Buying 2nd Property Without ABSD in 2021 - New Gen Home

Buying 2nd Property Without ABSD in 2021

Many Singaporean homeowners are considering cost-effective ways to invest in a second property without ABSD (legally of course). Part-purchase or decoupling is one of the common method. Let's find out how I did it.
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Why without ABSD?

As of July 6, 2018, the ABSD for second homes has increased to 12%. For Singaporeans looking to purchase a second $1 million property, they can expect to pay up to $144,600 in stamp fees alone! That’s not even counting other buying costs!

Therefore, many homeowners are now considering other most cost-effective ways to invest in a second property by avoiding paying ABSD (This is not a ABSD loophole).

There are a few methods to reduce the cost of buying a second property without paying ABSD.

Today I will share with you one common prescribed method called part-purchase or decoupling.

Avoid ABSD by decoupling?

In short, decoupling in the real estate industry is commonly understood as one owner (Owner A) buying the other owner’s (Owner B) existing interest in their co-owned property. This is also known as part-purchase.

Through this method, Owner B becomes free to purchase another property at NO or a reduced ABSD, depending on his citizenship and the number of properties he already owned.

This is not to be confused with remission with ABSD. This is a topic for another day. 

How to decouple HDB flat?

Not all property types are eligible for decoupling. An example is a married couple who own an HDB flat.

According to HDB, resale part-share is only allowed under specific circumstances. One example is for transfer between parents and children. In other instances, it is for purchasing an ex-spouse’s interest in their matrimonial property.

As you can see, this leaves many HDB owners with the option of selling the HDB before they free up both names to buy two properties under two different owner names.

Decoupling for private properties

The good news is that decoupling is allowed for private residential properties without any regulatory restrictions. 

Now that we have gotten the eligibility out of the way, let’s see how I assist my clients with their part purchase. 

Case Study

To better understand how part-purchase is done, let’s look at a real-life case study of a client whom I have the privilege to work with.

– Mr Tan and Mdm Yeo intend to buy a second private property for investment.
– Mr Tan and Mdm Yeo, both Singaporeans jointly owned equal shares (50/50) on their matrimonial property.

Financial Assessment

Property Valuation

$1,200,000

Outstanding Loan

$650,000

 Financial Assessment

Mr Tan 

Mdm Yeo 

Age

37

35

Monthly Salary

$9,000

$7,500

CPF Principal + Accrued Interest Used

$200,000

$150,000

CPF OA Balance

$100,000

$250,000

Other loans 

$1,750 (Car)

None

Maximum Loan After Decoupling (75% LTV) 

$781,585

$1,002,227

Decouple

In this case study, Mdm Yeo will be selling her property interest to Mr Tan. As Mdm Yeo has lesser monthly loans, she can maximise her TDSR limit and purchase a higher quantum property.

It is important to note that every buyer has a different investment objective. It does not necessarily mean the one with a higher loan to value will be the one decoupling. You should seek professional advice before making a decision.

Seller – Mdm Yeo 

Amount

Remarks

Selling Price

$600,000 

50% of $1.5M property valuation

Outstanding Loan 

$325,000

50% of $650K outstanding loan 

CPF Principal + Accrued Interest Used

$150,000

Total CPF Used for property purchase

Legal fees

$2500+/-

1 for representing seller, 1 for representing buyer 

Sales Proceeds 

$122,500 

Proceeds in cash

Part-purchase

Mr Tan will now proceed to purchase his wife’s interest in their original matrimonial home. 

Buyer – Mr Tan

Amount

Remarks

Buying Price

$600,000

50% of $1.2M property valuation

Existing Housing Loan

$325,000

50% of $650,000 outstanding loan 

  • Option Fee 

$30,000

5% of property valuation

  • Down-payment

$120,000

20% of property valuation

  • New Loan

$450,000

75% of property valuation

  • Buyer’s Stamp Duty

$12,600

See IRAS existing BSD rate

  • Legal Fee

$3,500+/-

1 for representing seller, 1 for representing buyer 

Refinance 50% of existing loan

$325,000

50% of $650,000 outstanding loan 

Below are the total cost breakdown for Mr Tan. 

Total Cost Breakdown 

Amount 

Remarks

Total Housing Loan 

$775,000

Refinance loan + New Loan

Total CPF Needed 

$100,000

Existing CPF OA balance available for use 

Total Cash Needed

$30,000 + $38,100

5% Option Fee + Shortfall in CPF

 

It is important to note that the purchaser must have sufficient CPF funds combined with the new home loan he/she can secure. Any shortfall will mean that the purchaser will need to set aside more cash for the decoupling process. 

Being a Singaporean, Mdm Yeo is now free to purchase another property without paying ABSD since her total property count after decoupling is zero.

Frequently Asked Questions (FAQ)

This is because two law firms must act for the buyer and seller respectively to represent both parties’ separate interests in this transaction.

You can do that as long as you have extra cash to repay your co-owner share of the outstanding mortgage and CPF used. 

This is why most will need to sell their share of the property at valuation so that they can have the extra funds from a mortgage loan to repay their co-owner outstanding mortgage and CPF used. 

Your stamp fees will still be payable at the current market valuation. 

Part sale or part purchase transaction will have to take place at fair market value for the property in question. So the answer is no, you can’t sell your share of the property at a below-market price. 

Yes, you are still required to pay a seller’s stamp duty (SSD) based on the prescribed rate provided by IRAS. Your seller’s stamp fees payable will be based on the percentage of you owned. 

As a realtor working in a continuously changing economic landscape, it is increasingly important to advise my clients beyond transactions. Every client’s financial situation is unique, there is no one size fits all solution for every case. As a realtor myself, my job goes beyond transactions, it is important to go beyond my duties and assist my clients to seek the best outcome possible beyond property-related matters.

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