Remember back in the 90’s when property investors in Singapore were proud when they could explain how every home they bought made their next home purchase easier…
The rent from the first property was used to pay for the second property, the rent from that property was used to pay for a third, and so on. Well, those days are long gone.
Today, the massive tax known as Additional Buyers Stamp Duty (ABSD) has put a damper on it. The good news is that it helps to keep housing prices affordable for many Singaporeans.
But the bad news is, that it can cost you a small fortune when you plan to expand your property portfolio and invest in multiple properties.
So, today we are going to show you 6 legal ways you can use to own multiple properties without paying ABSD:
- Decoupling
- Buy an Executive Condominium
- Sell one, buy two
- Buy a dual-key unit
- Purchase under trust
- Buy a commercial property
1. Decoupling
Now, you’ve probably heard this method a lot from property agents that you’ve come across in your life. In fact, we’ve also discussed this in detail recently in our blog post here.
To sum it all up for you, decoupling is a common method where one spouse transfers his/her share to the other, and then goes out and buys a second property under his/her own name. He/She won’t be paying any ABSD because, having transferred his/her share of the property to you, he/she no longer counts as an owner when he/she buys the next unit.
But before you do this though, keep in mind that transferring one’s share of the property is NOT free. If your spouse transfers his/her share of the property to you via decoupling, you still need to pay for both Buyers Stamp Duty (BSD) and Sellers Stamp Duty (SSD).
So, our advice here is to make sure that the cost of decoupling is less than the actual cost of ABSD before starting, or else there’s no point. If you need help figuring out the costs of decoupling, drop us a message and let us work out the numbers for you.
2. Buy an EC (for HDB upgraders)
For ABSD to note that, even if you’re just upgrading and have no plans to own multiple properties, you still need to pay the ABSD first (although you can apply for a remission if you meet the eligibility and if you sell your existing home within six months).
You won’t have to pay ABSD for your new place if you sell your current place first before you proceed to upgrade.
But for homebuyers who wish to secure their new place first,This means you still need to have the hefty 17% tax (or 25% for Permanent Residents and 30% for Foreigners) in cash or from your CPF.
But the good news is that this only applies to private condos. If you purchase an Executive Condominium (EC) directly from the developer instead, you don’t need to pay the ABSD first. But you do still need to sell your flat within six months, of course.
For homeowners who are only intending to upgrade to a private condo, It is also possible to do the sale and purchase concurrently without having to incur the ABSD and also ensure a smooth transition from your existing place to the new one.
If you need help on this, do speak to us to understand more about how it can be done.
3. Sell one, buy two
This is also another method that is heavily promoted by property agents in your social media feed. The idea here is to sell your existing property and then use the sales proceeds to buy one property under your name & a smaller one under your spouse’s.
For example: If you sell your five-room HDB flat for $575,000.
You then use $375,000 as the down payment on a $1.5M condo under your own name.
Your wife then looks for a smaller condo – let’s say, an $800,000 shoebox unit and puts down $200,000 for it under her name.
Since both of you have no property at the time of purchase, neither of you will have to pay for the ABSD cost. However, for this to work, both of you must qualify for your respective mortgages.
4. Buy a dual-key unit
Another method you can use to avoid ABSD is to buy a dual-key unit since you’re actually buying a property with two units side-by-side, but for the price of one.
A dual-key unit usually has a common foyer, after which it splits into two separate sub-units. This allows two families (for example, your family and your in-laws), or a tenant and a landlord, to live together in the same home with privacy.
Since dual-key units are still counted as a single property, you don’t have to worry about paying any ABSD on the second unit.
5. Purchase under a trust
This method involves buying a property under a trust for your children and you’ll need to hire a conveyancing lawyer to do this. You don’t have to pay for ABSD by doing this but do take note that there are other consequences.
For instance, if your children were to take possession of the property, they can’t apply for an HDB flat while owning it. And of course, they’d be incurred with ABSD if they try to get a second property for themselves.
Do discuss it carefully with your lawyer if you choose to proceed with this method.
Additional notes for financing a property bought under trust
Properties bought under trust will not be able to take a bank loan or use any CPF monies to finance the property.
6. Buy a commercial property
For all of you investors out there, you’ll be glad to hear there’s no ABSD charged when you buy a commercial property. You’ll only have to pay the GST, which is 7% at the time of writing.
So instead of buying another condo to rent out, you can consider investing in a coffee shop, office space, etc. But be sure to do your homework or consult with an expert though, as investing in a commercial property is a whole different ball game from a residential.
Conclusion
So, there you have it, 6 legal ways you can use to avoid ABSD when purchasing properties in Singapore.
Although these methods may seem a little time-consuming and difficult to understand, it is important to learn how best to avoid paying ABSD since the government has increased the ABSD cost in 2022.