To Decouple Or Not To Decouple?

February 1, 2022

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Introduction

One of the ways available to both Singapore Citizens and Singapore Permanent Residents to cope with the recently increased ABSD rates is through the process of decoupling. In this month’s newsletter, we will be focusing on the ways to decouple a private property and why it may be beneficial for you to do so before purchasing a second or subsequent property.

Additional Buyer’s Stamp Duty

The ongoing Covid-19 pandemic caused massive global economic disruption, Singapore being no exception. However, the heated private real estate market in Singapore has notably remained buoyant despite the ramifications of the pandemic on the general local economy.

To cool the heated property market in Singapore, the government announced a series of measures in the late night of 15 December 2021. Unsurprisingly, one of the measures introduced is the increase of the Additional Buyer’s Stamp Duty (ABSD) rates, which is payable on top of the usual Buyer’s Stamp Duty. The revision to the ABSD rates which took effect the next day is as below: –

Types of Buyers Rates

(before 15 Dec 2021)

 Rates

(on and after 16 Dec 2021)
Singapore Citizens Buying first residential property

 

 0% 0%

(no changes)
Buying second residential property

 

 12% 17%
Buying third and subsequent residential property

 

 15% 25%
Singapore

Permanent Residents

 Buying first residential property

 

 5% 5%

(no changes)
Buying second residential property

 

 15% 25%
Buying third and subsequent residential property

 

 15% 30%
Foreigners Buying any residential property

 

 20% 30%
Entities Buying any residential property 25%

(plus additional 5% for Housing Developers)

 35%

(plus additional 5% for Housing Developers)

As we can see from the table above, the adjusted ABSD rates do not only affect foreigners, but also Singapore Citizens and Singapore Permanent Residents looking to purchase a second or subsequent residential property.

Example 1

A married couple (both Singapore Citizens) wants to purchase a second property priced at $2,000,000.00 in both their names.

Before adjustment of ABSD rates

1. Buyer’s Stamp Duty $64,600.00
2. Additional Buyer’s Stamp Duty (12%) $240,000.00
TOTAL $304,600.00

After adjustment of ABSD rates

1. Buyer’s Stamp Duty $64,600.00
2. Additional Buyer’s Stamp Duty (17%) $340,000.00
TOTAL $404,600.00
 

 

Example 2

A married couple (both Singapore Permanent Residents) wants to purchase a second property priced at $2,000,000.00 in both their names.

Before adjustment of ABSD rates

1. Buyer’s Stamp Duty $64,600.00
2. Additional Buyer’s Stamp Duty (15%) $300,000.00
TOTAL $364,600.00

After adjustment of ABSD rates

1. Buyer’s Stamp Duty $64,600.00
2. Additional Buyer’s Stamp Duty (25%) $500,000.00
TOTAL $564,600.00

Even before the adjustment, many consider ABSD to be a relatively hefty sum to take on in addition to the significant sum of finance required to purchase the property itself. The recent increase in ABSD rates, in line with the government’s aim to cool the property market, will further deter potential investors from buying multiple properties in Singapore.

Understandably, people would choose to avoid shelling out such hefty sums which would ultimately not provide any added value towards the property. One of the ways for Singapore Citizens and Permanent Residents to circumvent such potential liability is through the decoupling process.

What is decoupling?

Decoupling is the process of severing the joint ownership of a property so that one of the parties is free to purchase another property as a first-time home buyer. Therefore, the prerequisite for decoupling is that the existing property must be owned by two or more persons.

 

 

Example 3

A married couple (both Singapore Citizens) wants to purchase a second property priced at $2,000,000.00. They may opt to decouple the first property valued at $2,000,000.00 which they own as joint tenants prior to the acquisition of the second property.

Without Decoupling

1. Buyer’s Stamp Duty $64,600.00
2. Additional Buyer’s Stamp Duty (17%) $340,000.00
TOTAL $404,600.00

With Decoupling

1. Buyer’s Stamp Duty (on half share) $24,600.00
2. Buyer’s Stamp Duty (on new purchase)

 

 $64,600.00
TOTAL $89,200.00

Total Savings

$404,600.00 – $89,200.00 = $315,400.00

Example 4

A married couple (both Singapore Permanent Residents) wants to purchase a second property priced at $2,000,000.00. They may opt to decouple the first property valued at $2,000,000.00 which they own as tenants in common in equal shares prior to the acquisition of the second property.

Without Decoupling

1. Buyer’s Stamp Duty $64,600.00
2. Additional Buyer’s Stamp Duty (25%) $500,000.00
TOTAL $564,600.00

With Decoupling

1. Buyer’s Stamp Duty (on half share) $74,600.00
with Additional Buyer’s Stamp Duty (5%) on half share
2. Buyer’s Stamp Duty (new purchase) $164,600.00
with Additional Buyer’s Stamp Duty (5%)
TOTAL $239,200.00

Total Savings

 $564,600.00 – $239,200.00 = $325,400.00

 

Evidently, the savings in this aspect is considerably substantial. The monies can be used to offset the renovation costs or even towards a subsequent purchase of another property.

There are two methods of decoupling a property.

Decoupling by way of gift

The first method is to decouple by way of gift. For example, if you and your spouse are co-owners of a condominium unit, you may decouple by gifting your share of the property to your spouse, or vice versa. In order to gift your share in the property, the property must be free from encumbrances, i.e. it cannot be subject to any mortgage or CPF charge.

The apparent benefit of decoupling by way of gift is that there is no cashflow involved in the gifting of the property. That means that you are not required to show that you have the monies available to purchase the property.

However, not everyone is qualified to decouple in such a manner.

As mentioned earlier, the property in question cannot be subject to any mortgage or CPF charge. Private property prices in Singapore are considerably high and most people do not have the resources to fork out a full cash payment for the property. They would usually take up a bank loan or utilise their CPF to finance the purchase. As such, if there is an existing mortgage or CPF charge over the property, they cannot decouple a property through this route.

Another consideration is the manner of holding. For those who are unaware, there are two ways of holding a property in Singapore, namely joint tenancy and tenancy in common. When two or more persons own a property under joint tenancy, they have an undivided interest in the property. As such, they would not have a distinct share which they can make a gift of. In order to effect a gift of one’s share in a property held as joint tenancy, one would need to sever the joint tenancy into tenancy in common in equal shares. This has to be done through a lawyer. Upon the severance, each owner would hold a distinct share which he or she can then effect a gift of.

In addition, while there are no monies involved in the actual transaction, Buyer’s Stamp Duty must still be paid on the share of the property that is being transferred to the beneficiary by way of gift. The Buyer’s Stamp Duty payable based on the market value of the property and will be paid by the existing owner taking over the share of the property.

Another point to consider is one where because the share of the property is considered a gift, it is considered an undervalued transaction under the laws of Singapore. As such, if the donor subsequently becomes an adjudged bankrupt, the gift is voidable by the Official Assignee if the transaction takes place within three years of the donor’s bankruptcy (‘the clawback period”).

A property subject to gift is also not considered good security during the clawback period. As such, the property affected by gift cannot be sold or mortgaged during the clawback period.

Decoupling by way of part sale and purchase

The second method is to decouple by way of a part sale and purchase. For example, if you and your spouse are co-owners of a condominium unit, you can decouple by buying over your spouse’s share in the property, or vice versa. As there is no requirement for the property to be free from mortgage or CPF charge in a sale, most people who wish to decouple properties that are still subject to mortgage or CPF charge would choose this method.

While there are less qualifications to adhere to, there are certain considerations that one has to take note of before decoupling through a part sale and purchase.

One consideration before going ahead with decoupling is that decoupling by way of part sale and purchase means that you are required to show the cashflow involved in the sale and purchase of the share in the property.

If the loan needs to be refinanced in the remaining owner’s name, it is also important to confirm that the remaining owner has the capacity to refinance the loan in his or her sole capacity as there are requirements such as the Total Debt Servicing Ratio (TDSR) which has to be complied with. For those who are unaware, TDSR refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for. Given that the loan on the share of the property transferred will be financed by only one of the owners, they must ensure they meet the requirement before proceeding with decoupling.

Conclusion

Given that the difference in cost is relatively substantial with the latest ABSD measures, we see an overall increasing interest for co-owners of an existing property to do decoupling. If you are able to decouple a property before purchasing another property, you will most likely be able to save a substantial amount.  However, not everyone is qualified to decouple. As such, one should always seek proper legal advice as to whether it is advisable to decouple your existing property. This is especially so, in view of the recent changes implemented by the Singapore government. In the meantime, should you require any further information, please do not hesitate to contact us.