As we all know, Additional Buyer Stamp duty or widely know as ABSD in short, can be quite hefty and can work out to be quite a big sum if we are buying a 2^nd property. For example, for a Singaporean intending to purchase a 2^nd property at $1,000,000, ABSD will work out to be $120,000 EXTRA. In spite of these, there are a few ways to “avoid” paying the ABSD which we will be sharing with you. However, these approaches may not be suitable for everyone and work on a case to case basis. For a faster approach, feel free to arrange with us for a coffee session to decide if it is suitable for you.

If you are interested in finding out what are the ABSD rates for different buyer profiles, you can visit our previous article here.

How can I purchase a 2^nd Property without paying ABSD?

Restructuring current property portfolio

One of the simplest and most straightforward method will be to do some restructuring on your current property portfolio:

• Decoupling
• Buying Properties Under Single Owner (If you currently co-owned a property, you may consider selling the current property or decoupling prior to the execution of this method)
• Buying a Property with 99/1 Tenancy in Common Structure

Other methods to save on ABSD includes:

• Sponsoring and “Buying” Under A Child’s Name
• Buying a Property Under Trust

Decoupling

If a property is co-owned between spouse, one of the options will be to free up either one of the spouse’s interest in the current property so as to purchase the next property. The property count of the exiting spouse will be counted as 0 for the next purchase.

However, this method only works for private residential owners as HDB board has tightened their regulations on making changes in flat ownership since 1^st April 2016.

If you and your spouse currently own a HDB, and would like to explore the options of owning a 2nd property, read on.

What are the things to take note of when performing a decoupling on existing property?

• The remaining owner must be able to take up current loan of his/her share as well as taking over the exiting party’s share of the loan.
• The exiting party will have to refund CPF monies including accrued interest back to their CPF Account. In the event of a shortfall, CASH have to be used for the refund unless you are able to obtain a waiver of the refund from CPF.
• Higher legal fees, estimated around $6000 +/- will be incurred as the law firm is doing conveyancing for the sales and purchase partshare of the property
• Exiting party must be able to take up loan for the new purchase
• Buyer Stamp Duty will be incurred on the partshare purchase price.
• If decoupling occurs within 3 years, Seller Stamp Duty between 4 to 12% may be incurred.
• The purchaser for the 2^nd property need not maintain the Basic Retirement Sum (BRS) in their CPF Account

Buying Properties under Single Owner

If you and your spouse are first-time buyers, both of you can consider buying the 1^st property using one name and the 2^nd property using the other.

To bust some myths, this method also works if the first property you are purchasing is a HDB as well.

What are the things to take note of when buying a property with single name?

• Only purchaser’s CPF can be used for the property
• Loan amount will be lesser when compared to buying the property jointly as it is determined by purchaser’s income only.
• When purchasing a HDB under sole owner, spouse’s name have to be listed as an essential occupier. Spouse can only purchase their 2^nd private residential property after 5 Years Minimum Occupation Period (MOP) from the purchase of the HDB is fulfilled.

Buying Property Under 99-1 Tenancy in Common

At instances, when a sole owner’s loan amount is insufficient, we may consider buying the property under Tenancy in Common with a 99% and 1% split share. As such, both owners’ income can be taken into consideration for the loan. In due time, when the 99% owner have saved up enough Cash & CPF, or is sufficient to maintain the whole loan, they can perform a decoupling on the property and the 99% buys over the 1% partshare at only 1% of the property’s current market value or price.

Read more: 4 Things To Consider Before Buying In 99/1 Tenancy In Common Manner

What are the things to take note of when buying a property under 99-1 Tenancy in Common?

• If you intend to use a bulk amount of the 1% owner’s CPF, then it is definitely not advisable to purchase a property with this method. Hefty sums of CASH may have to be paid out to perform a decoupling.
• The owner withholding 99% partshare interest of the property must have sufficient income or savings (CPF or Cash) to takeover 100% of the remaining loan when decoupling.
• If decoupling occurs within 3 years, Seller Stamp Duty between 4 to 12% may be incurred.

Sponsoring and “Buying” Under a Child’s name.

Upon reach 21 years old of age, your child has reached the legal age to purchase a property. With no property count under their names, parents may have the option to use their child’s name to purchase their “2^nd property” avoiding paying for ABSD for a Singaporean first time home buyer (your child), which is a savings of 12% on top of the property price!

Simple and straightforward? No, this is not the case.

Firstly, and most importantly, your child must qualify for a mortgage loan. Any shortfall after deducting the loan amount and available CPF monies will have to be topped up in CASH.

Upon acquiring their first private property, the complications may arise when he/she have plans for marriage and wanting their own property i.e a BTO, Executive Condominium It is strongly encouraged to work out an exiting strategy first before jumping into the purchase.

As a guide, for a private owner to purchase:

• A new BTO or a new launched Executive Condominium
  Private Property interest have to be disposed off 30 months prior to the application.

• Resale HDBs
  Private Property interest have to be disposed off 6 months upon completion of HDB purchase.

• Another Private Property
  You may have the option to keep current Private Property if the next property purchase is a private property. However, prevailing ABSD will be incurred. At the same time, loan structure and useable CPF amount may differ as well.

To be eligible for maximum loan and purchasing without ABSD, the first private property interest have to be disposed off with a contract or an agreement executed by the new buyer prior to the purchase.

Lastly, the legal owner of the purchased property is your child. Hence, they have all the rights to do what they want with the property. i.e Sell or using as collaterals for loan etc. You as the main sponsor for the purchase does not have any legal rights and interest to the purchased property.

Using a child’s name to purchase a 2^nd property may sound simple, but it is not. It is extremely important to sit down with your child to discuss and foresee all possible issues and draw down on different exit strategies before the issues arise and everything turns ugly into a family dispute.

What are the things to take note of when buying a property with child’s name?

• Child must be 21 Years of age.
• Child must be able to qualify for a mortgage loan.
• Ensure sufficient Cash in the event of shortfall.
• Make plans for different exit strategies when your child intends to purchase his own property in future.
• Ensure that you and your child are in sync before any issues arise and turns into a nasty dispute.

Buying a Property on Trust

Buying a property on trust for your child below 21 years old requires you to pay in full CASH for the purchase as financial institutes do not grant loans and Trustee’s CPF monies cannot be used for such purchases. Other cost including Buyer Stamp Duties and legal fees are also payable in CASH as no CPF can be used.

Trustee (the parent in our scenario) will be responsible for all the taxes and expenses on the property. In this instance, ABSD will not be liable for a Singaporean Child, the beneficiary, as it will be considered their first property. However, the property and the income derived from the property itself such as rental income or sales proceeds will still go to the beneficiary (child). A way to go about will be to set up a joint account with both beneficiary’s and trustee’s name.

For a property bought on trust, it will be safe from claim from any creditors of the trustee.

Upon reaching 21 years of age, the trust may be terminated and the legal title to be passed to the child unless otherwise stipulated in the trust deed.

What are the things to take note of when buying a property with child’s name?

• Beneficiary is advisable to be below 21 Years of age.
• Purchase on trust can only done with FULL CASH including fees such as Buyer Stamp Duty, Legal Fees and such.
• There will be additional costs for setting up Trust Deed.

Final Thoughts

No one method works out the best for everyone. All the ways mentioned above to avoid ABSD are options for your consideration.

It is basically a MUST to understand more on your current financial position, property positioning status, your preferred plans as well as family profile to find out which method is more appropriate for you.

Detailed planning and assessment have to be done prior to taking any action on the opportunity.

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