How To Calculate The Depreciation And Scrap Value Of A Car In Singapore

Cars are notoriously expensive in Singapore. In fact, Singapore is the most expensive country in the world to be owning one. However, contrary to popular thinking, it’s not the price of a car that makes it expensive to own, but rather how quickly it depreciates and, subsequently, its scrap value.

After all, if you can buy a car for $100,000 and sell it after ten years for $90,000, then a car wouldn’t actually be considered too expensive.

Of course, that is just a hypothetical and not the actual case. In reality, cars in Singapore suffer a high depreciation from the moment you drive them out of the showroom until the 10-year mark. This is particularly true when COE prices are high, such as in the current situation.

Read Also: Why Are Cars In Singapore So Expensive?

Buying A Brand-New Car & Owning It For 10 Years

If you intend to buy and own a car for ten years before deregistering it, the scrap value of the car at year 10 will be 50% of your Additional Registration Fee (ARF). This is also known as your Preferential Additional Registration Fee (PARF) rebate.

You also receive the COE rebate, but since you are deregistering after ten years, there is no CEO value left.

Age Of Vehicle When Deregistered	PARF Rebate
< 5 years	75% of ARF
5 to 6 years	70% of ARF
6 to 7 years	65% of ARF
7 to 8 years	60% of ARF
8 to 9 years	55% of ARF
9 to 10 years	50% of ARF
More than 10 years	No ARF rebate

As of 15 February 2023, the policy for the PARF rebate was changed. For new cars registered on or after 15 February 2023, the PARF rebate will be capped at a maximum of $60,000. This means even if the car’s ARF is very high—for example, $200,000—and 50% of the ARF is $100,000, the PARF rebate returned to the car owner will still be capped at $60,000.

Read Also: Why New Luxury Cars In Singapore Are Less Likely To Be Scraped After 10 Years

The ARF is calculated using the following formula based on the car’s Open Market Value (OMV) as assessed by Singapore Customs.

OMV Of Car	ARF Rates
First $20,000	100% of OMV
Next $20,000 (i.e. $20,001 to $40,000)	140% of OMV
Next $20,000 (i.e. $40,001 to $60,000)	190% of OMV
Next $20,000 (i.e. $60,001 to $80,000)	250% of OMV
Above $80,000	320% of OMV

For example, a car with an OMV of $30,000 will have an ARF of $34,000. If you deregister the car after 10 years, your Preferential Additional Registration Fee (PARF) rebate will be $17,000 (50% of $34,000). At that point, the PARF rebate can be considered your scrap value since there is no COE value left after ten years.

In Singapore, the cost of a car is influenced by several factors, including the OMV, ARF, GST, registration fees, Vehicular Emission Scheme (VES) surcharge (if any), dealer markup, and COE. Therefore, a car with an OMV of $30,000 can cost $190,000, especially if the COE price is $100,000.

With a sales price of $190,000 and a scrap value of $17,000 after 10 years, your annual depreciation would be $17,300 [($190,000 – $17,000) / 10].

As a potential buyer, it’s important to understand that while factors such as OMV, ARF, and COE significantly impact the sales price of a car, an increase in any of these variables does not necessarily mean the sales price of cars will go up. Similarly, a decrease in sales prices does not necessarily indicate that these cost factors have decreased.

For example, if you receive a $5,000 discount from your dealer when buying the same car, your ARF does not decrease; thus, your car’s scrap value remains the same after ten years. This means your annual depreciation is now lower by $500, making it $16,800. For instance: [($185,000 – $17,000) / 10] = $16,800.

means your annual depreciation is now lower by $500 at $16,800. Example: [$185,000 – $17,000]/10 = $16,800.

Higher Depreciation Incurred If You Buy A Brand-New Car & Deregister It In 5 Years

If you deregister your car within five years, you will enjoy a PARF rebate of 75%.

Based on the example above, your PARF value rebate would be $25,500 (75% of $34,000). You will also receive a COE rebate since there are five years remaining on your current COE. If your COE costs $100,000, this means your CEO rebate would be $50,000. Your scrap value would be $75,500 ($25,500 PARF value rebate + $50,000 COE rebate).

Your annual depreciation would be higher at $22,900 [($190,000 – $75,500)/5] over the 5-year period that you were driving the car.

Since the depreciation is so high, selling the car in the secondhand market makes more sense, where you can probably get more for it rather than deregister it after five years.

Lower Depreciation If You Buy A 5-Year-Old Used Car

When buying a used car, your depreciation generally tends to be lower. However, this isn’t automatic and depends on how much you pay for the car.

For instance, if you buy the same car mentioned above for $90,000 with 5 years left on its COE, your annual depreciation will be $14,600 [($90,000 – $17,000) / 5]. This is less than the annual depreciation of $17,300 that you would incur if you bought it new and owned it for ten years. This is why some car owners prefer to let another owner incur the high depreciation of the earlier years and buy the car in the used car market when depreciation is lower.

However, if you pay $100,000 for the same car, your annual depreciation increases to $16,600. In such cases, from an annual depreciation standpoint, you might be better off negotiating a better price with the dealer and buying the car new. For example, a $5,000 discount on a brand-new car would result in an annual depreciation of $16,800, which is just $200 more per year to own a brand-new car instead of a used one.

Read Also: 5 Things To Know Before Buying Pre-Owned Cars In Singapore

What Happens To The Scrap Value/PARF Rebate If You Renew Your COE After 10 Years?

If you renew your COE after ten years, you lose the PARF value rebate immediately. In addition, you will have to pay the Prevailing Quota Premiums (PQP).

If your PARF value rebate is $17,000 and a new COE costs you $100,000, the COE renewal would actually be costing you $117,000. This means that your car’s depreciation for the next 10 years would be $11,700 per year. The other way to think about this is that choosing to renew the car COE after 10 years won’t just cost you the COE price but also the PARF Value since this is an amount that you would forfeit for extending the COE. If you extend the COE for 5 years only, you also lose the PARF Value.

Depreciation Is Based On Two Factors – PARF Value Rebate/Scrap Value And Sales Price

If you don’t already know, you can (and should) negotiate the price of a car before purchasing it. The sales price of a car doesn’t just affect the amount you have to pay, but the annual depreciation cost that you incur. This applies regardless of whether you buy a new or used car. However, a higher sales price doesn’t necessarily translate into a higher depreciation all the time.

At a simplistic level, if we look at two cars.

Car A costs $190,000 with a scrap value/PARF value rebate of $17,000 after ten years. Annual depreciation is $17,300.

Car B costs $185,000, with a scrap value/PARF value rebate of $10,000 after ten years. Annual depreciation is $17,500.

In this instance, while Car A is the more expensive car, its annual depreciation is lower because it has a higher OMV, which translates into a higher ARF and thus, a higher scrap value/PARF rebate.

However, if you extend your COE after 10 years, you would lose the PARF value rebate and thus, the depreciation for Car A over the first 10-year period would then be higher.

Read Also: Cheapest Cars That You Can Buy In Singapore

This article was first published on 11 August 2020 and we have updated it with additional information.

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