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Why expensive cars are a bad investment

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High-end cars might not be a thing to show off after all. They depreciate very fast, a new study shows. The study conducted by Data Fintech shows that depreciation hits cars with an engine capacity of 2501cc and above hardest after four years.

Despite the depreciation, older cars (5-8 years old) seem to dominate the marketplace, contributing to 55% of total listing value.

As of July 2017, a new car aged between 0-2 years was priced at Ksh7.54 Million, with an average of 58 new cars in the market place per month. When a car above 2501cc is above 5 years old, its value drops by about Ksh3 million, retailing at Ksh4.44 million.

SEE ALSO: Mercedes Benz outraces BMW in Kenya

Supply of cars on the marketplace in July 2017 jumped by 36.84% whereas the total listings value conversely jumped by 155.04% .Vehicle units priced at Ksh2 million and above contributed to 57.87% of the total listings value.

Despite this oversupply, 29.07% of total units in July 2017 cost over Ksh2 million as evidenced by a 155.04% increase in total listings value which caused the rise in vehicles average price in July 2017.

For new car owners whose cars are about 2501cc that wish to sell their cars, it is best to sell your cars when it is 3-4 years old as depreciation hits severely afterwards.

Depreciation is the major equity killer in vehicle ownership. “Within its first year, a vehicle loses about 30% of its value. After three years of a car’s life, depending on the car, it may have depreciated 50%,” says Philip Reed, senior consumer advice editor at Edmunds.com, as quoted by Bankrate.com.

ALSO SEE: Fresh rise in prices to slow down demand for cars

Reed says that historically some brands and models simply hold their value better than others. Consumers can spot cars with higher resale value because carmakers brag about the ones with good depreciation records.

Resale or rate of depreciation is mainly affected by mileage, condition, fuel consumption and market demand. According to Data Finitech, the optimal mileage category for dealers is the 0–50,000km category as it experiences less price fluctuations.

According to Kenya Bureau of statistics, Kenyans spent at least Ksh117.6 billion on imported cars annually since 2015. Most of the imports are second hand cars, which is acquired by the rising middle-class population.

READ: Marketing and PR among high paying professions  in Kenya

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FRANCIS MULIhttp://www.businesstoday.co.ke
Editor and writer, Francis Muli has a passion for human interest stories. He holds a BSc in Communication and Journalism from Moi University and has worked for various organisations including Kenya Television Service. Email:[email protected]
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