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Should You Renew The COE For Your Off-Peak Car?

Does it make any financial sense to renew the COE for your off-peak car? The answer depends

 

In Singapore, car ownership requires the purchase of a Certificate Of Entitlement (COE). COE allows a car to be driven for 10 years, after which, renewal would need to be made if a car owner wants to continue driving the car on Singapore road.

How The Off-Peak Car Scheme Works

Introduced in 1994, the Off-Peak Car (OPC) scheme allows car owners to enjoy up to $17,000 rebate when they purchase a new car in Singapore.

In addition to the one-time rebate of $17,000, car owners also enjoy a $500 discount on their semi-annual road tax. In total, the OPC scheme provides savings of about $22,000 over a 10-year car ownership period.

OPC cars have restricted driving hours. Unless car owners purchase a valid electronic Day License (e-Day License) for $20 per day, they are not allowed to drive their OPC cars from 7am to 7pm on weekdays.

The idea behind buying an OPC car is that owners do not frequently need the car during weekdays, especially if they are taking public transport to work. In return for the restricted driving hours, car owners can enjoy the convenience of owning a car at a lesser cost.

Read Also: Why Are Cars In Singapore So Expensive?

Why OPC Cars Are Declining In Popularity

OPC cars were a popular choice for many during the period of 2006 to 2010. That was when COE prices were much lower.

During those times, entry-level sedan such as the Hyundai Avante and the Chevrolet Aveo could cost $40,000 or less, depending COE prices when the car was purchased. By opting for the OPC scheme, car owners could reduce the upfront cost of their vehicle by as much as 42%, while saving on future road tax as well.

Price Of Hyundai Avante $40,000
Off-Peak rebate $17,000
Price Of Hyundai Avante (Off-Peak) $23,000

 

For car owners who didn’t need the car on weekdays, this was a very practical option to consider for them to reduce the cost of owning a car.

As car prices became higher, the $17,000 rebate started becoming less attractive. For example, with the entry-level Hyundai Elantra already costing $98,000 today, a $17,000 rebate only represent a discount of 17% of the overall car price. $81,000 is still very expensive to pay for a car, especially one with restricted driving hours.

According to statistics from the Land Transport Authority (LTA), the number of OPC cars on the road is at its lowest since 2006.

Read Also: Do Singaporeans Still Buy Off-Peak Cars Today?

Your OPC Car Is Up For Renewal. What Should You Do?

There are many Singaporeans out there who may have been enjoying the ownership of having an affordable OPC car for the past 9 years. However, the COE is expiry soon and you need to make a decision on what to do if you want to continue owning a car. What are the options you can consider?

Option 1 – Renew Your COE & Convert It To A Normal Car

If you choose to extend your COE after 10 years, you pay the prevailing quota premium (PQP). The PQP is the moving average of COE prices over the last 3 months. The amount applies regardless of whether you are renewing a normal car or an OPC car.

Logic suggests that if you are renewing your car’s COE and paying the same amount either way, then you should also opt to convert your OPC car to a normal car. An admin fee is payable for this conversion.

The existing PQP for March 2017 is $49,429 for Cat A cars, or a depreciation of about $5,000 per year for the next 10 years.

If you absolutely love your current car and can’t bear to part with it, you can consider choosing this option. Remember, to convert it to a normal car. Otherwise, you will just be paying $50,000 for a car with restricted driving hours.

Option 2 – Deregister your vehicle and buy a 2nd Hand OPC car

If your desire is just to own another OPC car for a few more years, you can consider deregistering your vehicle, obtain the PARF rebate, and buy a 2nd hand car.

Calculating the financial scenario of how this option plays out require us to do a little sleuthing work and some assumptions.

* Do note the numbers below are assumptions. Actual figures may differ.

OPC car you currently own – Hyundai Avante

PARF rebate during deregistration – $5,000

Cost of buying another OPC Hyundai Avante – $20,000 (2-year COE left)

Here’s how it works. You deregister your OPC car and we assume you get a $5,000 PARF rebate. You buy a similar OPC car for $20,000 with a 2-year COE left. That vehicle would have cost you $15,000 after you subtract your initial PARF rebate. After 2 years, you also enjoy a further $5,000 PARF rebate from the 2nd vehicle during deregistration.

On paper, the vehicle would have cost you $10,000 for two years, or a depreciation of about $5,000 per year.

Option 3 – Renew Your COE, Sell The Car, Buy A 2nd Hand OPC Car

The final option combines both option 1 and 2. Here’s how it works.

First, you renew your COE at the PQP. This would cost you about $50,000 today.

You then try to sell your car with the extended 10-year COE. Ideally, you want to sell it for more than the cost of the COE ($50,000) and the PARF rebate you would have received if you had deregistered the vehicle ($5,000). That means you would be aiming to sell the car for at least $55,000 or more.

This is risky of course with you success depending a lot on market conditions, vehicle condition and of course its desirability. If you own a Porsche Boxster, finding a new owner wouldn’t be difficult. However, finding a buyer willing to pay more than $55,000 for a 10-year old Hyundai Avante may not be as easy.

Further Analysis Between Option 2 & Option 3

The simple difference between option 2 & 3 is that if car owners are confident of selling their vehicle for more than the price of the COE and the PARF rebate, then they can choose to renew the COE and sell the vehicle in the open market.

One thing to take note is that the $17,000 OPC rebate may or may not have an effect on your PARF rebate.

For example, if you bought an OPC car that had a COE of $17,000, the OPC rebate will be used entirely to offset the cost of the COE. However the COE you bought was $10,000, the $17,000 rebate is first used to offset the amount ($10,000), before the remainder ($7,000) is used to offset some of the car’s ARF value.

In other words, if your COE costs less than $17,000 when you first bought your OPC car, the $17,000 rebate will eat into your PARF rebate. Hence, two similar OPC cars could have very different PARF rebate.

With all other things being equal, it would make more sense for the vehicle with the lower PARF rebate (or higher initial COE) to renew its COE while the car with the higher PARF rebate (or lower initial COE) should consider the de-registration.

Read Also: Best Value For Money Car In 2017

What Will You Do With Your OPC Car?

Which of the above three options would you prefer? Or do you have different circumstances that would lead you to make a different decision. Discuss your views with us on Facebook as we would love to hear from you.

Top Image: Wikimedia Commons

 

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