When it comes to purchasing property in Singapore, the term “decoupling” often emerges as a potential solution for dodging the costly Additional Buyer’s Stamp Duty (ABSD). That’s where the idea of “buy 1 sell 2” came about.
But is it wise?
This guide aims to shed light on the ins and outs of decoupling and its implications for Singapore’s property market.
Understanding Decoupling
No, you don’t have to break up!😅
Decoupling, in the context of property ownership, refers to the process where joint homeowners sever their shared ownership. This method is often utilized by married couples, allowing one partner to be legally recognized as the sole owner of their shared property, while the other is free to purchase a new property without the burden of ABSD.
This means instead of getting just one property, homeowners can look into getting 2 properties under their name. One for your own stay, the other for rental income!
The Emergence of Decoupling
But why?
The practice of decoupling emerged as a legal and effective method of avoiding the hefty ABSD that is imposed on the purchase of a second property in Singapore. By transferring ownership from joint to single, one partner is considered a first-time property buyer, allowing them to sidestep the ABSD when acquiring a new property.
It’s not an uncommon scenario to buy multiple properties in Singapore. Some Singaporean love to think that having multiple properties is a great source of earning passive income. Rightfully so!
The Singapore property market has steadily climbed over the last few years, making property investing really exciting.
Many property buyers also have the impression that buying a new property is a ‘sure way to make money’.
With that, for them, it makes a lot of sense to own at least 2 properties, one for each name!
The ABSD and Its Impact on Decoupling
The ABSD, established by the Singapore government as a cooling measure for the property market, significantly increases the costs associated with buying a second property.
As of April 2023, Singapore Citizens buying a second property are subjected to an ABSD of 20% of the purchase price. This rate is even higher for Singapore Permanent Residents and foreigners, at 30% and 60%, respectively.
The hefty costs associated with the ABSD have driven many to consider decoupling as a viable alternative. However, it’s essential to understand the intricacies of decoupling before embarking on this process.
Warning Signs
It’s essential to note that decoupling may not be suitable for everyone.
The financial implications, the type of property owned, and the individual circumstances of the co-owners can significantly impact the feasibility of decoupling.
The Financial Implications of Decoupling
Decoupling can bring about substantial savings by avoiding the ABSD. For example, purchasing a second property worth $1 million without decoupling could result in an ABSD of at least $200,000. By decoupling, this amount can be saved and redirected towards other property-related expenses.
However, the cost savings from avoiding the ABSD should be balanced against the costs associated with decoupling. These costs include conveyancing fees, stamp duties, prepayment penalties, and the need to refund the Central Provident Fund (CPF) monies used for the initial purchase.
The Decoupling Process for Private Homeowners
Private homeowners have two primary options for decoupling: transfer by way of sale (part purchase) or transfer as a gift.
A transfer by way of sale involves one party purchasing all the remaining shares of the property from their partner. This transaction requires the buyer to pay the seller for their rights to the property, as stipulated in the sale and purchase agreement, and to pay the Buyer Stamp Duty (BSD) to the Inland Revenue Authority of Singapore. It’s important to note that under certain circumstances, the Additional Buyer’s Stamp Duty (ABSD) and Seller Stamp Duty (SSD) may also apply.
On the other hand, a transfer as a gift involves transferring your share of the property without receiving any payment. This method is only possible if there are no outstanding mortgage or CPF monies tied to the home purchase.
The Decoupling Dilemma for HDB Owners
For HDB flat owners, the decoupling process is significantly more challenging.
Since 2016, HDB flat owners are no longer allowed to transfer their ownership to a family member, making decoupling a less accessible option for these homeowners.
In this situation, a Singaporean couple, John and Amanda, jointly own a condominium unit.
If John earns a high and stable income, he could consider buying a landed property.
However, the ABSD would significantly increase the cost of this purchase.
By decoupling, John can buy the new property without incurring the ABSD.
Decoupling vs ABSD: Weighing the Costs
Although decoupling can be a viable option for avoiding the ABSD, it’s crucial to consider all the costs associated with this process. In certain situations, the costs of decoupling can exceed the ABSD, making it a less economical choice. Therefore, it’s advisable to consult a property agent or financial advisor before proceeding with decoupling.
FAQs about Decoupling
What if there’s insufficient CPF for the downpayment, stamp duty, or legal fee?
These costs would have to be paid in cash if you don’t have enough CPF savings.
Can a mortgage loan be obtained for the second property?
Yes, but remember to consider the Total Debt Servicing Ratio (TDSR), which caps the monthly repayment for property loans at a maximum of 60% of the borrower’s monthly income.
Can the sales proceeds be kept as cash after decoupling?
All CPF Ordinary Account funds and accrued interest used towards the payment of the property must first be returned to the CPF Board. The remaining surplus would be returned to the owner as cash.
In conclusion, while decoupling can be a smart strategy to avoid the hefty ABSD, it is not a one-size-fits-all solution. It requires careful financial planning and an understanding of the complexities involved. Always seek professional advice before deciding to decouple.
