rebate If You Renew Your COE After 10 Years?
If you renew your COE after ten years, you immediately lose the PARF value rebate. In addition, you will have to pay the Prevailing Quota Premiums (PQP).
If your PARF value rebate is $17,000 and a new COE costs you $60,000, the COE renewal would actually be costing you $77,000. This means that your depreciation for the next 10 years for the car would be 7,700 per year. The other way to think about this is that choosing to renew the car COE after 10 years won’t just cost you the COE price, but also the PARF Value – since this is an amount that you would forfeit for extending the COE. If you extend the COE for 5 years only, you also lose the PARF Value.
Depreciation Is Based On Two Factors – PARF Value Rebate/Scrap Value And Sales Price
If you don’t already know, you can (and should) negotiate the price of a car before purchasing it. The sales price of a car will affect your depreciation cost, regardless of whether you buy a new car or a used car.
However, a higher sales price doesn’t necessarily translate into a higher depreciation all the time.
At a simplistic level, if we look at two cars.
Car A costs $150,000 with a scrap value/PARF value rebate of $17,000 after ten years. Annual depreciation is $13,300.
Car B costs $145,000, with a scrap value/PARF value rebate of $10,000 after ten years. Annual depreciation is $13,500.
In this instance, while Car A is the more expensive car, its annual depreciation is lower because it has a higher OMV, which translates into a higher ARF and thus, a higher scrap value/PARF rebate.
However, if you extend your COE after 10 years, you would lose the PARF value rebate and thus, the depreciation for Car A over the first 10-year period would then be higher.
Read Also: 5 Cheapest Cars You Can Buy In Singapore In 2021
This article was first published on 11 August 2020 and we have updated it with additional information.
The post How To Calculate The Depreciation And Scrap Value Of A Car In Singapore appeared first on DollarsAndSense.sg.
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