Quick Guide to Car Depreciation in Singapore for Expats
As you settle into the vibrant rhythms of Singapore, you might be contemplating the idea of owning a car in this city-state. But before you take that leap, there's a crucial concept you need to grasp: car depreciation. In Singapore, understanding car depreciation isn't just helpful—it's essential. So, buckle up, and let's navigate this road together.
Imagine buying a shiny new toy, and as the days go by, it loses its shine and value. That's precisely what happens with cars. Car depreciation is the reduction in your vehicle's value over time. In simpler terms, it's the difference between what you paid for your car and what you'll get when you decide to sell it. And in Singapore, this concept takes on a unique twist.
You might have heard the whispers – cars in Singapore are expensive. But have you ever wondered why? The primary culprit is the high rate of depreciation. If you buy a car for $100,000 and sell it after 10 years for $90,000, you've lost $10,000 in value over a decade. But in Singapore, you could be looking at a depreciation value of $10,000 each year for a brand new car. Yes, you read that right!
COE in Singapore
Now, you might be wondering, why is car depreciation so high in Singapore? Enter the Certificate of Entitlement (COE). The COE is a unique system in Singapore. It's essentially a license to own a car for a decade. Given the limited space in Singapore, the government uses the COE to control the number of vehicles on the road. But here's the catch: COEs don't come cheap. They are auctioned, and their prices can fluctuate based on demand and supply. This COE, when combined with other costs, plays a significant role in car depreciation.
But the COE isn't the only factor at play. There's also the Open Market Value (OMV) to consider. The OMV is the actual price of the car before all the additional costs are added. These costs include taxes, duties, freight, and even the COE. On top of the OMV, you have the Additional Registration Fee (ARF), a tax imposed on all cars. The ARF is calculated as a percentage of the OMV, and it can range from 100% for the first $20,000 to a whopping 320% for values above $80,000.
PARF and How it Works
Then there's the Preferential Additional Registration Fee (PARF). When you hear the term 'paper value' in Singapore, it's referring to the PARF and COE rebates. If you deregister your vehicle within the first 10 years, you're entitled to a PARF rebate, which is a percentage of your ARF value. However, for cars older than 10 years, there's no PARF rebate when the vehicle is deregistered.
With all these factors in mind, let's delve into the nitty-gritty of calculating car depreciation in Singapore. To calculate the annual depreciation of a car:
- Determine the deregistration value (sum of PARF and COE rebates).
- Subtract this value from the car's purchase price.
- Divide the result by the number of years you plan to own the car (typically 10 years due to the COE).
For instance, if you buy a car at $100,000 and its deregistration value is $40,000, the depreciation is ($100,000 - $40,000) / 10 = $6,000 per year.
Case Study: The Toyota Corolla Altis
Let's take a popular car model in Singapore, the Toyota Corolla Altis, as an example. Suppose you purchase a brand new Altis for $100,000. The OMV of the car is $20,000. The COE, at the time of purchase, is $40,000. The ARF, calculated at 120% of the OMV, comes to $24,000.
Now, if you decide to sell the car after 5 years, the COE rebate would be $20,000 (half of the COE value since half of its 10-year validity is left). The PARF rebate, at the 5th year, would be 75% of the ARF, which is $18,000.
Using the formula:
Depreciation = (Purchase Price - (PARF rebate + COE rebate)) / Number of years
Depreciation = ($100,000 - ($20,000 + $18,000)) / 5
Depreciation = $62,000 / 5 = $12,400 per year.
So, for the Toyota Corolla Altis, you'd be looking at an annual depreciation of $12,400 over 5 years.
Should I Buy a Car in Singapore?
As an expat, you might be tempted to buy that swanky car you've always dreamt of. But remember, in Singapore, a higher sales price doesn't always mean higher depreciation. It's essential to consider the OMV, COE, and other factors. Also, if you're diving into the used car market, be prepared for varying depreciation values. Always do your research!
In conclusion, understanding car depreciation in Singapore might seem like a daunting task, especially with terms like COE, OMV, and ARF flying around. But with a bit of research and guidance, you can make an informed decision. After all, knowledge is power, and in Singapore's automotive world, it's also money saved!
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.
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