Understanding Car Depreciation in Singapore: A Steep but Calculated Slide

Cars in Singapore are a significant investment, and unlike fine wine or desired watches, their value tends to decrease over time. This drop in value is known as depreciation, and understanding how it works in Singapore's unique car ownership landscape is crucial for any potential car buyer.

The High Cost of Car Ownership: Depreciation at Play

Singapore's Certificate of Entitlement (COE) system is a major factor influencing car depreciation. The COE is essentially a permit to own a car for 10 years, and its price fluctuates depending on market demand. This adds a layer of complexity to depreciation, as the COE itself depreciates to zero value at the end of its 10-year lifespan.

The PARF Rebate: A Silver Lining

There is, however, a mitigating factor to depreciation: the Preferential Additional Registration Fee (PARF) rebate, applicable only for PARF cars, which refer to cars less than 10 years old. When you deregister your car in Singapore, you may be eligible for a rebate on a portion of the Additional Registration Fee (ARF) you paid initially. This rebate, essentially the car's scrap value less body value, helps offset some of the depreciation cost.

Calculating Depreciation with PARF

The PARF rebate amount depends on the car's age at deregistration and the ARF paid. Here's how the PARF rebate factors into your depreciation calculation:

• For cars registered before February 15, 2023: The PARF rebate is a percentage of the ARF paid, with a maximum rebate of 50%.
• For cars registered after February 15, 2023: The PARF rebate is capped at S$60,000, regardless of the ARF paid.
• See here for the rebate structure.

Integrating PARF into the Formula

While a simple formula can estimate depreciation, incorporating the PARF value provides a more accurate picture:

• Adjusted Annual Depreciation = (Total Cost of Vehicle - PARF Rebate - Sale Value of Vehicle) / Number of Years in Service

For example, a 2 year old car is valued at $80,000; when new it was bought at $120,000. Its PARF rebate is 75% of ARF, because it is less than 5 years old. Assuming that its ARF is $10,000, the PARF rebate is $7,500.

Therefore based on the above formula, the depreciation of the car per year is: ($120,000 - $7,500 - $80,000)/2 = $16,250 per year, assuming body value is NIL.

Do note that this calculation only works assuming the car will be deregistered. If the car will not be deregistered, then the PARF rebate should be excluded from the calculation, which leads to this formula:

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

Based on the same example above, Annual Depreciation = ($120,000 - $80,000)/2 = $20,000 per year, assuming body value is NIL.

Factors Affecting Depreciation in Singapore

Several factors beyond the COE and PARF influence how much your car depreciates and one of these is the body value. Body value is determined by the export value of a car were it to be sold overseas in the global market.

Some cars have seen an incredible increase in body value over the years, which has helped to offset some of their depreciation - JDM cars like the Honda Civic Type R (FD2R) or the Mitsubishi Evo 9 come to mind. However, general factors influencing body value are:

• Make and Model: Popular, reliable brands like Toyota tend to hold their value better than niche or luxury marques. Some enthusiast focused cars with ‘last of the last’ value will also command premia.
• Car Age: The first few years typically see the steepest depreciation, with the rate slowing down as the car ages.
• Mileage: Higher mileage generally translates to lower resale value.
• Condition: A well-maintained car with a clean accident history will fetch a better price.

Strategies to Minimise Depreciation

While depreciation is inevitable, there are ways to minimise its impact:

• Consider a Used Car: Opting for a slightly used car can save you a significant amount on the initial purchase price, reducing your overall depreciation cost. You'll still benefit from the remaining PARF value on the car as well as any remaining warranty on the car. Browse Carousell to search for one, or choose one of our Carousell Certified models which give you a peace of mind.
• Choose a Popular Model: Cars with high demand tend to depreciate slower due to a larger pool of potential buyers, making the car more liquid as well. See here for the trending car models on Carousell.
• Maintain Your Car Well: Regular servicing and repairs not only keep your car safe but also enhance its resale value, potentially increasing the final sale price that offsets depreciation. Here are the winners of Automotive Specialist Awards - workshops and accessories companies that are recognised as specialists in their scope, that can help you maintain your car in tip-top condition.

How to Decide on the Right Car with Depreciation in View

If you want something with lower depreciation, you might want to consider something uncommon, used and well into its 10 year COE tenure, and with above average mileage - like this Opel.

Some less maintained cars can also be more affordable to buy and end up as fun projects for those who have the time. It’s worth considering ‘COE cars’ too, which are cars that are older than ten years old and are no longer eligible for a PARF rebate. These tend to be more illiquid, though.

If you are willing to pay a premium for a peace of mind, or want something that would be liquid when the time comes to sell, it is best to stick to newer and popular models with lower mileage and better service history/condition, like this Toyota.

The Bottom Line: Depreciation is a Reality, But PARF Helps

Understanding car depreciation in Singapore, including the PARF rebate, is essential for making informed car buying decisions. By considering the COE system, PARF value, other influencing factors, and employing smart strategies, you can navigate the depreciation curve and get the most value out of your car ownership experience.

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Browse Carousell Certified used cars here or if you need help with any part of the car-buying process, check out Carousell’s Car Buying Personal Assistant!