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  • Why is everybody building an iPhone app?

    I’ve had many many self proclaimed wannabe entrepreneurs approaching me with “compelling” iPhone app ideas, and oh, it’s top secret – before they breathe a single word about it I’ll have to sign a 3,112 page NDA so in an event that somebody else has the same idea I can be brought to court and made to compensate billions.

    What is it with iPhone apps, really? Even SMRT released an app and had a press release for it. For what? Can’t they just post disruptions on Twitter and Facebook – which I think they already do? Why build an app? They think my grandmother has an iPhone? An app is not the solution. A proper announcement system and staff training is.

    The phone and mobile apps are just technologies and delivery mediums. Building a product around a technology is a wrong start. Technology should be built around a product instead. A lot of “app” pitches I’ve heard have no real value. Technology alone does not sell a single cent. It must solve a real world problem. Would you buy an app because it could, for example, switch on your microwave at home? Has remotely switching on a microwave been a need for housewives?

    If you’re reading this and thinking of building an app, please look at the product as a whole. If it’s just another one of those apps, I think you may be better off spending your time and money (app developers charge a really crazy sum BTW, just because it’s HOT) building a real product with a HTML5 site that will truly scale when the need arises… at a fraction of the price. If you are a business owner, don’t derail your core business by focusing on apps and whatever technology trend that comes along.

    Sometimes no technology is the best technology.

  • What does it really cost to own a car in Singapore?

    Update: Do also read the updated article I wrote here in 2014: How to buy a used car in Singapore

    OK, I read this article and felt I had to put in a few words of my own as it was not accurately represented.

    Before I move on, those who are not familiar with the basic taxation structure for cars in Singapore should read my earlier blog post.

    If you have understood the taxation structure in Singapore (I know, it’s a lot to swallow) you would realize that the author of the above article failed to take into account the minimum PARF rebate. The author also picked a car that’s way overpriced in the current market.

    Here’s the facts. A savvy car buyer would have looked at all available options. And to pick a Toyota Altis at the price of $105,988… are you out of your mind?

    Let’s take a Volkswagen Jetta. List price $115,800. Called VW, they have a $6,000 discount. So that brings the list price down to $109,800.

    The OMV of this car is $18,500, so that gives us a $9,250 PARF rebate (50% of OMV). The straight-line depreciation of the car over 10 years is hence $109,800 – $9,250 = $100,550.

    Now, that’s just the car. All taxes inclusive – GST, etc. are already priced into the list price.

    Next, the loan. Assuming if you’re buying a ~$100k+ car, you should must have some cash for downpayment. A wise tip here – at least downpay the minimum PARF rebate and don’t take a full 10 year loan or you will be in serious debt in an event you need to sell your car. If you don’t even have cash for downpayment – sorry to say but Taxi is your friend for now.

    So let’s say we take a 1.88% (compounded) loan over 8 years for the sum of $100,550, the interest works out to be ($100,550 x 1.88%) x 8 years = ~$15,123.

    Adding that to the original sum of the car you have $100,550 + $15,123 = $115,673. The monthly repayment would be $115,673 / 8 years / 12 months = ~$1,205.

    The rest is pretty straightforward… let’s use a table to add ’em up. Here’s the true month-to-month affordability of a VW Jetta 1.4 TSI as of Jan 2012. Note some variables like insurance, parking and ERP really depends on each individual’s profession and usage of the car.

    Item S$/mth
    Loan installments $1,205
    Insurance @ $2,400/yr, no NCD $200
    Road tax @ $620/yr $52
    Fuel @ 20,000 km/yr, 13km/l @ $2/l $256
    Servicing @ $800/yr $67
    Parking (HDB + Office) $200
    Others (ERP, etc.) $100
    Totals $2,080

     

    Now, that’s $2,080 for a VW Jetta. So by wise financial guidelines that you should not spend more than a third of your salary on a car, you (or your family) should take home at least $6,000 to buy a car like that…

    What if you (or your family) only take home $4,000 a month? Under $1,500 a month for a car… is it achievable? Answer is… YES! Pick up a 2005 Nissan Sunny for $23,800. Bargin a little bit and bring it down to maybe $23,000… and here’s the calculations.

    Actual car depreciation (2005 cars retain 55% of OMV) = $23,000 – ($13,000 x 55%) = $23,000 – $7,150 = $15,850.

    Loan = $15,850 over 3 years @ 1.88%: $15,850 (principal) + $893.94 (interest) = ~$16,744. This works out to ~$465 per month.

    Item S$/mth
    Loan installments $465
    Insurance @ $2,000/yr, no NCD $167
    Road tax @ $742/yr $62
    Fuel @ 20,000 km/yr, 9km/l @ $2/l $370
    Servicing @ $800/yr $67
    Parking (HDB + Office) $200
    Others (ERP, etc.) $100
    Totals $1,431

     

    I know what some of you may be thinking – it’s just $600 more a month, why not get the Jetta. Well, $600 can kill you – that’s $7,200 a year. I eat about $600 per month on average so it really makes a lot of difference. I can either eat plain bread or have good meals or I can save that and go for a crazy vacation. It’s all about balance.

    Of course on top of just plain numbers, the value of having the convenience of a car is hard to quantify – especially if you have a pregnant wife, or an old folk, or just simply need to haul that big box from Ikea.

    Public busses and trains aren’t fair comparisons as they are mass public transit and may not bring you to your doorstep. Taxis on the other hand are getting relatively expensive and inconvenient – the queue, the wait, etc.

    So if it doesn’t break your bank – for better quality of life you should consider a car.

    At the end of the day… buy wisely, drive safely. Cheers!

    – Justin

  • Used Car Prices are Coming Down

    As predicted, it’s happening. Used car prices are coming down. It may be partially due to the fear of an impending economic crisis but I believe the problem is more micro than that.

    I’ve been watching the market for a while and there are many cars sitting at the stealer(dealer)ship for months. A lot of people are selling their cars either because they want to make a quick buck or because they got an impressive overtrade for a new VW or BMW. Whatever the case is, the used vehicle population is only growing.

    Right now there’s 22,283 used passenger cars on the market in sgCarMart. There’s currently about 600,000 passenger cars on the road and that makes up nearly 4% of the car population. Based on COE current quota allocations, this is about a years’ supply of vehicle for the entire nation. If the average vehicle depreciates about $7,000, the entire used car market stands to lose a total of $13m every month.

    Let’s check back in 1-2 months and see how this vehicle population has changed.

  • Buying a Used Car in Singapore

    Update: Do also read the updated article I wrote here in 2014: How to buy a used car in Singapore

    I saw this discussion and couldn’t help but write a short blog entry on this.

    If you’re ever buying a used car, you need to set your expectations right. Ask yourself – why did the car get so much cheaper after the first owner and even more so after its first three years? That’s because the warranty’s over and the first owner has farted all over it.

    Here’s some quick tips for the potential used car buyers.

    • Buying a used car is not like buying a new car. Don’t bother negotiating for freebies and warranty. True warranty for used cars hardly exists. Negotiate for price, save the extra cash for repairs, and most importantly – do your homework. Don’t stop at one shop.
    • STA is good for chassis inspection, i.e. if it has been in any major accidents that has compromised the main structural strength. If you get A or B grade, then the car is in good shape. Never accept anything with a C and below.
    • Don’t trust the mileage – even on high end continental cars this is reprogrammable for a fee. Afterall, it’s just a damn computer! Look for obvious signs of wear in other areas like steering wheel, seat belts and gear knobs. These are usually costly to replace and dealers don’t replace them.
    • Don’t look at superficial stuff. Dull paintwork can be fixed with a polishing job. Poor upholstery can be re-wrapped. That stench in the car is easily fixed if you just get the upholstery  and carpets removed and washed.
    • During the test drive make sure you test everything. Request for a longer route so the engine warms up. Shift through all the gears including reverse and look out for rough shifts. Turn off the air-con and radio to listen for noises. Turn the steering left and right and check for noises or free play. Let the steering go free on a straight road to see if the wheels are tracking straight. Go over humps and see if the suspension has gone bad. Get on the brakes at both low and high speeds and look out for vibrations that may indicate a warped brake discs. Accelerate suddenly then let the throttle off and see if the engine stalls. Don’t turn off the engine after a test drive – pop the bonnet and listen to the engine run at idle. Look for oil or coolant leaks under the car.
    • Be prepared to have it serviced and repaired the moment you buy it. Cars are mechanical and there will certainly be  wear and tear. Do you think the previous owner bothered to service the car when they know they’re about to sell them? Have timing belts changed, oil and other fluids changed for a peace of mind.
    • Do your research. I can’t emphasize more on this. If you are intent on buying a specific model of car please join the various car forums and learn about the common issues of the car and look out for them.
    • Do your math. Don’t buy something that burdens you. Make sure you are able to finance it and sell it without having to cough up more cash. Usually this means taking a shorter loan term and paying a decent down payment in the region of $10,000 or about half the OMV.

    Once you’ve made the purchase, the most important thing is to enjoy the ride and just fix the problems that come. Take it as a learning experience and I believe you will be happy with your second hand motor for few good years ahead.

  • COE: What goes up, must come down.

    The first round of November 2011 COE hit a 17-year high of $78,001. Believe me – what goes up, must come down.

    My analogy is that COE prices will continue to rise to such a level that many people will stop buying new cars. At this point the 2nd hand market would have also been flooded with those trading-in/making a quick buck selling their cars.

    People looking for a bread and butter car will be buying used cars but there will be a point when the market gets flooded with overinflated used cars because the used cars dealers will continue to raise their prices in tandem with the rising COE prices. Used cars will become illogical to purchase at those prices given the amount of risk(s) involved, such as accidents and mechanical issues.

    Used car dealers will eventually be stuck with excess stock and there will be price war. A few used car dealers may even wind down due to inability to pay the financing for the cars in their showroom (they are usually on loan). Some people who lost money in the recent downward spiral of the stock market would also be forced to sell or auction their cars for cheap.

    When all these happens the prices of used cars will start to come down. People will then again flock to the used cars. But there isn’t enough new car buyers to trade in their old cars. New car dealers will be in trouble when this happens and down comes the price of COE.

    Don’t buy a car now if you can wait another year… trust me.

  • Buying and Financing a Car in Singapore

    Update: Do also read the updated article I wrote here in 2014: How to buy a used car in Singapore

    Ever since my two test drive posts I’ve had a few friends contact me about buying a car. I think it’s best that I share it on a blog post so it benefits many others who are considering to buy a car in Singapore.

    Disclaimer: Buying a car in Singapore is mainly a lifestyle decision, and also a big financial decision. There’s never a right or wrong time to buy a car. If you need one, just go for it, but make sure you do your finances right.

    Singapore’s Vehicle Tax Structure

    The tax structure in Singapore makes car buying/financing a pretty complicated process.

    The first thing to know is what makes up a vehicle’s price in Singapore:

    +--------------------------------+
    | OMV | ARF | COE | Profit | GST |= Total price of car
    +--------------------------------+

    GST, or Goods and Services Tax is a tax on the purchase value of goods or services in Singapore. I think this one is the easiest to understand. Right now this amount is at 7% of sale price.

    OMV, or Open Market Value is the declared value of the car. One can consider this the cost of the dealer importing the car.

    ARF, or Additional Registration Fee is a form of import tax. As of March 2008, the ARF is 100% of OMV. Prior to that it was 110%.

    COE, or Certificate of Entitlement is also a form of tax that grants the owner a right to use the vehicle for a period of 10 years. COE prices are controlled by market forces based on supply and demand and is broken into several categories based on vehicle type and engine capacity. The amount paid is known as a Quota Premium (“QP”).

    As of now, Cat A QP (cars 1600cc and below) is somewhere near $47,000. I think most of the readers know this.

    Of course, finally there’s the profit and other miscellaneous costs such as registration fees which are pretty negligible in ratio to the final selling price of a vehicle in Singapore.

    Now, it is important that one understands the tax structure first before moving on to the next part.

    Singapore’s Vehicle Renewal Scheme

    Ever wondered why most vehicles in Singapore are new and shiny? That’s because of how the Singapore government encourages renewal of cars by offering tax refunds when one deregisters a car!

    This is when you see terms like PARF (Preferential ARF?) rebate. Basically this is a tax refund scheme that reduces in value over a period of 10 years. For the 1st to 4th year, the government grants a 75% refund of the ARF if a car is deregistered. Every subsequent year thereafter, this amount drops by 5%.
    Once the car reaches its 10th year, no refund (0%) is given.

    1st to 4th year, before reaching 5th year = 75%
    5th year, before reaching 6th year = 70%
    6th year, before reaching 7th year = 65%
    7th year, before reaching 8th year = 60%
    8th year, before reaching 9th year = 55%
    9th year, before reaching 10th year = 50%
    10th year and beyond = 0%

    The same goes for COE refunds, but in a linear fashion. COE refunds reduce on a daily basis, so as each day passes, the refund amount reduces in a straight line until the end of 10 years where it will be 0%.

    Having understood the tax refund (aka “rebate”) structure, we now come to a term that car dealers like to use to confuse you – paper value.

    The oh-so-familiar term “paper value” basically refers to the amount of refundable tax on a car. In other words, it is an amount of money the dealer will certainly get from the government when deregistering the car.

    What they do NOT tell you is that your car still has a worth. Look at this chart again:

    +--------------------------------+
    | OMV | ARF | COE | Profit | GST |= Total price of car
    +--------------------------------+

    Paper value is a refund of ARF (tax) + COE (tax). What happened to the OMV, or more appropriately, the worth of the car? Ah-ha! They have suckered you into trading in your car for a low “paper value”, and then exported your shiny new car to another country for resale at a pretty decent profit!

    Remember, our country is small. Our annual car mileages are relatively low and Singapore cars are well taken care of. A lot of countries favour cars exported from Singapore. Don’t let the dealers bullshit you into believing otherwise.

    Understanding Depreciation

    So what is depreciation? It is basically the financial costs of a car after tax refunds, over a period of utilization.

    Remember the tax refund scheme? You could still get a 50% ARF refund at the 9th year just a few days before the car reaches exactly 10 years of age. This amount is known as the minimum PARF benefit.

    Therefore assuming one drives the car for the whole 10 years, the annual cost of financing a car is [(Purchase Price – Minimum PARF benefit)/10 years]. This is known as the annual depreciation.

    Why is Depreciation Important?

    Depreciation is fundamental to knowing the long-term affordability of almost anything, especially physical goods. Your house, your car, your computer, etc. Everything has a lifespan.

    By understanding depreciation, you will also be able to better know if your financial decision is sound and if you are able to cut loss in a dire situation, which brings me to my next section.

    Financing a Car and Overtrades

    Many people make a financial decision to buy a car only asking one thing: “How much do I pay each month?”

    This was my biggest mistake when I bought my first new car; I hope it won’t be yours.

    The monthly cost is just part of the affordability equation. The next part of the question is: “If I need to sell my car, will I have any outstanding loans?”

    You must be thinking now, “what do you mean ‘outstanding loans’?”

    Don’t forget – you took a loan. Assuming you didn’t pay a single cent initially as downpayment, the bank charges you lots of interest for that. Now that you’re selling your car, are you able to pay off the total amount you owe the bank (called the settlement amount) from the proceeds of your car sale?

    This is quite hard to understand now, so I’ll use an example.

    Let’s just say I bought a car for $100,000. Round figures are easy to work with.

    I took a 10 year loan. The loan interest rate is now 1.88%.

    Interest: $100,000 * 1.88% * 10 years = $18,800
    Total: $100,000 + $18,800 = $118,800
    Monthly: $118,800 / (10 years * 12 months) = $990

    So I owe the bank $18,800 in interests even before I drove the car!

    Now, assuming I drove the car for 3 years and I decided to sell it. I still owe the bank the following according to the Rule of 72:

    Amount Paid: $990 * 3 years * 12 months = $35,640
    Balance: $118,800 – $35,640 = $83,160
    Rule of 72 rebate: Complex formula, etc. = $9,245
    20% Penalty: $9,245 * 20% = $1,849
    Settlement: $83,160 – $9,245 + $1,849 = $75,764

    The real truth is that after 3 years my car would probably sell for only $65,000, So I still need to “top up” $10,764. As the car ages, this value might get lesser.

    At one point, you may be able to sell your car for as much as the settlement amount. Some people call this breaking even, i.e. you owe the bank as much as you sold the car for.

    A lot of people kill themselves here because they took way too much loan. When time comes that they desperately need to sell the car to relief themselves of a monthly burden, they are stuck in a situation where they are not able to pay off the outstanding loan.

    As an end result, most people sell their cars and buy yet another car – likely a cheaper and older car and bundle this outstanding loan into a new loan. This is called overtrade. Overtrades are the worst thing you can do – to take a loan on top of a loan. Don’t ever do that!

    Are loans that bad? Should I take a loan?

    Why not? Loans are healthy financial instruments if managed properly. The key here is to plan for an exit. My general advise is to downpay at least the dealer’s profit and part of the OMV since tax is a refundable portion. This way, you’re taking a loan on a guaranteed sum! This formula has never gone wrong on me so far.

    Financing Tips

    The best way to reduce your loan interest is to shorten the loan term. If you are taking a $100,000 loan at the prevailing interest rate of 1.88% for 10 years, that’s $18,800 of interests! Shortening your loan from 10 years to 7 years would reduce this amount to $13,160. That’s a reduction in $5,640 of interests.

    Downpayment is useful if you intend to sell your car SOON as it reduces the principal sum. But downpayment does not really reduce interests that much.

    Using the above example, if I down pay $20,000 and take $80,000 in loan for 10 years, I’ll still pay $15,040 in interests. That’s still more interests than reducing my loan term by 3 years even after coughing up $20,000.

    What are the other costs of car ownership?

    Insurance. Insurance can be quite expensive, especially if you are young or inexperienced. I have seen annual premiums of up to $3,400 which averages about $300 per month!

    Parking. You’ll need to park your car somewhere. Factor in all the parking costs, including weekend shopping. Typical HDB season parking costs $70-90.

    Road tax. These are annual and vary with the engine capacity of your car. Check with your dealer. 1600cc cars hover around $600-700 per year; or about $50 per month.

    Fuel. The average Singapore car travels about 20,000 kms per year. For most cars, this is about $300 in fuel monthly. Hybrids will be happy to do that distance for less fuel, of course.

    Servicing. All cars need regular maintenance to keep them running well. A neglected car may cost you even more in repairs! A typical car in Singapore goes for servicing twice a year. Each servicing trip can cost $100-300, depending on where you go and what you do.

    Fines. This needs no explanation!

    What about 2nd hand cars?

    2nd hand cars are certainly good financial decisions as they depreciate lesser than new cars. When cars go out of warranty after their 3rd (or 5th in some) years, their values drop quite significantly. Once they reach the magical age of 5 years where the ARF drops an additional 5%, a car’s value drops even further.

    The problem with 2nd hand cars are generally mechanical risks. You’ll need to ask yourself if you can afford to have a car in the workshop for several days. Some people depend on their vehicles for a living!

    You’ll also need to ask yourself if you have sufficient budget for repairs. I would generally say budget up to $2,000 for initial repairs (worst case) and thereafter up to $1,000 annually (again, worst case). If you cannot cough out this amount of money on top of your expensive insurance premiums and road tax, you should consider alternative means of transport.

    2nd hand car buying tips:

    • Insist that you send the car to STA for inspection of chassis alignment. STA has computerized chassis alignment tools that will be able to tell if your vehicle’s main structure has been compromised. Some small accidents cannot be detected (e.g. bumper dents, etc.) Make it clear to your dealer that a grading of C and below should be rejected immediately.
    • Insist that you send the car to a third party workshop for inspection. Ask around for reputable mechanics who would inspect the car for a small fee. If the dealer disagrees to this, drop the deal. The car is likely a dodgy deal.
    • Test drive the car – go over humps, switch off the A/C and radio, listen for noises, turn the steering left and right quickly, get on the gas and brakes randomly, test the lights, test the horns, insist on new tyres.
    • Don’t judge a car by it’s paintjob. Most dealers send the car for a respray to cover up the dings and scratches left behind by the previous owner. Look for oil and coolant leaks under the car, especially after a test drive would be more ideal.
    • Don’t trust the mileage. 9 in 10 car dealers meddle with the odometer. If you check your sales contract you’ll be surprised theres a paragraph that disclaims them from the accuracy of the odometer. Look for tell tale signs of wear and tear – seats, steering, gas/brake pedals, seat belts.

    What are COE cars?

    COE cars are basically cars without a PARF rebate. Before a car reaches 10 years of age, somebody decided to forgo the PARF rebate and renew the COE on the car so it has the right to drive for an additional 5 or 10 years.

    I would advise against purchasing COE cars unless you are into vintage cars. They may look cheap, but in actual fact they depreciate much more because of their age (more than 10 years) and the lack of a guaranteed tax rebate.

    If an average Singapore car travels 20,000km per year, a 10 year old COE car would have travelled 200,000kms! Be prepared for a major mechanical overhaul.

    Always buy a newer car that you can afford.

    With that, I end my super long blog entry. Happy motoring!