Car depreciation in Singapore: Everything you need to know

Mired in a sea of paperwork and taxes, we all know that cars in Singapore are, generally speaking anyway, exorbitant. But just what contributes to this "expense"?

It surely isn't just all about the money you fork out at when you make that deposit at the showroom right?

To make sense of this whole Depreciation equation, you need to first understand the inherent value of the vehicle in your possession.

Uniquely Singapore

Our tax structure incentivises owners to get rid of their vehicles before their original COE is up.

We're not going to do a deep dive in this piece, but in a nutshell, this incentive, or Preferential Additional Registration Fee (PARF), is a percentage of the original Additional Registration Fee (ARF) paid when the car was originally registered.

Also, you can get a refund on the unused COE if you take your car off the roads before its tenth year is up. The PARF and COE value are then added together, and the sum total is taken as the "Paper Value".

As PARF rebates are designed to entice owners into scrapping or exporting their vehicles, these "cashbacks" are forfeited when you revalidate your COE.

COE cars, therefore, have much lower paper values, as you'll only get back the COE rebate should you opt to scrap your car before its COE is up.

Understanding depreciation

Put it simply, depreciation is a more accurate way of calculating the actual financial inlay of car ownership.

To calculate it, you'll need to first subtract the aforementioned paper value, from the original purchase price of the car.

You then divide the final number with the duration of your car's COE to get the final annual depreciation value.

The equation looks a little like this:

(Purchase price – paper value) / years left in COE = Annual depreciation cost

Common misconceptions

There's a common belief that the higher the sale price, the greater the rate of depreciation. Conversely, the inverse is believed to be true as well.

But if you really think about it, depreciation is affected directly by the significance of the gulf in sale price versus the actual ARF value.

Essentially though, the larger the gap between the sale price to the actual ARF, and subsequently the PARF value, the higher the rate of depreciation.

This is because depreciation is calculated by the difference in the two values, divided by the number of months left!

Generally, though, you'd expect your average commuter PARF car to lose around $12,000 - $14,000 a year, with COE cars in the same class losing around $6,500 - $10,000 annually.

Car ownership frustrations

Again, annual depreciation is not the only consideration you need to take note of when buying a car.

There's obviously the issue of finding a finance service provider to actually pay for the car, and with that, there's also the whole interest rate thing to consider too.

Also, maintenance, parking and petrol are all factors that you should keep in mind when you're buying a car, especially if it is your first.

We are all for car ownership, but you should still practice financial proficiency and not severely overstretch your monthly budget.

ALSO READ: A depreciation cost guide for first-time car owners

This article was first published in Motorist.