It is no secret that many people aspire to own at least two properties; one for their own stay and the other for investment – but in Singapore, it also means having to pay the hefty Additional Buyer’s Stamp Duty (ABSD).
The ABSD was first introduced by the government in December 2011 as a “cooling measure” to discourage people from owning multiple properties and keep the housing prices affordable for its citizens.
“For Singapore citizens, the ABSD cost of buying a second property is 17% of the purchase price, or the current market value of the property, whichever is higher.”
Luckily, for married couples in Singapore, there is actually a way for you to buy a second home without paying ABSD and it’s called ‘decoupling’.
Drop us a message for a FREE comprehensive decoupling consultation today!
So… what is decoupling anyways?
Decoupling is a common practice in the real estate industry that involves a pair of co-owners (usually married Singaporean couples) where one owner will transfer his/her share to the other co-owner. Now, this owner will be treated as a first-time buyer and will be able to buy a property without having to pay the ABSD cost.
Let’s say – if today you decide to buy a $1M second property for investment without decoupling, you will have to pay at least $170,000 (assuming you’re a citizen buying a second property) on ABSD alone.
But by decoupling, you can save the amount and use it for new furniture, renovations, or even go on a trip with your loved ones. Smart, right?
An Important Note For HDB Owners:
Decoupling can be really tricky when it comes to HDB flats. Since 2016, HDB flat owners are not allowed to transfer their ownership to a family member and decoupling is only allowed under these six special cases:
- Marriage
- Divorce
- Death of an owner
- Financial complications
- Renunciation of citizenship
- Medical reasons
As such, decoupling will only be possible for private properties.
What are the costs of decoupling?
When it comes to decoupling, there are 2 ways you can do this. Either you transfer it as a gift or sell your share to the other owner.
1. Transfer as a gift
The best way you can ‘decouple’ without incurring any additional costs is by transferring your share of a property as a gift without receiving any payment. However, this is only possible if you have fully paid your home and there is no outstanding mortgage behind it.
2. Transfer by way of sale
In this process, one party usually buys all the remaining shares of the property from his/her spouse – legally. A lawyer or conveyancer will be hired to draft a sale and purchase (S&P) agreement.
As stated in the S&P agreement, the buyer must pay the seller for his/her property rights and BSD to the Inland Revenue Authority of Singapore.
The lawyer would then pay off the seller’s existing mortgages, CPF used, and SSD (if any) using the sale proceeds before transferring the ownership to the buyer.
Buyer Stamp Duty (BSD) with effect from 20 Feb 2018
| Payment Schedule | % of Stamp Duty |
|---|---|
| First $180,000 | 1% |
| Next $180,000 | 2% |
| Next $640,000 | 3% |
| Remaining Amount | 4% |
Seller Stamp Duty (SSD) with effect from 11 Mar 2017
| Holding Period | % Seller Stamp Duty |
|---|---|
| Up to 1 year | 12% |
| More than 1 year and up to 2 years | 8% |
| More than 2 years and up to 3 years | 4% |
| More than 3 years | No SSD payable |
To recap, if you decouple by way of sale, then the additional costs you have to bear are Buyer Stamp Duty and Seller Stamp Duty
BUT, these duties are calculated off your share of the property, NOT the full property value. Here are 2 case studies to better illustrates how different these costs can add up to.
Case Study A: Joint tenancy (50-50) by Ben and Emma
In this case study, Ben and Emma (both Singaporean citizens) are co-owners with equal shares to a condo unit for more than three years. This is also known as a joint-tenancy, meaning both Ben and Emma have a 50-50 share of the property.
Scenario: Ben and Emma want to purchase a second property for investment purposes, however, the Additional Buyer Stamp Duty would be a substantial cost
Here’s how Ben and Emma can decouple their condo by Emma buying over Ben’s share in their existing property
Let’s say, the condo is currently being valued at $1M.
The existing home loan balance is currently at $500,000 (split equally between Ben and Emma since each of them owns 50% of the property)
50-50% part share selling price (Since both Ben and Emma owns 50% shares each in the property): $500,000
| Ben sells 50% shares to Emma | Emma buys 50% shares from Ben |
|---|---|
| Sale price: $500,000 | Purchase price: $500,000 |
| Pay off original home loan: $250,000 | How Emma pays: (a) 25 % (Cash + CPF): $125,000 (min. $25,000 in cash) |
| Return to Ben’s CPF: $150,000 (including accrued interest) | Other expenses for Emma (Cash/CPF): (b) BSD (Purchase price*3% (-$5,400): $9,600 (c) Estimated legal fees (2 firms): $5,500 |
| Ben’s cash proceeds: $100,000 | (a + b + c) Total cost for Emma: $140,100 |
| – | (d) 75% New home loan: $375,000 (e) Emma’s existing home loan with the bank: $250,000 (d + e) Emma’s new loan amount after the decoupling process: $625,000 |
After decoupling, Ben will receive $100,000 in cash proceeds, which he may use for his new investment property.
Emma will have to take a new loan amount of $625,000 for the current place.
Disclaimer: Prior to proceeding with any decoupling plans, we recommend all clients to plan their financials and safety net first and also to seek professional advice. We are able to connect you with law firms and bankers that are well equipped with decoupling knowledge as well.
Case Study B: Tenancy-in-common (99-1) ownership by Ben and Emma
In this new case study, Ben and Emma are tenants-in-common. This means they can hold different percentages of shares. In this scenario, Ben is holding a 1% share of the property, and Emma has the remaining 99%.
| Ben sells 1% share to Emma | Emma buys 1% share from Ben |
|---|---|
| Sale price (1% of $1M): $10,000 | Purchase price: $10,000 |
| Pay off original home loan: $5,000 | How Emma pays: 25% (Cash + CPF): $ 2,500 (min. $500 in cash) |
| Return to Ben’s CPF: $150,000 (including accrued interest) | Other expenses for Emma (payable Cash/CPF): BSD: $100 Estimated legal fees (2 firms): $5,500 |
| Ben’s cash sales proceeds: $0 | Total cost for Emma: $8,600 |
| Ben is required to refund back his CPF used + accrued interest used for the property. In this scenario, he won’t be getting any cash sales proceeds. | 75% New home loan: $ 7,500 Emma’s existing home loan with the bank ($500,000 x 99%): $495,000 Emma’s new loan amount after the decoupling process: $ 502,500 |
Now, Ben can proceed to buy a new property without paying any additional buyer stamp duty as he has effectively sold his 1% share of the property to Emma However, Ben must refund back his CPF used + interest on his own as the 1% property value is not sufficient to cover his CPF used. In this event, Ben will not be getting any cash sales proceeds from selling his 1% share, but must also have the available funds of $150,000 to refund back into his CPF account.
The buyer stamp duty fee that Emma needs to pay is only 1% at $100, And Emma will have to take a new loan of $502,500.
Conclusion: Is decoupling really for you?
Before decoupling your property with your spouse, speak to an expert real estate agent and check all the costs and risks involved. Some couples may think it’s better (and quicker) to pay the additional buyer stamp duty and move on, but with the additional buyer stamp duty as high as 17%, it might not make financial sense if you are getting a 2nd property for investment. Example: the investment property you purchase grew 20% in 3 years. But you paid 17% additional in stamp duties, giving you only a 3% return.., in this case, paying the additional buyer stamp duty will erode your profits.
Drop us a message for a FREE comprehensive decoupling consultation today!