Many of my friends and clients believe it is now beyond their means to ever own a second investment property with the Additional Buyer’s Stamp Duty (ABSD) hike from 16 December 2021.
Well, this may indeed be the case for some local individuals/ families.
For a $1 million property, the ABSD for a Singaporean buying his or her second property would be $170,000.
This is on top of the regular Buyer’s Stamp Duty (BSD) of $24,600, which makes it a total of $194,600 stamp duties payable.
For a Singapore Permanent Resident, a second property with a purchase price of $1 million, would incur a stamp duty of a whopping $274,600 ($250,000 of ABSD and $24,600 of BSD).
This is a huge deterrent for many of us, so you must wonder how some families are able to buy another investment property in today’s climate.
Well, it is possible to avoid paying the hefty ABSD with proper planning for those with adequate financial means.
The one thing that struck me over the years, many couples and families have simply failed to plan for the possibility of getting a second investment property in time to come.
Many were too focused on getting their dream home, planning for the perfect wedding/ renovation to even think of what they had to do, to make it more affordable if they ever had the opportunity to purchase a second property.
Yes, I agree not all of us can afford to do this, but if you’re in the position to, why not?
Here are 4 possible ways:
#1: One Single Owner Per Property
This is the most straightforward. For a couple, this would simply mean to buy your property in just one person’s name.
Private property: As long as one party (be it husband/ wife/ girlfriend/ boyfriend) is able to qualify for the loan required, the property can be purchased under a sole owner.
And with this, only this individual’s CPF can be used to support the purchase and to service the loan.
Then a few (or many) years down the road, when the couple feel it is time to get another investment unit, the other person can purchase without incurring ABSD.
That said, in such an arrangement, the other party (who is not the legal owner) is often also contributing in other ways – using cash to support the purchase/ loan and/or to fund the renovations, especially if it’s a matrimonial home.
While you are not able to purchase a HDB flat in just the husband’s or wife’s name, you can have one party as the owner and the other as the essential occupier.
Unfortunately, the essential occupier will still need to observe the 5-year Minimum Occupation Period (MOP), before he or she can proceed to purchase another private property for investment.
But this is still a great alternative for families who enjoy residing in a HDB flat for specific reasons (space, proximity to parents or grandparents or school etc), but still keen to have a private property as an investment.
Same as what I’ve shared above, the essential occupier cannot utilise his or her CPF savings for the flat purchase or to service the loan.
The sole owner would also need to qualify for a HLE or bank loan with his or her income.
Unfortunately, many couples are joint owners of their HDB flat, as they were either not aware of other manner of ownership or they require dual income to support the purchase.
This would apply more to private property buyers.
A Singaporean couple may choose to hold their first property as Tenants-in-Common, rather than joint owners (50-50%).
This will allow them to get a higher loan for a start with both their incomes and they can also use their CPF for the purchase and to support the loan.
Instead of an equal percentage, one party would own 99% of the property while the other would hold just 1%.
In the event if they have the opportunity to purchase a second investment property, the party holding 1% share can simply sell/ transfer his/ her shares to the other party.
There will be cost involved (stamp duties/ legal fees), but it will then be possible for this person to purchase another property without incurring ABSD.
For this to take place, the sole owner must also be able to support the loan in his/ her name and they must also refund the out-going party’s CPF (if it’s been used).
It’s perfectly fine if they end up not purchasing a second property. But there is really no harm keeping your options open.
Many of us wipe out a huge chunk of our savings for our first properties.
Yet, as we progress in our careers or other investments, getting a second investment property becomes a reality at a later stage in our lives.
#3: Part Share Purchase
This is yet another scenario that can only apply to private property owners.
For couples/ individuals who are holding onto a current property under joint ownership, one party can transfer or sell his/her shares to the other.
Like the above example, there are fees involved, and it often only makes sense to embark on this exercise if you are considering upgrading to a bigger and more expensive property.
For clients looking to purchase a smaller unit at a considerably lower price, it could be wiser to just pay ABSD.
Whatever the case, it is necessary to do your sums properly.
#4: Buying in Trust (for children or individual below the age of 21)
Not so much as an investment, but many affluent families are “worried” it will be hard for their children to afford good private properties if they do not get a headstart or help from family.
So yes, if you are thinking of doing that for your children, it is possible to purchase a property for an individual below the age of 21 years old, under a Trust.
This definitely does not apply to most of us. First, you will have to pay in full (no bank loan) and once inked, this property will belong to your child.
Even if the relationship goes south, there is no way of recovering the “gift”.
Individuals or families buying under trust will still have to pay ABSD upfront, and upon meeting certain “conditions” will be able to get a remission.
Some savvy investors in the past have abused this “method” as a way to avoid ABSD, with no genuine intention of gifting the property to the beneficiary.
That is why the government has stepped in to ensure certain conditions are met before granting the remission.
Simply put, if you are thinking of denying the beneficiary true ownership, by including conditions like “if the beneficiary completes tertiary education” or “if the beneficiary gets married”, then it is unlikely that you will get a remission as such conditions mean the beneficiary may not be able to take over the property eventually.
For any of these to take place, there must be utmost trust in the relationship or partnership.
I’m sure you can imagine how things can get really ugly if the relationship sours.
Given that the unit is under just one person’s name or largely owned by one person, or both parties may own properties with vastly different values, there’s bound to be that one individual who may lose out if the couple part ways.
Truth be told, I have clients who would rather pay ABSD to have both names on a property.
Some of you may think it is silly, but in their words if I recall correctly:
“It is what it is. Other countries have capital gain tax, so if we have to pay ABSD, we pay. I want my name on all my property.”
There are simply so many things to consider as buyers these days.
If you’re unsure, and need an experienced and dedicated realtor to guide you, please reach out to me for a non-obligatory chat!