Over the last 15 years, I had several different cars registered under my name. They are either new or used-cars from 1.5L to 2.5L, from Japanese to continental cars and from sedan to MPV. No posh cars though. Cannot afford. I had also rented cars for few months, and even had experience of selling cars in the old days. That said, the one experience I do not have, until recently, is the renewal of car COE. Last week, I renewed COE of my Toyota Estima.
Initially I opted 5 years, but a friend of mine gave the rationale why 10 years is better if you can afford the COE upfront. I will explain why but before that you need to understand how COE works, what is Minimum PARF value, and what is Prevailing Quota Premiums (PQP). You can also find out more information @ www.onemotoring.com.sg.
Basically, if COE is 30K for 10 years, if you decided to deregister your car at year 5, you get back 15K and at year 6 you get back 12K. So, it is a pro-rata basis costing 3K p.a.
PARF vs COE cars
If your car is still within 10 years, it is a PARF car. If it is more than 10 years, it is a COE car. You can read here what is the difference between PARF and COE car. E.g. a car has a PARF of 15K, if you decide not to renew COE, you take 15K back. If you decide to renew COE, you will have to forsake this 15K.
PQP is the moving average of the COE prices in the last 3 months and varies from month to month. Below is the table showing PQP of COE. My car 10 year period expires in mid-May, so I am allow to choose either PQP for March, April or May. You can see that there are differences in pricing. I am lazy to wait for May PQP (Cat B) to be out and quite sure it is going to be >35K, hence I chose the cheaper PQP in March which is 33K compared to April one which is 35.4K.
Source : LTA
So, 5 years or 10 years?
I opted for 10 years COE. Let’s see the advantages and disadvantages.
Advantage : Cheaper Annual Depreciation
Using my car 2.4L Toyota Estima as an example, i.e. PARF 17.6K, PQP 33K.
If 10 year COE
I am paying 17.6 + 33 = 50.6K for 10 years.
This means that annual depreciation is about 5K for the car.
If 5 year COE
I am paying 17.6 + (33/2) = 34.1K for 5 years.
This means that annual depreciation is about 6.8K for the car.
So we can see that 10 year has cheaper annual depreciation of 1.8K. This is because the PARF is spread over 10 years rather than 5 years.
Disadvantage : More expensive road tax and higher insurance and maintenance cost
Of course, you have to take into account road tax and insurance of older cars are more expensive. Basically, there is an annual road tax surcharge for COE car as per table below. And also, the maintenance cost for an older car is usually more expensive due to wear and tear.
Source : LTA
E. g. PARF car of my model, road tax will be S$1,682 pa. COE car road tax will be with additional of surcharge. Using road tax calculator here,
10-11 year = 1,682 + 170 = 1852
11-12 year = 1,682 + 338 = 2020
12-13 year = 1,682 + 506 = 2188
13-14 year = 1,682 + 674 = 2356
14-15 year = 1,682 + 842 = 2,524
5 years surcharge is 2,530. P.a. = 506.
15-19th year = 1,682 + 842 = 2,524.
5 years surcharge is 4,210. P.a. = 842.
Therefore road tax difference of S$336 p.a, if you continue to drive the car after 5th year.
Advantage : 5 year cannot renew to 10 years thereafter
If you opt to renew COE for 5 years, once it expires, you any time you decide to de-register your car and get back the COE pro-rata rebate, you can!
Advantage : Easier to sell half way through
This is the reason where my friend explained to me and why I decided to renew for 10 years. For 5 year COE car, let’s say I driven for 2.5 years and sick of the car, I decide to sell. The car is only left with 2.5 years COE. It will be very difficult to sell, because buyer will go for newer COE car which depreciation p.a. is almost the same price. And also poorer family may want a COE car that they can drives longer years with a lower annual depreciation.
This means that you will likely need to de-register your car rather than sell your COE car. Then the PARF you forsake will be more pricey because you only spread it over a period of 2.5 years other than 5 years.
If your COE is 10 years, then after 2.5 years, your car still have a life span of 7.5 years.
Using my car as example,
5 year COE : 34.1K
10 year COE : 50.6K.
After 2.5 years Deregister,
5 yr COE : take back ½ COE value i.e. 8.25K. So (17.6+8.25K) / 2.5 years = 10.3K
Hence, depreciation is 10.3K p.a for the first 2 years if you de-register.
If you try to sell, it is quite likely that you will not find a buyer, because it is left with 2.5 years and depreciation is impossible to be cheaper than 6.8K where we initially calculated.
In retrospect, for the 10 year COE, after 2.5 years, I am likely able to sell because the COE still have a 7.5 year life span and the depreciation is cheaper at 5K plus.
I opted for 10 year COE for the reason that lower p.a. depreciation if I were to drive more than 5 years. And also possibility of selling is higher if I were to sell it mid-way.
The only disadvantage is I need to have 16.5K more upfront. But at any point of time, if I de-register my car, the amount of COE I take back is always pro-rata.
So renew COE for 10 year if you can afford it!