The many rounds of cooling measures for Singapore properties have led the industry to find creative approaches circumventing them. We think there are broadly, two aspects of decoupling. We call them (1) ownership decoupling and (2) mortgage decoupling. In part 1 of a 2-part series, we will focus on the methods touted by property buyers and agents on ownership decoupling.
Buyer Stamp Duty (BSD)
Purchasing a property will attract stamp duty. The first one is the Buyer Stamp Duty (BSD).
3% less $5,400 on valuation less than $1,000,00
4% less $15,400 on valuation equal or more than $1,000,00
The second tier of 4% BSD was introduced by Singapore ministries on 20 Feb 2018. The move was to align changes to the tax system to make it more progressive.
So this one is always payable, regardless of citizenship. Amount will depend on the valuation of the property, that will attract tier 1 or 2.
Additional Buyer Stamp Duty (ABSD)
ABSD has been mentioned so many times in the media, by subject matter experts, banks, real estate agencies and mortgage brokers like us. It has been scrutinised for its seemingly punitive nature. What it really is a tax that’s payable depending on citizenship and the number of Singapore residential properties you own regardless of mortgage or not. The ABSD tax structure has been tweaked on multiple occasions to address the rising property prices in the past years. The most recent ABSD changes took effort from 6 July 2018.
Table: ABSD on or after 6 July 2018
|ABSD on or after 6 July 2018|
|Singapore citizen buying first residential property||0%|
|Singapore citizen buying second residential property||12%|
|Singapore citizen buying third and subsequent residential property||15%|
|Singapore PR buying first residential property||5%|
|Singapore PR buying second and subsequent residential property||15%|
|Foreigners buying any residential property||20%|
|Entities buying any residential property||25%|
The rules on BSD and ABSD are very clear. Base stamp duty applies to everyone while ABSD is payable depending on the number of property you own and your citizenship (in other words, ask yourself if your name is on the title or you are the eventual beneficiary).
Next, let’s look at the ways to ownership decoupling.
Ownership Decoupling by Property Trust – the game for the wealthy
For the well-heeded folks, perhaps ABSD is small change for them to consider purchasing another property. To avoid ABSD on themselves due to their existing ownership, they may buy a property for their children under a property trust. The beneficiary of the trust will be the children and when they come of age at 21 years old, the property will be fully own by them. Why is this considered a game for the wealthy parents? Because there is no retail mortgage available in this ownership structure, meaning the purchase will be in cash. Most probably, the children owns no residential property so this structure helps the parent to buy another property in the names of their offspring and most importantly, pay BSD without the ABSD.
Property Ownership decoupling – the most open secret every agent is sharing
If you cannot afford to buy in cash and has no children as beneficiary of a property trust, then you might have read about this property decoupling approach. Basically, you will sell the share of your residential property to your other half so that you have no ownership. Then ABSD is not payable when you purchase your own residential property. The end result is each individual owns their own residential property, be it a HDB flat and a private property or both private properties. The big assumption is each party can take on individual mortgage based on their merit.
We can help with the decoupling process. It involves valuation of the current property, mortgage assessment and application for each party, conveyancing matters and the costs associated. You may also start with comparing the latest mortgage rates.