Decoupling property in Singapore is a strategic move that allows co-owners—typically married couples—to transfer ownership of a jointly owned property so that one party can buy another property as a first-time buyer. The main motivation? Avoiding Buyer's Stamp Duty (BSD) and the hefty Additional Buyer’s Stamp Duty (ABSD), which stands at 20% for a second property.
For many couples, decoupling for HDB is not an option, as HDB has disallowed part-sales except in special circumstances like divorce. However, decoupling for EC (executive condominiums) becomes possible after the Minimum Occupation Period (MOP) of ten years, while private property owners can decouple at any time.
Decoupling can result in substantial cost savings, but it also comes with legal fees, property stamp duties, CPF refunds, prepayment penalty fees, and loan restructuring costs. This guide breaks down the step-by-step process of property decoupling in Singapore and how to evaluate if it’s financially beneficial.
Step 1: Determine the Ownership Structure
Before starting the decoupling process, it’s essential to check whether the property is held under joint tenancy or tenancy-in-common. Discover the key differences between Joint Tenancy vs Tenancy in Common. Explore the pros & cons to decide which property ownership suits you best
Joint tenancy means both owners have an equal share (50-50) of the property. Decoupling requires a legal severance of joint tenancy before transferring ownership.
Tenancy-in-common allows owners to hold different ownership proportions, such as a 99-1 split, making decoupling much easier.
For couples planning ahead, purchasing a property under a tenancy-in-common structure with a 99-1 ownership ratio can significantly lower the cost of decoupling.
Step 2: Choose Between Gifting or Selling the Property Share
There are two ways to decouple a property: gifting the share or selling it through a Sale and Purchase Agreement (SPA).
Option 1: Transfer via Gift
If the property is fully paid, the outgoing owner can transfer their share to the other party as a gift without receiving any payment. However, CPF refunds and buyer’s stamp duty (BSD) still apply.
Banks typically do not approve mortgage loans for properties transferred via gifts, so this method is only viable if there is no outstanding loan.
Option 2: Transfer via Sale and Purchase
This is the most common method, where the outgoing owner sells their share to the remaining owner at market value. The purchasing owner may need to take a new mortgage loan to finance the buyout. This method incurs BSD and requires a CPF refund, but it is preferred for financing flexibility.
Step 3: Secure Financing for the Buyout
If the property has an outstanding mortgage, the buying spouse will need to either take over the existing loan or refinance it under their sole name.
Key financial considerations include loan restructuring costs, prepayment penalty fees (if the loan is redeemed early), and meeting the bank’s Total Debt Servicing Ratio (TDSR) requirements. It’s essential to check whether taking on a new mortgage will be feasible, especially under current mortgage interest rates.
Step 4: Handle CPF Refunds
If CPF housing loan funds were used for the initial property purchase, the outgoing owner must refund the withdrawn amount along with accrued interest back into their CPF account.
For instance, if $250,000 was used from CPF for the purchase, that amount must be refunded when selling the ownership share. This may reduce the available cash proceeds for the selling party and impact their ability to finance a second property purchase.
Step 5: Pay Buyer’s Stamp Duty (BSD) on the Transferred Share
When transferring ownership, BSD is payable based on the market value of the property share being bought over. The percentage of BSD increases with the value of the share being transferred.
For example, if one spouse buys out the other’s 50% share of a $2 million property (which equals $1 million), the BSD payable would be over $24,000.
Additionally, if the spouse buying the share is not a Singapore Citizen or already owns another property, they may need to pay ABSD on top of BSD.
Step 6: Engage a Lawyer for the Legal Transfer
A conveyancing lawyer is required to facilitate the transfer of ownership and ensure compliance with CPF and IRAS regulations. The legal process typically takes 10 to 12 weeks, with fees ranging from $5,000 to $7,000.
What Are the Costs of Decoupling?
While decoupling property in Singapore can save on ABSD, it comes with legal fees, CPF refunds, mortgage refinancing costs, and property stamp duties.
Buyer’s Stamp Duty (BSD): Payable on the portion of the property transferred.
Legal Fees: Expect to pay between $5,000 and $7,000 for the transaction.
CPF Refund: Any CPF funds used must be refunded before the seller can use them for another property.
Prepayment Penalty Fees: If the existing mortgage is redeemed early, banks may charge a 1.5% penalty on the outstanding loan amount.
Valuation Fees: An independent valuation of the property is required, typically costing $1,000 to $2,000.
Loan Restructuring Costs: A fresh loan under the sole owner’s name may include administrative fees of $3,000 to $5,000.
When all these costs are added up, the total cost of decoupling can range from $30,000 to $50,000, depending on the value of the property and CPF refunds involved.
Should You Decouple? Evaluating the Financial Impact
Pros of Decoupling
Avoid paying 20% ABSD on a second property, which could save hundreds of thousands of dollars.
Higher Loan-to-Value (LTV) limit for the outgoing owner when purchasing a new property.
Better long-term financial planning by distributing property ownership between spouses.
Cons of Decoupling
Significant upfront costs, including legal fees, BSD, and CPF refunds.
Higher monthly mortgage payments for the remaining owner.
Potential negative cash flow impact if CPF refunds reduce available cash reserves.
If the cost of decoupling is higher than the ABSD savings, it may not be a viable financial strategy. Homeowners should assess how long they plan to hold the properties and whether rental income can offset the additional mortgage burden.
Final Thoughts
Decoupling property in Singapore is a well-known strategy for investors looking to grow their property portfolio without incurring hefty property stamp duties. However, the cost of decoupling can be significant, and the financial benefits must outweigh the expenses for it to be worthwhile.
Decoupling is not just about avoiding ABSD—it requires careful financial planning and execution. If structured correctly, it can be an effective tool for wealth building in Singapore’s real estate market.
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