Owning and driving a car is a part of many people’s daily lives. But what does it really cost you financially to own one, and use it on a daily basis? Car buyers often do not think much more beyond what they have to pay upfront to make the decision. In most countries, this might not really set you back by much financially, but not in Singapore where I stay.
In this post, I am going to talk about what it means to own some of the world’s most expensive cars. And I am not referring to flashy sports cars like Ferraris, Porsches, or the Bugatti Veyron. What I am going to talk about are simple family cars, except that if you live in Singapore, they sell for heavenly prices. And I will be using a popular family sedan here, the KIA Cerato, as an example.
Kia Cerato Price Tag - A Jaw-Dropping SGD 141,999 (USD 106,766)
To readers who don't live in Singapore and are experiencing a WTF moment now, yes, the number you see is not a typo. This is what a brand new Kia Cerato, a typical family car cost in Singapore at this point in time. To put things in perspective, the same car goes for USD 18,380 in the United States (actually the US version has a more powerful engine). So the Singapore Kia Cerato is 6x more expensive than its counterpart in the US.
And this is already among the more affordable cars you can get here. If you go for a more flashy BMW 3 series, then be prepared to burn a hole as deep as SGD 280,000 or USD 209,000 in your pocket.
How is it even possible to have such a price tag?
What Are You Actually Paying For In This Heavenly Price?
Singapore is a small island country with one of the highest population densities in the world. With almost 6 million people packed in this tiny city-state, traffic congestion can pose a serious problem if everyone drives a car. So to control the car population, our Government introduces many layers of fees and taxes to discourage car ownership.
More than half the cost of a car in Singapore goes to the Government. Many of these fees are tied to the car's Open Market Value (OMV) which is assessed by Singapore Customs. You can see the OMV as what is paid to import the car into Singapore. And at the point of writing, the OMV of a KIA Cerato is around SGD 14,082. This is the very first cost to cover. But how did this eventually increase tenfold?
In Singapore, you need to bid for a Certificate of Entitlement (COE) which is limited in supply. The COE entitles you to own a car for 10 years. After it expires, you will have to bid for a new one if you still want to continue owning a car. And this COE makes up the heftiest chunk of the total car price. It fluctuates at each bidding exercise depending on the demand and supply. And at this juncture, the COE for a KIA Cerato goes for SGD 93,503! So if you buy a car in Singapore, most of your money is actually used to buy this "piece of paper (COE)".
The other major component is the Additional Registration Fee (ARF) which is priced based on the OMV multiplied by a factor. This factor follows a tiered system based on the OMV of the vehicle. As the OMV of your car goes higher, you get charged more for ARF.
If you buy a mainstream family car such as a KIA Cerato which has an OMV of SGD 14,082, the factor is 100% so your ARF works out to be SGD 14,082. But if you opt for a BMW 3 with a higher OMV of $42,906, you will be slapped with an ARF of SGD 53,521 (See the calculations below).
Other pricing components include the goods and services tax, excise duty, vehicular emission rebates if any, and of course not forgetting the dealer’s margin. The diagram below sums it all up.
So Does That Mean That Very Few People Own Cars In Singapore?
If you are not from Singapore and pride yourself as a rational person, then you would probably think that very few people would want to own a car here. After all, who would be crazy enough to pay this kind of price? And it is not as if Singapore is a big country anyway. You could reach one end of the country to the other by car in less than an hour.
Well, you could not have been more wrong. Despite sky-high prices, many people still went ahead to buy a car. As of 2022, we have more than half a million private cars (532,248) on the road excluding taxis, buses, goods & commercial vehicles, and motorcycles (from Land Transport Authority). This, matching up against 1.4 million resident households (from the Department of Statistics Singapore), translates to one car for about every 2.6 households.
I must say the car market in Singapore takes the idea of irrational exuberance to the next level. Irrational exuberance is a term coined by ex-Federal Reserve Chairman Alan Greenspan to describe the overvaluation of the stock market during the dot-com bubble. But whether the valuations are fed on hype or hot air, at least the dot com stocks did appreciate before it crashes. Cars in Singapore are entirely different animals. It is basically a depreciating utility product that will be worth only a small fraction of its purchase price at the end of 10 years.
What is the nominal cost to own and drive a car in Singapore for 10 years?
What we just talked about so far is what goes into the price of the car. But if you own and drive one, you will end up paying much more than that. First, most people are likely to take up a car loan which would involve additional interest payments along the way. Then, there are other operating costs when you start driving a car on the road such as road tax, petrol, parking fees, toll charges (ERP), auto insurance, etc. So here are what you will incur when you take out a car loan and drive a KIA Cerato for 10 years.
1. Down Payment and Monthly Instalments
Under current car loan rules, a buyer would have to foot a down payment of at least 30% of the purchase price for a Kia Cerato. The remaining 70% can be financed through a loan with a bank which is to be paid back through monthly instalments over a maximum tenure of 7 years. So that means you need to fork out SGD 42,600 upfront and take a loan of SGD 99,399. Based on a car loan interest rate of 2.78% p.a., this translates to a monthly instalment of SGD 1,414 which you would have to diligently settle over the next 7 years.
2. Road Tax and Auto Insurance
In addition to these, there are also numerous running expenses that collectively add up to a sizeable amount as well. There is an annual road tax of SGD 742 and an estimated annual auto insurance of about SGD 1,000. The latter is mandated by law. And trust me, you would want to have insurance. Just a simple change of a rear bumper due to an accident can rack up charges in excess of SGD 2,000 here.
3. Petrol, Parking and Maintenance
Then you got to pay for petrol, parking, toll fees, routine maintenance and repair. All these can vary significantly between individuals. As an estimate, on a per month basis, it might be about SGD 400 for petrol, SGD 300 for parking charges and toll fees, and SGD 100 for maintenance. This should be a fairly conservative estimate. With rising costs, we can expect these expenses to go up further in the future.
4. De-registration of the car after 10 years
Right before the end of 10 years, you can de-register your car and get back 50% of the ARF value you paid. The ARF value of a KIA Cerato is SGD 14,082. However, you only pay SGD 5,000 then. This is because the better emissions standards for this car entitle it to a Vehicle Emissions Scheme (VES) Rebate. So, in this case, you will only receive back SGD 2,500.
In a nutshell, we can distil down to 4 different cash flows over 10 years. The first is the upfront down payment of SGD 42,600. The second is a monthly expense of SGD 1,414 during the first 7 years where you have to service the outstanding car loan. The third is a monthly operating expense of SGD 945 (road tax, insurance, petrol, parking, toll fees, maintenance) over the 10-year period. And the final is the SGD 2,500 that you will get back from de-registering the car.
If you add up all the costs you will incur over a 10-year period, this would come up to SGD 272,296. For an average salaried person, this is a fairly significant sum of money. The table below shows a breakdown of the costs.
But is that all there is to cost? We are almost there but not quite yet.
What is the true cost of owning a Car?
What we have seen earlier are just the nominal costs you would have paid on the car over 10 years. It does not take into account opportunity costs i.e. money you could have earned, say, by investing instead. But to be fair, transport is an absolute necessity. If you do not own a car, you would be taking alternative forms of transport. That said, public transport is readily available in Singapore and is not that expensive. If you just travel to and from work on most days and take affordable modes of travel like buses and trains, it may cost you no more than SGD 10 per day.
So if you had chosen to take public transport instead of buying a car, how different would your situation be 10 years later? Let’s assume you set aside the same amount of money as if you are buying the KIA Cerato, but all you spend is SGD 300 on public transport each month.
In this scenario, you will save on the down payment of SGD 42,600. And you will have SGD 2,059 remaining each month in the first 7 years. Even during the last 3 years when you no longer need to pay the loan instalments, you will still save SGD 645 each month. But of course, you would not get back any deregistration value at the end of the 10-year period since you do not own a car. The total nominal savings you would have over 10 years had you not purchased the KIA Cerato is SGD 236,296.
These are substantial savings which you could have put to work. If you had invested these savings each month instead at a 5% compound annual growth rate (CAGR), it would have grown to SGD 330,044. With a higher CAGR, this amount increases steadily. And this is just for 10 years. If after that you buy a new car and continue to drive for another 10 years assuming everything stays the same, the amount you could have at the end of 20 years snowballed to SGD 867,650. But you can kiss all this money goodbye if you bought a car.
Ending Note
The example here in this post is a car, but it could have been any other “non-essential” item that is simply expensed off or depreciates over time. A dollar spent is always worth more than a dollar if you take into account opportunity cost. In the long term, such cumulative expenditures can seriously derail you from your financial target.
I fell victim to impulse buying when I first joined the workforce. Swinging single with no other commitments then, I bought a car. That was more than 20 years ago, and I am still driving one today. If I can go back in time, instead of buying a car, and invest the money instead, I would be sitting on a nice additional pile of cash today.
But my needs are different with a family now. We use the car for work and to ferry our kids to schools and different places. And spreading the use of the car over 4 persons makes the expense somewhat more justifiable. Of course, strictly speaking, are we able to do without a car? Yes, definitely. There are many others with bigger families that rely solely on public transport to go about their daily lives.
Ultimately, the decision will depend on many factors that differ from family to family or individual to individual. For some, their primary consideration may not be an economic one. It could simply be a lifestyle choice. However, if you ask me whether I would buy a car again if you take me back more than 20 years ago. The answer is clear. No, not a chance.
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