With new cooling measures on the 16th of December last year, Additional Buyers Stamp Duty (ABSD) in Singapore has been increased. This is a sore spot among many investors; and yet we hear of some who still manage to avoid it. There are, in fact, perfectly legal methods that might allow this. In this article, I’ll give a rundown of how some property buyers are apparently able to avoid ABSD:
The revised ABSD rates are as follows:
For Singapore Citizens
For Permanent Residents
Do note that, for co-owners of mixed nationality, the higher ABSD rate will always apply (e.g., if the co-owners are a Singapore Citizen and a foreigner, the ABSD rate for foreigners will apply; so it may be better to have the Singaporean as the sole owner if possible). So despite the rising ABSD rates, why do some buyers still choose to pay the ABSD rather than decouple?
If you buy a property before selling your flat, you still count as purchasing your second home. This means you will be subject to the ABSD of 17 per cent (or higher for other nationalities).
While you can apply for ABSD remission later, it’s important to note that you must still pay the ABSD first. All stamp duties, including the ABSD, must be paid within 14 days of completing the transaction.
Only after that can you apply for ABSD remission, provided (1) you are buying as a married couple, and one spouse is a Singapore citizen, and (2) you sell your previous flat within six months of purchasing the new property.
In general, having to pay the ABSD upfront – even if you qualify for remission – is painful to home buyers. It affects your cash flow, and requires you to have more cash or CPF available before you can afford to upgrade. For this reason, most Singaporeans are better off selling their flat first, and then buying their next home.
Admittedly, there is a drawback of having to move twice: you will likely have to find some form of interim accommodation. But with ABSD rates now at 17 per cent, this may still be the better option.
Also, keep in mind the risk you avoid: there’s no possibility of losing the ABSD remission, because you missed the deadline to sell. It can be quite stressful as you near the six-month mark.
If you absolutely must buy your condo before selling your flat (e.g., there’s no way you can rent in between the move), then you may want to consider upgrading to an Executive Condominium (EC).
Unlike a private condo, you won’t have to pay ABSD if you’re just upgrading from your flat to an EC. Both are HDB properties, so it’s understood you’ll be selling the flat later, as no one can own two HDB properties.
As an aside, note that – if you just want to move from your flat to another HDB flat – you also won’t face any ABSD in Singapore.
This approach works for couples where both are higher-income earners. With this approach, you would purchase the property under your own name, and your spouse will later purchase another property under their own name.
This means both of you count as owning just one home, so there’s no ABSD even though – as a family – the two of you own two different residences.
The problem with this method is that it requires a sufficiently high income (this article tells you more in-depth). Under the new cooling measures, the Total Debt Servicing Ratio (TDSR) has been lowered from 60 per cent to 55 per cent. This means that your monthly home loan repayment, along with your other debt obligations, cannot exceed 55 per cent of your monthly income.
So if the monthy loan repayment would be $4,000, for example, you would need a solo income of at least $7,273 per month to qualify for the loan. If you have any other debt obligations, your may need to earn even more.
Besides the TDSR, you may want to consider issues of financial prudence. For example, if one spouse loses their income, you may struggle to manage two home loans at the same time.
If you have already jointly bought a private property with your spouse, you can try to decouple. This means one spouse will transfer their share of the property to the owner, so they no longer count as owning a home.
The freed-up spouse can then purchase another property under their own name, without incurring ABSD (as in point 3). However, there are two important things to note:
First, it is not free to decouple. Apart from legal fees, you nat need to pay the Buyers Stamp Duty (BSD) when receiving your co-owner’s share of the property. This is why couples who plan to own two homes often use tenancy-in-common rather than joint tenancy; they may split ownership as 99 per cent / one per cent, and transfer over the one per cent when it’s time to buy a second home.
(The BSD will only be charged on the one per cent being transferred).
Second, note that you cannot decouple this way for HDB flats. HDB will only decoupling under very specific situations, such as divorce. As such, this method is not viable for HDB upgraders.
This is an option that’s available to the most affluent buyers. It involves purchasing a property under a trust, which is typically a law firm. The property is then held by the trust, on behalf a beneficiary such as your children.
You are not required to pay ABSD on properties bought on trust, for other beneficiaries. However, you must be sincere in just wanting to pass down the property: if the government finds out you’re creating the trust solely to benefit yourself (e.g., you’re pocketing rent from the property, instead of setting the rent aside for your children), they can take steps to dissolve the trust.
Perhaps the biggest problem with buying on trust, however, is that banks rarely provide financing. You must be ready to pay the full cost of the property upfront, which makes for poor cash-on-cash returns.
Dual-key units are single property units, which are subdivided into two units. This means you could buy a dual-key unit as a single property (no ABSD), and live in one sub-unit while renting out the other.
However, you should not do this without being aware of certain drawbacks. Dual-key units tend to cost more on a per square foot basis, for example; and there’s often less living space due to extra functional spaces needed (e.g., there have to be two kitchens for both sub-units, as well as separate toilets; this takes up the total available space for each side).
Dual-key units may also be tougher to sell, as they appeal to a fairly niche group of buyers.
It’s a real waste to pay ABSD of 17 per cent or more, and still end up with only one property. However, this is a tragedy that can happen—if you mess up the timeline for upgrading. One of the most common reasons is upgraders who miss the six-month timeline. Some also panic near the deadline, and end up quickly selling their flat for less than they could have gotten.
Do drop me a note or fill up the contact form below if you’re upgrading, and faced with ABSD. We can work out a way for you to minimise such stamp duties. In the meantime, you can follow me on Ron Chong Properties.sg, to find out more about the Singapore private property market.