As you can see, if you are a Singaporean citizen, a $1 million second house will really set you back an additional $200,000. That is not a small amount. Because of this, many astute consumers will look for ways to avoid paying such a high price. Here, we look at a few lawful methods.
Read More: How to avoid paying ABSD
1. Decoupling (ownership transfer)
Decoupling, or the practice of Spouse A giving up their portion of the property to Spouse B and then purchasing a second home in their own name, is one of the most discussed ways to avoid ABSD. Since there would be no properties in their name once they transfer their share, Spouse A is not required to pay ABSD in order to buy the second property.
We must warn you that there is a cost associated with moving your property portion before you act hastily. Your spouse must pay the Buyers’ Stamp Duty (BSD) if you transfer your portion to them.
You will also be responsible for paying Sellers Stamp Duty (SSD) if you plan to sell the property within the first three years after purchasing it. In addition to the $5,500–$6,500 in conveyancing fees.
You should determine if you or your spouse can afford the new mortgage on your own after you separate. You must return all of your CPF funds, including any interest that has accumulated, to your CPF account if you are utilizing them.
2. Purchasing with Trust
This tactic is more akin to a “pay first, claim back later” method; although you may be able to recover the ABSD, you will still be required to pay it.
Those who have kids may choose to purchase their second home in trust for their offspring. But we have already discussed the dangers of doing so in a previous piece. A ruling was made in May of this year stating that starting on May 9, 2022, any residential property transferred to a living trust will be subject to 65% ABSD.
As a result, your children will not be eligible to apply for a HDB apartment and will be liable to ABSD if they purchase a home. For houses purchased in trust, there are no bank loans available, thus you will need to have the cash on hand to cover the cost of the property.
Applying for an ABSD reimbursement is feasible, but you must fulfill these guidelines:
The residential property is kept in trust exclusively for certain, identified beneficiaries.
A 65% ABSD (Trust) has been paid.
The application is submitted no later than six months from the instrument’s execution date.
Therefore, ensure that your conveyancing attorney creates your trust agreement in a way that satisfies the requirements for the ABSD return; otherwise, you risk suffering the unpleasant loss of that 65%.
3. Take the business way.
Positive updates! Commercial real estate is not covered by ABSD! Additionally, they often fetch greater rental returns. Therefore, if your goal is to buy a second home solely for investment, you might want to look into purchasing a commercial property. But compared to their residential equivalents, these properties are often more expensive and need a larger initial payment in addition to an 8% GST tax. If you have sufficient funds, it is a feasible alternative after weighing the advantages and disadvantages.
4. A two-key device
Just to review, buying a dual-key unit is similar to getting two nearby houses for the price of one. We discussed dual-key condos here. Since it is regarded as a single property, ABSD is not applicable.
Although they have distinct living areas, the main unit and the sub-unit share a shared entryway and maybe common amenities like the kitchen and restrooms.
Nevertheless, this clever design appeals to investors who may rent out both flats to separate renters as well as homeowners who can opt to rent out one of the units while keeping their own privacy.
5. One-person business
As an important occupier, rather than as a co-applicant or co-owner, you may designate yourself or your spouse. Because you will need to accomplish this throughout the HDB apartment application, some advance planning is necessary. Once the five-year Minimum Occupation Period has passed, the essential owner will be deemed a first-time homeowner and be eligible to acquire a private property without an ABSD. Additionally, you will be eligible for a bigger loan—a 75% loan-to-value (LTV) limit instead of a 55% one as a first-time borrower.
You should be aware, though, that essential occupiers are not eligible to utilize their CPF to assist with a down payment, initial apartment, or even monthly installments. Even though you may support your spouse financially, you should make sure the primary applicant has enough CPF savings for the down payment. Furthermore, even though they paid for a significant portion of the unit with cash, the main occupier does not have legal ownership over the apartment in the case of a breakdown or a contentious divorce.