How Is Car Depreciation Calculated In Singapore?

How is car depreciation calculated in Singapore?

If you are looking to get a car, be it brand new or used, you probably have come by this term of depreciation. Well, what is it exactly when we use the term depreciation in cars? It is simply the value that has been lost or incurred throughout owning the car in the context here. This is often calculated as a figure on a yearly basis. In this article, we will be reviewing how this depreciation is calculated and whether it should be used when you want to buy the car that you have been eyeing on.

Calculating Depreciation

In most online platforms used to facilitate the sales of cars in Singapore, this depreciation is often calculated simply by:

(Price of the Car – PARF Rebate*)/COE Remaining (Years)

*PARF Rebate is always assumed to be of the lowest tier and assumed that the car will be scrapped at the last day of COE expiry date.

Cars which are over 10 years of age will not be eligible for any PARF rebates and the calculation is simply:

(Price of the Car)/COE Remaining (Years)

If a new car costs $110,000 with a PARF Rebate at the end of 10 years of $10,000. The depreciation would be

($110,000 – $10,000)/10years = $10,000/year

If a COE car that has just been newly renewed costs $85,000. The depreciation would be

$85,000/10years = $8,500/year

If you are looking for a simple derivation of car depreciation, this is it. However, it is to note that this method of calculating depreciation is simple since it uses a straight-line depreciation method mainly due to the fact that our COE is 10 years which the COE rebate given upon deregistration at any given time is depreciated using the straight-line method as mentioned. Meaning, a COE of 100k at 5 years would be worth $50,000, or a depreciation on the COE of $10,000 a year. This may not provide an accurate picture to the cost of the car if you intend to sell the car at any point of time before the COE expiry date because the vehicle itself may not depreciate like how the COE does and that the price that you are able to sell may not simply be the price you bought it for less the depreciation that was previously calculated. It however should be used to compare between different cars rather than just comparing the price of the vehicle.

e.g A five-year-old luxury car that cost $100,000* with a depreciation of $20,000 and a brand-new car that cost $100,000* with a depreciation of $10,000. While both prices are the same, the second car provides better pricing in terms of value which is shown in the depreciation.
*assumes after any PARF rebates.

Factors to take note of

There are many factors that can affect your car price at the point of selling and often or not, it would be good to anticipate for more than the depreciation you first calculated if you intend to sell it any time before the COE Expiry date. There are exceptions to this, the two main possible exception are if the COE prices have increased significantly when you are selling the vehicle or when the value of your specific vehicle is rising due to increased demand.

An example of the latter can be seen in rare vehicles such as the Honda S2000. If you were to purchase one in 2008 to 2009, it would have cost an approximate $150,000 with an PARF of $20,000, this results to a depreciation of $13,000 a year. The same vehicle today, is sold with a depreciation of $26,000 to $30,000. This also means that if you were to own this vehicle from day 1 and sold out today, your actual costs would be significantly lower than $150,000.

This would imply that you spent only $40,000 to drive a vehicle for 14 years or a depreciation of less than $3,000 compared to when we first bought the car the depreciation was $13,000. This would be incredibly unlikely for the most of us as most of the vehicles are worth only it’s PARF rebate with addition to some scrap value of the vehicle after the expiry of their COE. If you are interested in finding out your car’s scrap value, you can read our article on it here!

*Note that this is a unique example with the values rounded simply to illustrate the possibility of inaccurate depreciation due to market factors and should not be assumed to happen regardless of which make and model you purchase.

Besides those factors usually, the odds are against you, there are many factors which can reduce your car’s value such as damaged paintwork, high mileage, warranty and possibly the most important, COE price decreasing can result to the overall decrease in value of the vehicle which leads to the increased depreciation of the vehicle. With the most emphasis to COE prices decreasing for majority of the cars.

Conclusion

While the term depreciation is used to gauge how much value the vehicle loses in a year, it is simply just an estimation and you should not use it to calculate how much the car costs for the specific year, especially so if you intend to sell it within before the COE expiry. We however do still recommend using depreciation as a metric when searching for your vehicle as it is able to give you a more accurate value than just the price alone.