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Decoupling Property To Invest A Second Property – Calculations For 2019!

With ABSD at 12%, you may be considering to decouple your property to invest into a second property.

It's a scenario many of my private clients are looking at and I've suggestions for you from an independent financial planner's point of view.

Not a property agent's point of view.

How Decoupling Works!

Decoupling is a legal exercise whereby you sell your share in the private property to your spouse.

Ownership of the title is legally transferred and the property becomes solely owned.

Refinancing of home loan is needed unless you have fully paid off your existing loan.

Banks may recommend you to re-up your loan amounts in this refinancing exercise.

Your spouse will sole bear all mortgage payments, that were originally split between you 2.

In addition, when you have used CPF before for the mortgage payment, the amounts have to be returned to your CPF with accrued interest just like any usual sale of property.

Stamp Duty Calculation For Decoupling

Both of you are Singapore Citizens

Your spouse has to pay the Buyer Stamp Duty (BSD) when taking over your shares of the property.

The price to transfer is the value of the property (independent valuation which means you cannot transfer at $1)

Payment Schedule
% of Stamp Duty
First S$180,000
1%
Next S$180,000
2%
Next S$640,000
3%
Remaining Amount
4%

If your private property is $2.1m, your half share to sell is $1.05m.

Buyer Stamp Duty (BDS) will be $1,800+$3,600+$19,200+$2,000=$26,600

No ABSD


If your private property is $1.2m, your half share to sell is $600,000.

Buyer Stamp Duty (BSD) will be $1,800+$3,600+$7,200=$12,600

You are Singapore Citizen And Spouse Is PR

There would be an ABSD of 5% that needs to be factored into the decoupling of property when your spouse (PR) purchases your share.

If your private property is $2.1m, your half share to sell is $1.05m.

Buyer Stamp Duty (BDS) will be $1,800+$3,600+$19,200+$2,000=$26,600

ABSD will be 5% (Spouse foreigner with 1st property purchased through decoupling) = $52,500

Total = $79,100


If your private property is $1.2m, your half share to sell is $600,000.

Buyer Stamp Duty (BSD) will be $1,800+$3,600+$7,200=$12,600

ABSD will be 5%(Spouse foreigner with 1st property purchased through decoupling) = $30,000

Total = $42,600

Legal Cost For Decoupling!

This will involve 2 sets of lawyers: –

·         Seller’s lawyers for Sale and Purchase.

·         Buyer’s lawyers for Buyer conveyance.

Total fees for this exercise range from $5,500 to $6,500.


If your property is less than 3years old, there could be seller's stamp duty SSD also.


Add legal cost to stamp duties fees (if both are citizens), total cost would easily be close to $20,000.

Can decoupling of HDB flat be done?

The quick answer is NO. Decoupling HDB is not allowed.

Decoupling EC owned within 10years is also not allowed because it is still "HDB status".

Only private properties jointly owned can be decoupled.

If you are looking to sell your HDB and invest into 2 private properties (while avoiding ABSD by owning 1 in each name), that is possible.

However, it depends on your financial status and click here to know more 

"Should you sell your HDB to buy 2 private properties"

Scenario If You Are Buying A Bigger House (move there and rent existing one out)

You may be looking to do a home upgrade such as a 3brm/4brm condo or a landed property from your current place.

By decoupling, you'd avoid the 12% ABSD. For a $2.5m property, this 12% already works out to be a hefty $300,000.

Decoupling definitely makes sense if you want to pursue this idea because the total cost of decoupling as described above would cost far less.

There's an alternative to weigh against: Sell and just upgrade to new property 

What if you sell your current place and buy the NEW one in 1 name? Keep your spouses name available for a future date when prices are lower.

This can be done if income qualification for loan is sufficient with you.

It reboots the property ownership status between you and spouse and cash out any appreciation from your current property.


3 KEY BENEFITS

1) If property prices rise, you benefit because you have more exposure than before with your upgrade

2) If property prices decline, you can now enter the market with your spouses name.

3) You would significantly reduce your total loans and your loan interest costs as compared to decoupling and buying a second property. With loan interest now close to 2.5% and a bigger mortgage loan than ever, this can save you significant interest costs.

Scenario If You Are Staying At Current Place And Buying A New $1m investment property (invest for rental income)

Without decoupling, 12% ABSD ($120,000) is required and there's also the Buyer stamp duty (BSD) of $24,600 for a $1m property investment.

$120,000 (ABSD)

+ $24,600 (BSD)

= $144,600 (TOTAL)


With decoupling, only the buyer stamp duty (BSD) of $24,600 for a $1m property investment is paid and taxed. Add the cost of decoupling of around $20,000 as stated above.

$20,000 (Decoupling cost)

+ $24,600 (BSD)

= $44,600 (TOTAL)

This is significantly less than without decoupling.


However, from an investment standpoint, this may not be a good option still. There are a few reasons why.

1) PSF prices for shoebox units are costing an all time high!

According to this chart, developers are pricing to you shoebox units at more than $2,000psf!

Is this rate over-priced? You'd have to make your investment decision

Source: http://www.squarefoot.com.sg/market-watch/shoebox-units

2) Market supply to be all time high!

Source: http://theindependent.sg/24000-empty-apartments-around-singapore-as-government-reports-over-supply/

At present, there are 24,000 private housing units that are empty. Additionally there are 44,000 private housing units in the pipeline,

Is this going to affect the price of your property investment? Is this going to impact your tenant search in future? You'd have to make your investment decision

Singapore residential property rental yield (especially for freehold) is poor VS alternatives

Take a look at this.

For Valley Park Condominium, a place that I look at frequently, yields are ONLY 2.19% to 2.96%.

I believe these are gross yield's which means maintainence cost has not been factored in yet.

If you are looking to make better use of your cash, I provide advisory on diversified dividend fund portfolios that yield 3-6%p.a.

Alternatively, with less hassle in property management, you could invest into REIT ETFs which gives you around 5%p.a in dividends quite passively.

Conclusion and how to invest your savings better?

Property investment is a huge investment and a long term one. 

I bought my second property back in 2017 when property prices were rising fast back then.

Since then, I've rented out my HDB and I now understand rental markets better.

With some experience in renting out my flat, I can share that there is work to be done to bring in rental income. In this video below, I'd share my experience in it. Do subscribe too!

Josh Tan Jian Liang (CHFC) Principal Author

REVIEWS: https://www.josh-tan/wall-of-reviews. Practising financial planner with Promiseland Independent Pte Ltd. EXPERIENCE: More than 12years. Josh Tan is a young parent, speaker, author and founder of TheAstuteParent.

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