A Comprehensive Guide To Decoupling Property In Singapore

As we’ve previously established, the ABSD is the main culprit for the hefty price tag while buying multiple properties. 

To explain things better, let’s use an example and say you want to buy a second home that costs $ 1 million. 

Going by the current ABSD rates, Singapore citizens have to pay 17 % of the $ 1 million as additional buyer’s stamp duty. 

That means you have to chalk up a very large sum of  $ 170,000 just for paying taxes. 

So, as long as we remove the ABSD from the equation, it will greatly reduce the stamp duty amount that you have to pay on your second or third property.

Now, this is where decoupling comes in to save the day. 

Decoupling is the process where a married couple, who are joint owners of a property, can transfer the property share to a single owner amongst them so that one of them can be the sole owner of the entire property while the other holds no property.

As a married couple, you and your spouse are buying properties together as a single entity. 

Decoupling separates the ownership of that property and transfers it to one person so that the other person can be seen as owning no property whatsoever. 

This essentially makes the other person a first-time buyer who can purchase a separate property without incurring ABSD, as the current property has been transferred solely to the former person in the relationship. 

Do note that we aren’t factoring in miscellaneous costs from an outstanding loan or outstanding mortgage in the example, but you get the point. 

Also, decoupling might be an option for joint ownership of private properties, but it is not valid for HBD flats. 

Co-owners of HBD flats will have to sell their property first and use the money received from the sale in order to buy separate properties each, i.e., one property owned by each partner. 

Additionally, decoupling is only allowed in case of marriages and divorces, if there is a financial hardship or an avoidable medical situation, if a co-owner renunciates their citizenship, or in case of a co-owner’s death. 

A couple can decouple from the property either via a transfer through sale or transfer through gift. 

Transfer through sale means that one party will buy out the shares of the entire property from the other party.

On the other hand, if the mortgage loan has been fully paid, and if there are no CPF monies attached to the property purchase, then it is possible for one party to gift their share of the property to the other.

Let’s say that you and your spouse would like to decouple from the joint ownership of your condominium unit so that you can purchase a second property solely in your name without paying the extra ABSD. 

The objective is to remove your name completely from the property ownership and have your spouse become the sole owner by taking over the property shares. 

In the eyes of the law, this would mean that you are no longer a property owner and can conduct your next property purchase as a first-time buyer. 

To sell your shares to your spouse, you’ll have to hire a law firm that can write up a sale & purchase agreement for the transaction. 

On the other hand, your spouse will have to hire a different law firm that can help make the purchase of your property shares. 

Naturally, your spouse will have to apply for a bank loan to purchase your share of the property unless she already has the necessary amount. 

The loan package your spouse gets will ultimately depend on their monthly income and whether or not there is any pre-existing mortgage to pay off. 

Assuming your spouse has the finances worked out, they should be able to go through the process of buying your share just like any other private property purchase. 

Naturally, your spouse will have to take care of any stamp duties payable and exercise money of 5 % cash. 

Once the decoupling transaction is complete, your spouse’s law firm will apply for CPF, meaning they will ask the bank to hand over the money to your spouse so that they can pay you for your share of the property. 

Once your spouse has the money, they can buy the property share from you, making them the sole owner of the entire property. 

As we’ve explained before, transferring property from one co-owner to the other constitutes a decoupling. 

Now, you can use the sales proceeds to buy another property without paying any ABSD. 

This is a basic scenario of decoupling, which has to do with transferring property via the selling of one’s shares. 

In reality, the type of tenancy matters a lot during decoupling, the particulars of which depend from tenancy to tenancy. 

For example, the decoupling process is only valid in a joint tenancy structure if you and your spouse go through a divorce. 

As joint tenants, both you and your spouse own a 50% share and cannot sell or buy out the other person’s share. 

This is basically done to prevent tenancy disputes or to prevent one owner from taking advantage of the other.

While decoupling may seem like an easy fix to avoid doling out huge sums on tax, it doesn’t always mean that it will benefit you. 

In fact, most of the time, the cons of this seemingly clever workaround outweigh the pros. 

We have made a list of drawbacks that might occur during decoupling if it isn’t planned out the right way. 

Decoupling can be very expensive.

If you transfer your shares to your co-owner via a sale, you will still have to pay SSD if your shares are sold within the first 3 years of buying the home. 

Moreover, whoever buys the new property will have to pay for the buyer’s stamp duty anyway. 

Decoupling can be very expensive if you and your spouse already own two properties because the person buying the share from you will have to double down on the ABSD. 

What’s more, you and your spouse will also have to pay for law firms, which might cost up to $ 5000 in some cases. 

Total Debt Servicing Ratio comes into play while taking a home loan

Buying a secondary property will most probably require you to take a fresh mortgage on the home. 

As we all know, the TDSR determines the threshold you can get on the property loan, and is normally set at a maximum of 55 % of your monthly income, i.e., assuming you’re the borrower. 

Let’s say that you already have a property to your name other than the one you jointly own with your spouse. 

In this case, it would make sense for you to buy your partner’s share of the joint property to free them up of ownership since you already have one other property to your name. 

However, if your spouse earns considerably less than you, they will receive a lower TDSR ratio, ultimately limiting the loan for the new property. 

The only way to work around this is by putting down a high downpayment which might not also be possible. 

Therefore, decoupling is only beneficial if you and your spouse earn the same or if the co-owner purchasing the second property earns more than the other. 

Funds will go into the seller’s CPF OA

If you sell or transfer your property share to your partner, the amount used from your CPF OA will flush back with the accrued interest. 

This might cause an issue if you buy new properties as there might be differences in the amounts going back into the CPF OA. 

This would obviously cause some issues if you had planned on using the CPF OA amount to purchase the new properties.

We all know that the purpose of decoupling for most people is to avoid the ABSD on their new property purchase. 

However, most people don’t know this, but the cost of decoupling might actually be more than what you would have to pay on the ABSD. 

That’s because of the various legal fees and additional costs involved in making the process successful, not to mention the BSD on the cost of purchasing and any expenses incurred in hiring a real estate agent for the secondary property. 

High conveyancing fees

Making any property transfer will require you to hire Conveyancing Lawyers for Singapore Property Transactions. 

When it comes to decoupling, that same conveyance lawyer might charge you a hefty fee of up to $ 6500. 

However, you ask your mortgage broker to find you a conveyance lawyer who can help with the decoupling process at a cheaper rate. 

Steep repayment penalties 

Most home loan packages usually come with early redemption penalties in the initial three years. 

This means that you will be charged an added fee if you attempt an early repayment of your home loan. 

This is almost sure to happen in case of decoupling, which requires you to pay off your current loan in order to get a new loan on the next property. 

Doing this will most likely trigger the repayment penalty at 1.5 % of the outstanding loan amount of your previous loan. 

Refunds directed to CPF account

The amount used from your CPF account for any property purchase must be returned after an added interest if you decide to sell the property. 

Knowing this amount is extremely important; otherwise, you might end up without any cash proceeds to show for it. 

Let’s say that you are supposed to return $ 150,000 back to your CPF after having sold your property share to your spouse. 

However, the final amount that came out of the transaction is only a mere $ 130,000. 

While you don’t necessarily have to make up for the remaining $ 20,000, which is short, you still have to put all the cash proceeds back into the CPF account, essentially leaving you with nothing. 

This will make it impossible for you to chalk up the 5 % cash downpayment needed to buy your second property. 

Payment of stamp duties

If your spouse buys your share of the property, they will have to pay the buyer’s stamp duty on the cost of that portion. 

So, let’s say that the entire property is worth $ 1 million, and it is split 50/50 between you and your spouse. 

So, if you transfer your share of the property to your spouse, they will have to pay BSD on half of the $ 1 million. 

In this case, the BSD will be calculated as if it is a $ 500k property and, therefore, amount to $ 9,600. 

On the other hand, if your spouse is not a Singapore citizen or is a Singapore citizen who already owns other property, they will also need to pay the additional buyer’s stamp duty. 

By default, the applicable ABSD rates for permanent residents are 5 % for the 1st property purchase, 25 % on the second property purchase and 30 % on the third or subsequent property purchases. 

Your spouse will have to pay a 5 % ABSD rate on the purchase of your share, amounting to $ 500,000, which is $ 25,000. 

Similarly, if your spouse is a Singapore citizen and already owns a property, they will have to chalk up 17 %  of the $ 500,000 for the ABSD, which amounts to $ 85,000. 

Ultimately, there is always the seller’s stamp duty to be paid if decoupling takes place within the initial three years of purchasing the property. 

SSD payable is 12 % of the property price if sold within one year, 8 % if sold within two years, and 4 % if sold within three. 

Factors To Consider

The main factor to consider is the change in property ownership.

As we all know, decoupling changes the type of ownership from joint ownership to single ownership. 

So, depending on who decides to sell their share, either you or your spouse will no longer own the property which you both had jointly owned before decoupling. 

ABSD will only be omitted if the person buying the next property does not own any other property.

However, the person buying the share of the partner will have to pay ABSD on the partner’s share of the property.

What’s more, couples who are permanent residents will have to pay ABSD on the purchase of each other’s share, as well as on the new property purchase. 

In any case, the Buyer’s stamp duty will fully apply to the person purchasing the share from the other. 

If the current property was bought less than three years ago, the seller selling his/her share will have to pay for the Seller’s stamp duty as well.

Decoupling can actually cost you much more than what you and your spouse would have to pay on the ABSD. 

Let’s say you and your wife currently own a condominium unit that cost you around $ 2.2. million at the time of purchase. 

This condo was bought around 18 months ago, and you still haven’t been able to pay off the full amount and have a balance mortgage of $ 1.8 million. 

Now you and your spouse want to be the owners of two private condos and would like to purchase a second condo.

You’ve enlisted a bunch of property agents who helped you find a condo that costs $ 800,000 in the current market. 

 This second condo will act as a commercial property for you and give you some rental income in return. 

 Now, the reality of the situation is that you and your spouse would have to pay 17 % ABSD on that second property of $ 800,000, which would amount to $ 136,000. 

 Since you don’t want to pay that hefty extra sum, you decide to go through some couple planning and come up with a plan to decouple from the currently owned condo. 

 Rather than having an additional owner to your current property, the decoupling process would make it so that there is only one beneficial owner of the entire process. 

 How this would work is that you would have to sell your share of $ 1.1 million to your spouse.

 Now, let’s calculate and determine the actual cost of decoupling in this scenario. 

 Your spouse would have to pay the buyer’s stamp duty on the $ 1.1 million, which according to the current rates, would cost her $ 28,600. 

 We get his amount by applying the the formula to calculate the BSD; 1 % of the first $ 180,000 + 2 % of the second $ 180,000 + 3 % of the third $ 640,000 + 4 % of the remaining $ 100,000; which finally gives us $ 28,600. 

 On top of that, you would have to pay the Seller’s stamp duty since you are selling your share of the property without finishing the 3 years holding period. 

 So, the SSD for a $ 1.1 million property being sold after 18 months would be 8 % of that amount, $ 88,000.

 Since you are choosing to pay back your outstanding loan of $1.8 million through this decoupling process, you will be charged with a repayment penalty of 1.5 %, which amounts to $ 27,000.

 Of course, you would have to hire a conveyancing law firm and pay them up to $ 6000 for the transfer of property. 

 Not to mention, you’ll both have to deal with certain miscellaneous costs that could come up during the entire process. 

 This could be any late payment fees for your loan, any charges for mortgages, or paying for any maintenance issues such as fixing ceiling leaks. 

 For the sake of explanation, let’s round-up these expenses to $ 1000. 

 Now, if we add all these factors, ($28,600+$88,000+$27,000+$6000+$1000) the total cost of decoupling comes up to around $ 150,600. 

 As we explained earlier, the ABSD cost on the second property that you would have to pay without decoupling is $ 136,000. 

 This means that decoupling from the property will actually cost more than paying the ABSD in the first place. 

 In fact, the total cost differential between the two alternatives is about $ 14,600, with you having to pay that extra amount for decoupling. 

 When we look at the individual expenses of decoupling, it might seem like it costs lower than the ABSD. 

 However, when we combine all the expenses together, the total amount is usually more than the cost of ABSD. 

 What’s more, decoupling is not always a good option and should only be done after having made all the calculations beforehand. 

 If a couple file for decoupling without being Singapore citizens, they will have to pay the ABSD tax anyway. 

 Additionally, suppose the party who is buying over the shares of the other is already a property owner; in that case, there is no way to avoid the ABSD, making the decoupling process redundant. 

 The minimum holding period of the property is also an important factor in the overall cost of decoupling.

 Simply put, if the property the couple is decoupling from was bought less than three years ago, there would be charges for SSD. 

 Not to mention, steep repayment penalties on any existing home loan would add to the decoupling cost. 

 Moreover, any couple wishing to buy a second property would most likely have to apply for a new home loan, which might not be available at a good loan quantum or an attractive interest rate. 

 They might try to receive a better loan amount by purchasing one’s share at cash over valuation, but they will have to pay for the extra price in cash. 

All in all, decoupling is not a viable method for everyone and is subject to certain elements and factors that may differ from situation to situation.

Decoupling to finance for a second property is easier said than done and comes with many burdens you might not be aware of. 

If you are considering decoupling, you have to do your research and figure out whether or not it will actually be beneficial for you.

For starters, decoupling is redundant unless you and your spouse are Singapore citizens. 

If both of you are permanent residents or foreigners, we suggest you steer clear from this process as you will have to pay for the ABSD either way. 

Moreover, decoupling won’t be beneficial unless it allows the person buying the secondary property to have a clean slate when it comes to property ownership. 

Nevertheless, the person buying the other’s shares will have to pay ABSD anyway, so there is really no way to avoid it in the decoupling process. 

What’s more, the Buyer’s stamp duty will always loom over your heads and come to collect its fair share. 

And besides, unless your current property was purchased more than three years ago, you will also have to pay for the Seller’s stamp duty. 

Other than the loads of stamp duties involved, there are always the fees you have to chalk up to your law firm for the conveyancing of the property shares. 

Most decent law firms will charge you up to $ 6500 for a simple conveyancing process, which will further add to your financial burdens. 

You must also be aware of your home loan package and whether or not there are any penalties imposed on early repayments. 

While this might not necessarily be true for some cases, most home loans do come with such penalties, which would obviously be triggered if you pay back the loan through decoupling. 

Also, remember that you will have to pay 5 % of the next property price in cash, which might not be easy to do because of the way CPF funds work. 

There is always a certain amount you must return to your CPF fund after selling your share, so do calculate ahead. 

To conclude, let us just say that decoupling comes with many financial risks, so it’s always a good idea to calculate all the expenses from start to end, as well as the expenses on your next property purchase, to get a clear estimate. 

Things To Take Note Of For The Seller

It is important to note that the seller will have to pay the Seller’s stamp duty if the property was bought not more than three years ago. 

Depending on when the property was bought, the SSD may greatly add to the decoupling process’s overall expenses, which might deter couples from attempting it. 

Couples should make sure that they only decouple after the minimum holding period of the current property has been passed. 

What’s more, any CPF will have to be refunded back to the seller’s account, including an accrued interest. 

Things To Take Note Of For The Buyer

The buyer will have to be aware that they will have to pay the Buyer’s stamp duty on purchasing their partner’s share of the property. 

This would mean the buyer has to take on a bigger debt than they had before.

As it is, the entire success of the decoupling process greatly depends on whether or not the couple can pass the TDSR requirements and secure a loan to purchase the next property. 

This is can be extremely difficult in some cases and which makes decoupling a risky concept. 

Mostly, the part of the property which is being sold to the significant other will have to be valued at the actual market price. 

This means the other party cannot pay a cost over value of the property share and will have to make the correct payment at the current market value. 

Possible Scenarios Requiring Decoupling 

Contrary to popular belief, decoupling is not always done as a tactic to avoid the ABSD cost on a second property. 

There may be some genuine cases where decoupling is performed out of necessity. 

For example, decoupling will naturally occur if a couple files for a divorce, resulting in splitting the shared assets. 

It might also occur if two people own property via inheritance, but one party wants to sell it off to the other party. 

Moreover, joint owners of HBD flats can also file for decoupling if the circumstances are reasonable. 

Things To Watch Out For When Doing Decoupling

Couples attempting to decouple should plan out the entire timeline very carefully and be completely aware of the steps to take during each phase. 

Moreover, they should be aware of all the expenses incurred during the process, such as lawyer fees for the sale and purchase and conveyancing of the property. 

Decoupling requires each party to hire two separate law firms for the sale and purchase transactions, so each of these firms should be timed accordingly. 

It takes about 10 weeks to decouple, but couples can get it done in one week if the purpose of decoupling is to purchase a new property.

A late entrant strategy is when additional owners are added to the property which is being jointly owned by a couple. 

Depending on what the pre-existing owners want, this can be either one or multiple new owners. 

It is essentially the opposite of decoupling and is a good alternative with many benefits.

The purpose of the late entrant strategy is to add an additional buyer to the property to ease the financial burdens required. 

If the new owner added is a person with a high income, then she/he could take care of a considerable burden of the finances. 

Or it could be so that the new owner is a young person and could help increase the loan tenure. 

Alternatively, a parent buying a new property could choose to do so solely under the name of his/her child, making it a third-party property purchase. 

Since the child is a first-time buyer, there will be no need to pay the ABSD; however, the child’s financial status will also be considered by the bank when a loan is applied. 

This could prevent the buying party from receiving a good loan package despite getting a long tenure. 

On the other hand, the parent’s income will be higher, so the borrowing amount could be higher as well; however, the parent’s age will shorten the overall loan tenure. 

In this case, the parent can employ the late entrant strategy and come in as an additional owner who buys a 1 % share from the child. 

This would make it possible for the party to receive a bigger loan amount.

As mentioned earlier, a bridging loan allows you to have financial freedom when you want to purchase a second property without waiting for the sales proceeds to arrive.

Here are some of the best reasons why you should opt for a bridging loan.

• You need a short-term loan to finance your property purchase.
• You can procure a bridging loan for all property types.
• You can purchase a property without minimal funds without receiving the cash proceeds from your previous property.
• You only have to pay the interest during the loan repayment period and clear the loan once you receive the sales proceeds.

Evaluating your loan requirements is one of the best practices before procuring a bridging loan.

These considerations will help you make an informed debt reduction plan and can even get you a cash rebate.

Here are the factors you need to consider when getting a bridging loan.

Loan amount

Calculating your loan requirement or amount will help you settle your loan early and also prevent a financial crisis.

Since bridging loans come with short loan tenure, keeping your loan amount low will make your repayment cycle more manageable.

In short, keep your bridge loan as low as possible and settle your outstanding loan amount as soon as you receive the sales proceeds of your previous property.

Interest rate

Although bridging loans offer instant cash with minimal effort, you will have to pay a higher interest rate on your loan.

For instance, banks and financial institutes offer bridge loans at 5 to 6% interest per annum, which is very high than home loans.

Thankfully, you only pay the interest and are liable to clear the principle once you receive the sales proceeds from your previous property.

In short, finding the lowest interest rate on bridging loans can save you a lot.

Loan tenure

Bridging loans usually come with short loan tenures, depending on the bank.

Although you may get a longer repayment period with some banks, you must keep a check on the interest rate and loan amount to avoid a financial crunch.

Furthermore, ensure that you procure only the required amount as your bridging loan as monthly installments can become daunting.

Monthly repayments

Monthly repayments can become daunting, especially when you experience a cash flow crisis.

You will have to chart a debt reduction plan and look out for ways to sustain your monthly installments.

In short, monthly repayments should be your top priority when evaluating a bridging loan, as failure to sustain these payments might even land your new property on a mortgage.

Collateral risk

Bridging loans often come with a dark side as most banks issue these loans on collateral requirements.

Furthermore, you will procure a loan before receiving your previous property’s sales proceeds, which can go awry if the sale and purchase agreement takes more time.

And that’s not all! Bridging loans come with a high-interest rate, which can make life challenging for a borrower.

Instant funds

Lucrative property deals can turn up overnight in Singapore, so having financial stability is one of the most significant factors to staying on top of the property industry.

Likewise, a growing company can meet with a cash flow crisis due to multiple reasons, which means emergency funds will always come in handy.

But what if you don’t have savings or funds?

Bridging loans are one of the best ways to deal with these problems as they require less documentation and processing time.

You can obtain a bridging loan within a week and have instant funds to purchase your next property or maintain your business without waiting for months.

Flexible repayments

Unlike other loans where you don’t have the option to choose between repayments cycles, bridging loans allow borrowers to make repayments on a weekly or monthly basis.

Furthermore, you can evaluate your long-term financing and estimate your business revenue before settling your loan amount.

However, you will have to choose a financial institution that supports flexible repayments to get the best benefits.

Short term

Most bridging loans come with short-term tenures, usually lasting for a year.

This short-term liability gives you financial freedom so that you will have lesser weights on your shoulder.

Furthermore, businesses can focus on their business expansion instead of worrying about their repayment cycle.

However, you can extend the loan tenure if you face some difficulties during the repayment period.

After the pandemic, many businesses have struggled with cash flow crises and other problems related to funds.

Although you can use other measures to curb this problem, opting for a temporary bridging loan is one of the best ways of solving this problem.

Many financial institutions have joined hands to roll out various C-19 (Temporary bridging loan schemes) to help businesses sustain their operations.

Furthermore, the Singaporean government has offered various programs to help businesses thrive after the pandemic by introducing extended loan tenures on bridging loans.

Here are the benefits of temporary bridging loans.

No collateral required

A temporary bridging loan has no collateral requirements, meaning you don’t have to produce a property as collateral.

This condition helps a business to get instant funds to sustain its cash flow and work on business expansion.

Furthermore, the lack of collateral requirements reduces the processing time for bridging loans as banks can skip verifying property details.

Extended loan tenure

Banks and financial institutes offer extended loan tenures to eligible businesses for up to five years, which is more than other bridging loans.

Higher loan amount

Businesses can get a higher loan amount of up to $1 million through the temporary bridging loan program.

You can use this amount for short-term or long-term expenses, including marketing costs and rentals, to sustain the company’s operations.

However, banks and financial institutes will evaluate your company’s performance and credit history to decide the final amount.

Lower interest rate

Although standard bridging loan interest starts at 5% per annum, borrowers under the temporary scheme can avail of a lower interest rate of 3%.

Financial institutes calculate the financial performance and credit history of a business to provide a lower interest rate for business owners.

In short, whenever you type in queries like “business loan broker help” or “temporary relief fund for businesses in Singapore,” temporary bridging loans will undoubtedly pop up in your search result.