Tuesday, 21 June 2016
Renewing COE? What You Should Know...
In sunny Singapore, the cost of ownership of any vehicle is perhaps the highest in the world. Yet, most of us suck it up, slap ourselves with the ridiculous tax they call Certificate of Entitlement (COE) that is valid for a mere 10 years.
For some of us, we struggle with our jobs to keep our cars on the road. Be it for pride, passion or a family necessity, parting ways with our beloved set of wheels may seem painful. The workhorse of the family, our cars are usually more than just metal but more than most, a box full of memories.
So here comes the tough part that usually comes with a lists of questions. When that 10 year 'license' is due, what should be done? With the current COE prices, is renewing the COE for another 5 or 10 years worth the while?
What if I need a car but can't afford a brand new one? Would buying one with an extended or renewed COE be the way to go?
I suppose these are the common questions asked by most Singaporeans living in this little red dot we call country. By this stage, if buying a new or used car with some decent remaining years proves to be too costly then read on if extending your COE or buying a car with only months to go for renewal is worth the consideration.
As the editor of this blog, I will be sharing some of my views because in some way, I myself have been caught in this recent COE 'saga' because I was looking for a simple cost effective SUV for my wife. But, because opinions and views are individualistic, it may not be everyone's cup of tea so do make your own decisions based on your own requirements.
Nevertheless, I will be sharing some of my thoughts that led to the decision I made to renewing the COE of a 9.5 year old compact SUV.
1. Knowing Your Requirement
To begin, one needs to understand the requirement. Do I really need a car? If so, what kind of car is needed? An SUV or MPV for the family? Will boot space be critical? Ferrying bicycles and scooters for family recreation? Will you be moving goods or people or just yourself? A sports coupe or hatchback for oneself? These are fundamentals of need and if addressed inappropriately, it's going to cost you; because unnecessary buying and selling is always a liability. Hence, narrow down to the type of car needed because the cost of ownership and running a larger, higher Preferential Additional Registration Fee (PARF) valued MPV vs a small sized hatchback differ greatly. Do browse SGCarMart for a sensing of the market depreciation and price for the candidate car of choice.
2. Knowing Your Time Horizon
You know your car best and if your ride had been faithful and reliable for the past 10 years, you may consider renewing it for the next 10. Or, something in between for a 5 year life extension? Do note that according the current LTA regulations, there is no provision for any further extension of COE if you opt for the 5 year renewal. A next renewal is only applicable for the 10 year extension. In my opinion, apart from car collection or vintage reasons, 10 years is a long time to project but 5 years would be a relatively decent time frame. Many things can change in 5 years that may influence decision making. COE and Monetary Authority of Singapore (MAS) loan policy changes, fuel, road and toll (ERP) surcharge policies, just to name a few.
Most importantly, your own financial standing will likely change in 5 years! More kids? Parents retiring? Housing loans? More commitment for children's tuition? Economic inflation? Job security? With all these put down on the table, make a conscious decision with the family.
3. The True Cost Of Car Ownership In Singapore
The common misconception among most people is the cost of ownership of a car. Here in Singapore, the true cost of ownership of a car is measured by the depreciation of the asset. Basically, the buying price minus selling price divided by the number of remaining years. It is worth noting that on paper, the value of a COE extended car is the linear depreciation of the COE or Quota Premium (QP) or Prevailing Quota Premium (PQP) paid. Therefore, by extending or renewing your COE, regardless if a 5 or 10 year term, your existing PARF rebate will be forfeited. So, depending on whether you are renewing your COE for economical reasons or for the love of your car, you will have to weigh the cost. For economical reasons, a high valued PARF vehicle (above S$10,000 by my judgement) requires some serious thought based on the climate of car prices today. By economical sense, the lower the PARF, the lower the depreciation. This varies greatly over the vehicle types as well as PARF policies for the original date of registration so do give it some thought.
4. Why Not Buy An Already Renewed COE Vehicle From The Dealer?
Despite whatever the dealers may tell you, this is potential risk. Assuming everything worked out well and the renewed car you potentially may have purchased is a reliable and trouble free one, the depreciation per year for example, the next 5 years would be S$8000/year for a S$40,000 vehicle (assuming you did not take any loan and no additional interest was incurred). This would be what the dealers would tell you because they only talk depreciation to seal the 'deal'. This is true if you do utilize it for the next 5 years.
However, in an unfortunate event that the car stalls on you because of a serious issue like transmission or engine failures, it may cost you an arm or a leg to restore. Having said that, because nobody in the right frame of mind would buy your troubled car, you may be forced to 'scrap' the car and cut your losses. In this mode of exit, your value on paper for your S$40,000 car would only be the remaining COE PQP paid. By today's climate, that would be merely S$23,227 for June 2016 PQP. Go figure the loss because the rest is history!
It is also worth noting that no matter what, any 9 or 10 year old car would require a decent overhaul because of fair wear and tear. Do not be deceived by what others tell you because from my experience as a past mechanic, no mechanical parts last forever, especially bushings, seals, rubber grommets and hydraulic suspensions. Therefore, an overhaul is unavoidable unless there are receipts and invoices from a reputable workshop to prove that this was already done. Nevertheless, in the interest of profit, this will be unlikely from dealers unless it was from a direct owner.
5. Calculated Risk Appetite, Buying A Used Car With Only Months To Go...
If you have understood point 4, a S$17,000 risk is perhaps unacceptable to most. Therefore, the next best thing is to evaluate a car with 3 to 6 months remaining, buy it and try it out for awhile before renewing the COE. This would give you a sensing on what to expect instead of nose diving into the unknown. As mentioned, any 9 year old car would require some overhaul so fair wear and tear from bushings and suspensions is to be expected. Do send the car to a reputable workshop for a pre-purchase inspection before closing the deal because most of the sellers out there are never honest. Get your workshop to also estimate the cost of a proper overhaul as this will contribute to the total cost of your asset for planning purposes and for a final decision making.
The compact SUV I bought this month is due in January 2017 and the potential PARF rebate to be paid was about S$9,700. I bought the car for S$15,800 nett so some ready spare cash in hand is king because you can't take a loan for a car with only some months left. In essence for the sake of simplicity, based on an estimated depreciation, (I assumed the original owner bought the car at about S$55,000 when it was new based on the low COE in 2007) the SUV would depreciate at about S$4500/year which means that the 'absolute' value I should pay for today was about S$13,200. So in theory, the dealer would have 'made' S$2,600 from this sale. Because of time (catching the low PQP), space and availability, there wasn't much choice when it comes to buying a used car so I acted before I lost my chance.
Now, the PARF for my SUV at point of purchase (10 June 2016) was just north of S$10,400. So the risk appetite for my assessment was about S$5,400. If the SUV proves to be trouble, the exit strategy would be to use it till January 2017 (because you need a car anyway) and cash out the PARF rebate of S$9,700 then. This is still a better position as compared to being in a 'fix' with a potential S$17,000 loss as articulated in point 4. In a worst case scenario, if the vehicle stalls beyond economical repair, scraping the SUV at any point would still put me in a cost recovery option between S$10,400 to S$9,700 from the PARF rebate.
I can assure you this is the safest option. Trying out a vehicle is a must because if there are no issues within a week or more of good road use, chances are the vehicle will likely survive this whole ordeal.
So with a capital of S$15,800 plus a potential S$24,000 PQP, the targetted asset cost would be S$39,800. This is comparable to a similar renewed 5 year model retailing at about S$39,000 to S$41,000. With a similar end state total asset cost, I got some reliability confidence and a calculated lower financial risk.
6. Catching the Low PQP!
While I was busy jiggling and wriggling around town with the family in our 'new' SUV, I kept a close watch on the PQP time line. Much like stocks but in a less dynamic way, you have to watch the bidding results every 2 weeks.
The advantage on COE renewal is that no bidding is necessary and because the PQP is based on the moving average of the past six COE bids, there is actually some reaction time. Well, 2 weeks to be exact. The PQP for June 2016 is now S$46,454 for 10 years, S$23,227 for 5-years respectively. Based on the last bid on the 8th June 2016, the COE was S$53,694. This was a repercussion from the recent announcement of the less stringent car loan policy by MAS. A perfect example of how the government manages policies to maintain the COE at a controlled level. With the past 6 bids on a rising trend, it is likely that the next bid (22nd June 2016) would be equally high or higher. After 4pm tomorrow, this would make the PQP for July 2016 an average of the bids from April 2016 till June 2016.
Should the coming bid tomorrow be S$53,000. The PQP for July 2016 will be S$49,152 for a 10 year COE and S$24,576 for 5 years. A modest jump of S$1,349 over June's PQP. While I am not speculating here but with the change in car loan policy, it is unlikely that the COE will drop but given the current economical climate, it may stay around the fifty odd thousand region.
Regardless, a rise of a couple of grand is money that could be used to overhaul my SUV. As I mentioned, if you intend to extend the COE, overhaul expenses are cardinal to keeping your ride in a reliable state for the next 5 years. No matter what, you would need to invest some S$3,000 to S$4,000 (depending on vehicle type) for a decent job.
Therefore, it was my conscious decision to forfeit the remaining 6-months of my existing COE (which is only worth a couple of hundred dollars based on the COE in 2007), catch the lower PQP and look forward to a lower depreciation for the next 5 years.
7. Renewing Your COE Online
Yes, you can renew the COE online at onemotoring with just a click of a mouse via e-NETs payment. OCBC is perhaps the only bank with an e-transaction limit of up to S$50,000 so an OCBC account would be handy for any renewals up to S$50,000. Else, you have to head down to LTA to make payment. Because everything is paperless and transacted online, there's practically no trouble at all. I did my renewal in less than 5 minutes.
Feel free to comment. I am open for discussions as the COE situation is always dynamic.
As always, enjoy your drive!