Why do people want to decouple their properties? Take for example, Ah Beng and Ah Lian who has been happily married for 5 years. They own a 3bd rm Condo in bedok for the last 3 years and are looking to decouple their property.
Ah Beng: “Eh, want to buy investment property anot? I heard got new launch coming up got alot of lobang because of the COVID-19!”
Ah Lian: “Wah lao eh… now the ABSD so chor bee hoon. How to buy 2nd property??”
Ah Beng: “My friend tell me can do decoupling. Can save alot of money lei..”
Ah Lian: “HUH?! You want to divorce ah? SIAO EH! You never die before issit?”
Ah Beng: “No la… Decouple la!! Not divorce la. Not the same lei.”
Additional Buyer Stamp Duties is killing all your profits
So if you have never heard of Additional Buyer Stamp Duties (ABSD) before, either you are not Singaporean or you are living in a cave. But just in case you are one of the caveman out there, here is an explanation of ABSD.
“Additional Buyer Stamp Duty was a cooling measure introduced by the Singapore government to curb the inflation in property prices due to over speculation/over demand”
In essence the gahment is asking your to pay TAX for buying more than 1 residential property. This is to ensure the property market does not get over-heated and prices start run away leading to a property bubble in Singapore. How much TAX you might ask?
As you can see above, last time the ABSD was only at 7%. But now…. Freaking 12% for your 2nd property!! That’s alot of money. For a 1million dollar property, the government want to TAX you $120k.
So what is this magic of decoupling?
First off let’s just set things straight. Decoupling still involves cost. Just that it sometimes involves less cost than giving all the money to the government. It does not work all the time and depends heavily on the variables and situation you are in. So what are these variables we need to look at? Here is a list of things you will want to look at.
Important variables for 1st Property
1. When did you buy this property?
Depending on when you bought your property SSD(seller stamp duty) might apply. The latest ruling states that if you bought your property after 11 Mar 2017 and have not own it for more than 3 years seller stamp duties will apply. Refer to the IRAS website for further breakdown.
2. What is the age of Ah Beng and Ah Lian?
This will affect the maximum tenure of the loan you are allowed to take. The current max loan tenure you are allowed to take in Singapore is 30 years. However if you are more than 35 years old the maximum loan tenure you are allowed to take become…
Current Age + Max loan tenure = 65
So let’s say Ah Beng is 40 years old, the maximum loan tenure he will be able to take will be 25 years. Why is this important? Because the shorter your loan tenure, the higher your monthly mortgage payments and you might not meet the minimum (TDSR) Total Debt to Servicing Ratio of 60%.
3. What is your current TDSR?
The TDSR takes into account all your debts and how much you must pay every month. The total amount of debt payments cannot exceed 60% of your income. See the MAS website for more details.
So if the plan was for Ah Beng to buy over Ah Lian shares of the first property and let Ah Lian buy the 2nd property. He has to make sure the increased amount of loan he is about to take does not cause him to bust the TDSR of 60%
4. How are the shares of the property divided?
Is the property bought in joint tenancy or was it bought with tenancy in common?
Joint Tenancy means that the property is evenly split 50/50 between the owners.
Tenancy in common means that each owner has a definite and separate share in the property.
This is an important piece of information to know, as all the stamp duties will be calculated based on the percentage share ownership.
5. How much is the property worth right now?
For Ah Beng to buy over Ah Lian shares (assuming a 50/50 split in share) he will need to “Buy over” the 50% share of the property based on the current valuation of the property. Buyer stamp duties (BSD) will be based on the 50% share on the valuations of the property. Here is a chart to reference to easily calculate the BSD involved. You can also refer to the IRAS website for more information.
Also, since Ah Lian is selling her 50% share to Ah Beng, the seller stamp duty will be calculated on the 50% share of the current valuation of the property (Depending if SSD applies).
6. What is the outstanding loan remaining?
This is important to know as well, as in this case if Ah Beng is planning to buy over Ah Lian’s share he will need to take over the remaining loan and then calculate the additional loan he needs to take based on Ah Lian’s 50% share. Ah Beng will also need to know what is max loan to valuation to determine how much extra cash he might need to come up with. See below to see how to calculate the max loan to valuation.
Important variables for 2nd Property
1. What is the price of the 2nd property?
This will determine the amount of ABSD you would have incurred, if you did not decouple. That gives you a comparison and allows you to make a decision if you are saving money or if the savings is justifiable for you to decouple your current property.
2. Are you SC / SPR / Foreigner?
The ABSD percentage is different if you are a Singaporean vs a PR vs a foreigner. For example if Ah Beng is Singaporean and Ah Lian is a Singapore PR how much ABSD would they have to pay if they bought a 2nd property? The answer is the higher of the two, and in this case it would be 15%. Here is a table for you to calculate the ABSD involved if you did not plan to decouple. You can also reference the IRAS website for more details on ABSD.
3. What is the max loan to valuation?
The maximum amount of loan you can take is dependent on the valuation of the property. The maximum percentage of loan you are allowed to take is determined based on multiple factors. Here is a simple flow chart you can use to determine how much loan and how much cash is involved in making the purchase.
Are there any fixed cost?
The answer is yes there are fixed cost when it come to decoupling. Mainly it is the legal fees and the cost for valuation. Legal fees will usually equate to about $6000 for the transaction and that will cover both the legal proceedings for both the seller and the buyer of the shares during the decoupling process.
The cost for valuation might differ a little from company to company but a ballpark figure should be about $800. Quite negligible in the grand scheme of things.
Putting it all together…
Now that you have all the above mentioned variables you can start calculating the savings involved when it comes to decoupling. Typically there are few options you will need to play out to see which makes to most financial sense.
1. Ah Beng and Ah Lian don’t decouple and buy the 2nd property with ABSD
2. Ah Beng buys over Ah Lian’s shares of the first property and Ah Lian goes to buy the 2nd property
3. Ah Lian buys over Ah Beng’s shares of the first property and Ah Beng goes to buy the 2nd property
4. Ah Beng and Ah Lian sell the current property and goes out to buy two properties. (This can be further broken down into Ah Beng buy two, Ah Lian buy two or both Ah Beng and Ah Lian buy one each)
There are many possible outcomes depending on your current situation. Not all situations are the same. And it is also not always the case that you will save money if you were to decouple. So my recommendation is to speak to someone who knows what they are talking about and get some advice on what is the best course of action before making your next move.
If you are looking for someone who can help you break it down and give you advice on decoupling, here is my recommendation.
Kua Simi Property 
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