Ways to Avoid ABSD
Real Estate Talk!
For friends who are not familiar with Singapore's property purchase terminology, ABSD stands for additional buyer's stamp duty. It is a cooling measure put in place by the government since Dec 2011. It's basically an additional cost for purchasing more than 1 residential properties. Remissible only under certain conditions.
For example, a Singapore citizen (SC) will have to pay 17% more if buying a second property under his/her name. If the 2nd property cost 2m SGD, this is 340k SGD to the national coffers on top of the usual buyers stamp duty.
There's a few ways to avoid paying for ABSD. The most common method is decoupling for a SC couple who owns a private property. Hopefully they are already in a 99/1 tenancy in common arrangement, so the cost of decoupling will be minimal.
Unfortunately decoupling is only applicable for private properties. Most of us will likely start with a BTO flat with both names as owners in order to use CPF of both persons.
Let's say James and Jane bought a BTO when they first started working. 10 years down the road, they have long completed their MOP, their kids are studying in the vicinity of the flat and both their work locations are close by well. The loan is fully paid. Jane's mum stays with them. She does not own any property and not working as well.
J&J are thinking of buying a new launch second property (2m SGD) for investment but the 17% ABSD is too hefty, and they dont want to sell their HDB flat.
In this case, it's possible to buy it under Jane's mum to avoid the ABSD. Wait HOLD UP HRI! Jane's mum is not working, how can she afford the 2m SGD property? She cant, but J&J can and they do have the first (24%-15,400) down payment + BSD in cash.
This is when the deal structuring comes into play. After 6 months of buying the new launch, Jane's mum to do a sub sale of 1% to James (just for example, can be jane as well). James will then take a loan to finance 74% of the property. James will incur ABSD based on the 1% he bought from the mother.
You know what's the best part? The additional cost is just $11,800 ( Seller Stamp Duty, ABSD + SD + Legal Fee + New S&P). This is nothing compared to the 340k SGD ABSD!
Mutual trust is extremely important. In this case, the couple and their mum. The 3rd party dont have to be a family member. If your best friend is someone you can trust, you can go with this technique as well.
How to get bank loan approval at first place when the mum is not working?
ReplyDeleteThe mum can't take a loan, that's why the initial downpayment has to be all cash, no cpf. Loan to be taken by the husband after the 1 percent sale.
DeleteNo bank will loan to the mum in the first place since she does not meet the requirement....the mom has to cough out the $2M++ in cash to the developer/seller + broker + lawyer + stamp duty to proceed with the S&P agreement.
DeleteYes, which I've mentioned in my reply and the post. That's why the couple has to pay the initial down payment in cash, after the 1 percent subsale, take the loan to finance the house. The mum can't take loan at all.
DeleteThe method you described is called the 99-1 technique to reduce the ABSD. There is no need to go through the complicated sub-sale way which is not workable, simply because the mom will not be able to secure a loan on her own as an unemployed person.
DeleteThe way people use the 99-1 technique is both the mother and son enter into the purchase. Mother takes 99% share, son takes 1%. Son pays ABSD on the 1% but uses his name / income to secure the loan.
This "trick" is not new.
"After 6 months of buying the new launch, Jane's mum to do a sub sale of 1% to James (just for example, can be jane as well). James will then take a loan to finance 74% of the property. James will incur ABSD based on the 1% he bought from the mother. "
Deletethe bank will loan to James 74% of the ptty , becoz of his 1% stake? is that correct?
Hi there mysecretinvestment,
Deleteactually the 99-1 technique cannot be used in the way you described. If the mum and hubby go into the purchase right from the start with 99-1 proportion, the ABSD will still be based on 17% of the full cost of the 2nd property even though the mum doesnt have existing property. It is always based on the profile with the higher ABSD rate. They will have to pay 340k ABSD.
And also 99-1 technique is for future planning to make it "easier" to decouple in the future, so 1 name is free to buy a second property without incurring ABSD.
It is correct, the mum will not be able to secure a loan, which i mentioned in the post as well, thats why initial downpayment has to be in cash, and a 1% subsale is done later to the hubby or the wife in order to secure a loan.
It's definitely not new and definitely not a trick~ Just have to understand the process, which i find it really interesting. That's why i thought i will share.
Hi foolish chameleon, yes, only 74% because the bank will consider the 1% sold to james as the cash option to purchase. Thus, max loan will only be 74%.
DeleteWhy don't they structure mum (99%) and couple (1%) when they buy the new launch? Even mum (99%) has no property, they still need to pay 17% absd of the new launch price even though the couple who has a property only owns 1%?
ReplyDeleteHi there, yes, if the mum and either 1 of the couple go into the purchase right from the start, the ABSD will be based on the profile with higher ABSD even though the mum doesnt have a property. They will still attract 17% ABSD based on the full cost of the new launch property. So that is still 340k ABSD based on 2m property.
Delete