Car depreciation - Here's all you need to know

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Car depreciation - Here's all you need to know

What is car depreciation, and how does that affect or change a car's value? We break down everything you need to know.

Category: Car Buying Advice

Depreciation is defined as 'the reduction in the value of an asset over time'.

Cars in Singapore are notoriously expensive, yes. However, what actually makes it so 'expensive' is the fact that any car's value reduces significantly over a 10 year period - i.e. high depreciation.

If you in fact buy a car for $100,000, and then sell it off after 10 years for $90,000, you probably wouldn't then consider it to be really expensive, considering you only lose $10,000 in value over 10 years. However, in Singapore you can easily be looking at a depreciation value of $10,000 a year for a brand new car.

Depreciation and your car's 'value'

A car's depreciation is a calculation of how much it reduces in value over time

Therefore, a car's depreciation figure is often equated to its so-called value. Simply put, for most people, a 'low-depre car' is considered more financially worthwhile to own over a 'high-depre' car.

But, how do you calculate the depreciation of a vehicle? You start by understanding the deregistration value of your car.

Deregistration value of your car

Put simply, the deregistration value of a vehicle is how much money you will get back when you deregister a vehicle. It is often also referred to as 'paper value'.

First, there are a few terms that need defining and explaining. The Additional Registration Fee (ARF) is a tax that is imposed on all cars, as is calculated as a percentage of a vehicles Open Market Value (OMV) using the following formula:

Vehicle OMV	ARF Rate (% of OMV to pay)
First $20,000	100%
Next $30,000	140%
Above $50,000	180%

If you deregister your vehicle within the first 10 years, you are entitled to a Preferential Additional Registration Fee (PARF) rebate, based off a percentage of your ARF value.

Age of vehicle at deregistration	PARF rebate (COE May 2002 onwards)
Not exceeding expectations 5 years	75% of ARF paid
Above 5 years but not exceeding 6 years	70% of ARF paid
Above 6 years but not exceeding 7 years	65% of ARF paid
Above 7 years but not exceeding 8 years	60% of ARF paid
Above 8 years but not exceeding 9 years	55% of ARF paid
Above 9 years but not exceeding 10 years	50% of ARF paid
Above 10 years	NA

For cars older than 10 years (meaning cars with renewed COEs), you will not receive any PARF rebate when the vehicle is deregistered.

A car's 'paper value' is thus the sum of the PARF and COE rebates.

Additionally, when you deregister your vehicle, you may also receive a COE rebate. This is basically a rebate for the unused duration of your vehicle's COE. It is calculated as such:

COE rebate = [Quota Premium Paid x Number of months left] / 120 months

A vehicle's deregistration value is thus the sum of the PARF and COE rebates.

Deregistration value = [COE rebate + PARF rebate]

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How to calculate car depreciation

A brand new Jaguar XE R-Dynamic, with its current price of $206,999, has a depreciation of $18,600/year

The depreciation on a vehicle is effectively how much money you lose on a car, simply by owning it. Depreciation is commonly calculated as an annual figure. Annual depreciation is the amount the owner loses on the value of the vehicle per year based on the assumption that the vehicle is deregistered only at the end of its 10-year COE lifespan. Therefore, there will be no COE rebate. Also, the value of the car body has not been taken into account.

Annual depreciation = [Sales price – Deregistration value] / Remaining years of COE

Do expensive cars mean high depreciation?

Generally speaking, more expensive cars from premium brands tend to have higher depreciation value

Generally speaking, more expensive cars tend to have higher depreciation values, but not always. A higher sales price does not necessarily mean a higher depreciation value.

For example, a brand new Car A costs $100,000, and has a deregistration value of $9,000. Therefore, the annual depreciation is [$100,000 - $9,000] / 10 = $9,100.

A brand new Car B costs $110,000, but has a deregistration value of $20,000. Its annual depreciation would be [$110,000 - $20,000] / 10 = $9,000.

Depreciation for a used car

For used cars, depreciation figures can vary quite a fair bit

Of course, when you start to get into the used car market, depreciation values can vary significantly. All three variables can be different - depending on how sellers price their vehicles, the OMV of the car, and how many years of COE a vehicle has left.

For example, on sgCarMart's Used Car listing, you can find used 2015 Mercedes-Benz E250 models with annual depreciation ranging from $14,910/year to $18,040/year.

For COE cars, since there is no deregistration value, the depreciation of the car is simply [selling price / remaining years of COE].

Here are some articles you might be interested in

6 things to note before you renew your COE for five or 10 years

COE Renewal: 10 Things you wish you knew

Want to buy a used car in Singapore? Do a proper vehicle evaluation first!

What makes cars so expensive in Singapore?

You need to avoid these 5 car buying mistakes at all costs!

sgCarMart

Find Out How Much Your Car is Worth

Know what your car can sell for. Most owners are surprised at how much more their car can fetch!