Your search results
Posted by PropertyDirectSG on September 30, 2017
| Blog
| 0

Decoupling of PropertyDecoupling of Property and its Considerations

Decoupling, a common word used in recent years, means to separate, disengage, or dissociate from something. It does not mean a divorce between a husband and a wife.

In the context of real estate, the Decoupling of Property means to have one party to take over the shares of the other party in the ownership of a property.

It has since become increasingly popular because of the introduction of the several cooling measures in the property market few years ago, particularly the Additional Buyer Stamp Duty (ABSD). And sadly, it looks like these cooling measures are not going to go away anytime soon.

So, is decoupling the best way to avoid paying the additional taxes for your 2nd property?

We have list down the various considerations you should take note. You may realize that decoupling is not as simple as it seems to be and might not even be cost efficient as you thought it would be.

 

Eligibility of Decoupling of Property

First and foremost, one has to know that decoupling is only allowed in private properties (with the exception of one party going through bankruptcy). It is no longer allowed for a married couple in a HDB flat.

However, the transfer of flat ownership is allowed between parents and children, or taking over of ex-spouse’s share in a divorce. This is termed as resale of part-share. (Do take note that HDB’s eligibility scheme and criteria applies.)

 

Savings on Stamp Duty

Since a normal property purchase will incur a Buyer’s Stamp Duty (BSD) amounting to approximately 3% of the purchase price, the only savings that you will get for purchasing the 2nd or 3rd property is just the ABSD.

 

Additional Buyer Stamp Duty (ABSD) Rates From 12 Jan 2013

Citizen Type 1st Property Purchase 2nd Property Purchase 3rd Property Purchase  
Singapore Citizens N.A. 7% 10%
Permanent Residents 5% 10% 10%
Foreigners/Corporate Entities 15% 15% 15%

 

So in order to enjoy this savings, what are the other costs we have to fork out for going through the decoupling process?

 

Costs

  1. Legal Fees

As it is selling the share of a property of one to another, the whole conveyancing applies and the charges are similar to that of purchasing a new property. And by right, the seller will have to engage another lawyer to represent him, so 2 sets of legal fees apply. However, you can always negotiate with the lawyer to represent both parties (usually related) to save on the legal costs.

 

  1. Seller Stamp Duty (SSD)

If the existing property is sold within the “holding period” set by the government, SSD will apply, and the “Seller” of the share of the property has to pay the tax for the proportion that he held.

 

  1. CPF

CPF funds are usually utilized for the purchase of a property. Hence, the amount used from the “Seller’s” CPF including the accrued interest accumulated has to be paid back to CPF Board. That means, the “Buyer” will have to top up with cash into the “Seller’s” CPF account for taking over his share.

 

For the “Seller” who is 55 years old and above, the monies refunded into their CPF account will be used to meet the Full Retirement Sum. Only the excess can be utilized for the purchase of the next property.

 

Other Considerations to be taken into account

  • Existing Mortgage

       If the property is still under mortgage, then the “Buyer” who took over the property has to be re-assessed by the bank to see if he is able to undertake the whole loan by himself.

       As a precaution, it is wise to get a banker to assess the “Buyer” first before decoupling is done. Do take note that if the loan is still within a ‘lock-in’ period, then penalty applies even for changing the names of the mortgagor from 2 to 1.

 

  • Bankruptcy

       If the “Seller” becomes bankrupt within 5 years from the date of transfer, his creditors may have a claim on the transferred shares of the property.

After considering the costs and savings, let us look at a case study to determine if decoupling is better for a couple.

 

CASE STUDY 

Mr Tan is a Singaporean and Mrs Tan is a Singapore Permanent Resident. They own jointly a property that is worth $3mil. They are looking to purchase a studio apartment at $1mil for investment.

 

Scenario 1:

Mrs Tan took over the existing property. Mr Tan proceeds to buy the studio apartment for investment.

BSD for the new property: $1,000,000 x 3% – $5400 = $24,600

BSD for the existing property: $1,500,000 (50% share) x 3% – $5400 = $39,600

ABSD for the existing property: 1,500,000 x 5% = $75,000

 

Total Stamp Duty payable = $139,200

 

Scenario 2:

Mr Tan took over the existing property. Mrs Tan proceeds to buy the studio apartment for investment.

BSD for the new property: $1,000,000 x 3% – $5400 = $24,600

BSD for the existing property: $1,500,000 x 3% – $5400 = $39,600

ABSD for the new property: $1,000,000 x 5% = $50,000

 

Total Stamp Duty payable = $114,200

 

Scenario 3:

No decoupling. Mr and Mrs Tan proceed to buy the studio apartment under their names.

BSD for the new property: $1,000,000 x 3% – $5400 =$24,600

ABSD for the new property: $1,000,000 x 10% =$100,000

 

Total Stamp Duty payable = $124,600

 

In the above case study, Scenario 2 will incur the least taxes. However, with the other costs and hassle that come with decoupling, it might just be wiser to pay the ABSD in Scenario 3 to save time and hassle.

Therefore, decoupling does not always necessarily make economic sense. It generally does only if the 2nd property has a higher value than the existing one. Not to forget the other terms and considerations that come with it that might land you in a worse position then you started.

Leave a comment if you would like to find out if decoupling is for you.

Leave a Reply