Small Change

Get the sums right before 'decoupling' to buy property

Transferring one co-owner's share of home to the other to save on ABSD for another property may not be beneficial always

When I moaned to a real estate agent friend that the Additional Buyer's Stamp Duty (ABSD) was deterring me from buying another property, she suggested decoupling - and no, I'm not talking about breaking up my marriage.

Decoupling involves one spouse legally giving up his or her co-owner status to become an authorised occupier.

Many home owners who wanted to reduce the amount of ABSD they have to pay have opted for this approach since the tax was introduced in 2011.

Decoupling happens when one partner's share in a property is transferred to the other person. This creates a sole owner, leaving the other half of the pair free to buy another home without having to pay the ABSD, as that purchase will be seen as his or her first. The savings can be substantial.

This practice caught on after January 2013, when Singaporeans had to start paying ABSD from their second property, instead of the third - a change introduced to cool a heated property market.

This means a Singaporean buying a second home is levied ABSD of 7 per cent, while permanent residents (PRs) pay 10 per cent. If the unit is a third property, the ABSD goes up to 10 per cent for Singaporeans but stays at 10 per cent for PRs.

ST ILLUSTRATION: PRADIPKUMAR SIKDAR

Industry observers said this prompted property agents to start raising the notion of decoupling, as my agent friend did with me.

Ms Lie Chin Chin, managing director of local law firm Characterist, says her legal firm has handled more than 250 decoupling cases since 2012. The recent upturn in the private residential market has sparked an increase in demand.

But decoupling is not for every home owner as circumstances vary. Ms Lie and fellow lawyer Ang Kim Lan, who is a director at Goodwins Law Corporation, say that I should work out my sums first. There must be net savings out of the decoupling exercise, which means the ABSD saved should exceed the cost of decoupling.

Note that transferring a half share to one of the co-owners is still subject to the standard stamp duty rate of 3 per cent, as it is considered a transaction. And ABSD is also payable on the value of the share transferred if the party that is taking over the half share has more than one property.

In some cases, seller's stamp duty may be payable if the property was bought less than three years ago.

Legal fees will be $5,600 to $6,500 at least, says Ms Lie.

Furthermore, if there is an outstanding home loan, then this must be discharged and a new mortgage obtained from the bank, adds Ms Ang.

And check whether you incur any penalty for redeeming the loan and the cost of getting a fresh mortgage. In addition, consider if the salary of the sole owner can support the fresh loan.

Other considerations include whether the couple will end up with a property each of equal value or a great disparity in value. For example, what if the husband owns the bungalow but the wife ends up with a tiny one-bedroom condo? What are the implications of this on their legacy planning?

If the Central Provident Fund (CPF) Board is involved, you must consider the refund of CPF money to be made to the party getting out of the ownership of the property.

The transfer from one spouse to another can be via a gift or a sale. If it is a sale, then an actual cash transfer must take place. If it is a gift, the property may not be marketable for a few years. The stamp duty fee is the same, whether it is a gift or a sale, adds Ms Ang.

SCENARIO 1: WHERE DECOUPLING RESULTS IN SAVINGS

Mr and Mrs Tay - who do not own any other property - bought an apartment together. After three years, they are considering buying an investment property that has a price tag of $1 million. Meanwhile, their home loan's lock-in period has expired and they can redeem their loan with no penalty. Their home is valued at $1 million.

If the couple had bought the investment property without decoupling first, they would be slapped with an ABSD of 7 per cent ($70,000) as it would be their second property.

If they decouple, their outlay includes the basic stamp duty of $9,600 (based on 50 per cent of the property value) plus legal costs of about $6,500. The couple should also take into account the cash difference between $1 million and the new mortgage granted to the sole owner, says Ms Lie.

The standard stamp duty is calculated as: 1 per cent on the first $180,000, 2 per cent on the next $180,000 and 3 per cent for the remainder. A quicker way to calculate is to take 3 per cent of the property value minus $5,400.

SCENARIO 2: WHERE DECOUPLING DOESN'T MAKE SENSE

Mr and Mrs Lim co-own their residential property in equal shares and it is valued at $2.4 million. They are keen to buy an investment property for $1 million.

Assume the couple opts to decouple and Mr Lim sells his 50 per cent share to Mrs Lim. There will be a standard stamp duty payable of $30,600. In addition, Mrs Lim - who owns another property here - still has to pay ABSD of $84,000 (7 per cent of $1.2 million).

On the other hand, if they opt not to decouple, their outlay will be lower. Assuming Mr Lim buys the investment property solely (as he does not own a second property here), he will fork out ABSD of 7 per cent or $70,000 for the $1 million investment property.

So the verdict in this case is not to decouple.

WHAT ABOUT HDB FLATS?

Since April 1, 2016, Housing Board flat owners are no longer allowed to transfer their ownership to a family member except under six special circumstances.

Previously, owners were not bound by such restrictions when transferring their flat to a spouse or immediate family member. Once they had given up their ownership, HDB dwellers could then buy a private property without incurring the ABSD.

Under newly tightened regulations, changes in flat ownership are allowed only on grounds of marriage, divorce, death of an owner, financial hardship, renunciation of citizenship and medical reasons.

These would include those who need help from family members in servicing the mortgage, or who have a chronic illness and wish to bequeath the flat.

Those who do not fall under the new guidelines will have their situations reviewed on a case-by-case basis.

It is anyone's guess whether the same restrictions may fall on private home owners in the near future. Meanwhile, it is prudent to work out your sums carefully before jumping in.

A version of this article appeared in the print edition of The Sunday Times on February 11, 2018, with the headline 'Get the sums right before 'decoupling' to buy property'. Print Edition | Subscribe