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Understanding How Car Value Depreciation Works in Singapore

When you buy a new or used car, it is important to consider the annual depreciation of the vehicle. This depreciation will show you the true cost of owning and operating the vehicle on an annual basis, in addition to the costs of gas and maintenance. This concept is important to understand as it impacts the value of your car, and ultimately how much you can earn by selling your car in the used car market. The formula for calculating depreciation is shown below.

Annual Depreciation = (Total Cost of Vehicle – Sale Value of Vehicle) / Number of Years in Service

For example, a vehicle which is purchased for S$10,000 and sold for S$2,000 in 10 years would have an annual depreciation of S$800.

(S$ 10,000 – S$ 2,000) / 10 years = $800 annual depreciation.

In Singapore, however, the process of calculating vehicle depreciation is more complicated. There are significant taxes and fees associated with owning and operating a vehicle on the island. As a result, there are a number of other important costs to include in the “Total Cost of the Vehicle” calculation shown above.

Certificate of Entitlement

As the 29th most densely populated country in the world, overcrowding in the streets is a major concern for the Singaporean government. With this is mind, the government of Singapore enacted a quota system in 1990 which helps regulate how many vehicles are in operation on the island. To summarise, the system requires car owners to bid on a Certificate of Entitlement (COE) to have the right to register, own and use their vehicle within Singapore for 10 years.

While most countries have a similar registration systems for vehicles, Singapore is special in that the cost of a Certificate of Entitlement can be enormous. This is because COE is sold on an auction basis, and the high demand for car ownership and the subsequent competition for COEs have driven up their prices. The chart below shows current prices from January 2017. This represents the auction price for the 1st round of bidding that happened on 5 Jan 2017. There will be another round of bidding before the end of the month, with 2 rounds happening each month of the year.

CategoryType of VehicleAuction PriceMonthly Quota
ACar and Taxi (below 1,600cc)S$50,1013,688
BCar (above 1,600 cc)S$ 53,1062,486
CGoods Vehicle and BusS$46,302361
DMotorcycleS$6,053741
EOpenS$53,001799
Prices shown are from Oneshift.com and are from January 2017; Quota is from ITA website

Once the COE ends after a 10-year period, the owner must decide to renew the COE at the new current prices or scrap the vehicle. This COE has no resale value at the end of the 10-year period, making it a true wasting asset. If a vehicle is scrapped prior to the 10-year COE period ending, a credit for any unused time will be paid to the owner of the COE. This credit is pro-rated, meaning that a vehicle used for only half of the COE time frame (5 years) will receive half the COE price back.

But the COE is just one component of car depreciation in Singapore. Follow these steps to figure out how other factors impact the value of your vehicle.

Step 1: Know the OMV

The OMV, or Open Market Value, of a vehicle is assessed by Singapore Customs as the vehicle enters the country. This value includes the purchase price of the vehicle, shipping and any other charges included in the delivery of the vehicle to Singapore. The seller of the vehicle will know the OMV of the vehicle and should be able to provide this information as you consider the purchase.

Step 2: Determine the RF and ARF

RF stands for Registration Fee and ARF stands for the Additional Registration Fee. Think about these items as taxes on registering a vehicle in Singapore. While the RF is a flat fee of $140, there is now a tiered ARF system for vehicles registered with COEs, which can be an enormous amount. ARF is based on the OMV of the vehicle, and ranges from 100% to 180% of your car's value. Together, COE and ARF are the main reasons why cars are so expensive in Singapore.

Open Market Value (OMV)Additional Registration Fee
First S$20,000100% of OMV
S$20,001 to S$ 50,000140% of OMV
+S$50,001180% of OMV
Table shown is from the Land Transport Authority

Step 3: Determine the PARF

When the car is de-registered and scraped at the end of the 10 year period, a Preferential Additional Registration Fee (PARF) can be received from the Land Transport Authority of Singapore. This is a sliding scale which is based on the age of the vehicle when it is de-registered and scrapped.

Age of VehiclePARF Rebate
5 Years or Less75% of ARF
5 – 6 Years70% of ARF
6 – 7 Years65% of ARF
7 – 8 Years60% of ARF
8 – 9 Years55% of ARF
9 – 10 Years50% of ARF
10 Years or OlderNot eligible for rebate
Table shown is from the Land Transport Authority

Putting It All Together

As we mentioned, depreciation is calculated with the following formula:

Annual Depreciation = (Total Cost of Vehicle – Sale Value of Vehicle) / Number of Years in Service

In Singapore, it is critical to include the cost of the COE, RF and ARF in the “Total Cost of the Vehicle”. Just as important, any PARF payment which is received should be added to the Sale Value of the Vehicle. By putting all of these items together, you can figure out the true cost of owning and operating a vehicle.

This information can be especially valuable for new or used car buyers who are considering purchasing a car with help of financing for car loans. Not only should you be making sure you can afford to make the monthly repayments to the bank, you should also be aware of how much (or little) you can recover when you end up selling the car so that you can use the proceeds to pay off your remaining principal.

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