As of 27 April, 2023, the ABSD for second homes has increased to 20%. For Singaporeans looking to purchase a second $1 million property, they can expect to pay up to $224,600 in stamp fees alone (Buyer’s Stamp Duty and Additional Buyer’s Stamp Duty). 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 ways to avoid ABSD called part-purchase or 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.
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.
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.
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.
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 |
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 |
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 |
| $30,000 | 5% of property valuation |
| $120,000 | 20% of property valuation |
| $450,000 | 75% of property valuation |
| $12,600 | See IRAS existing BSD rate |
| $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.
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 of 16 December 2021, the latest ABSD rate for Singapore citizens buying their 2nd property is 17% instead of 12%. You can refer to the link provided by IRAS for more infomation.
ABSD is calculated based on the selling price or valuation price. If your 2nd property cost $1 million dollars, your expected ABSD rate will be based on 17% of $1 million.
This works out to be a total of $170,000.
The example above is only applicable to Singapore citizens.
On 26 April 2023, the Government announced that ABSD rates will be raised with effect from 27 April 2023, as part of a package of measures to promote a sustainable property market.
ABSD rate changes over the years are illustrated below.
ABSD Rates from 6 Jul 2018 to 15 Dec 2021
After 16 December 2021:
These changes were implemented to regulate demand for property in Singapore, reduce speculation, and ensure a stable and sustainable property market.
LATEST From 27 April 2023:
The above decoupling method does not subject the buyer to any Additional Buyer’s Stamp Duty (ABSD) and still applicable in the year 2023.
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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