Want to buy a second property, but don’t fancy the thought of forking out tens of thousands of dollars for your Additional Buyer’s Stamp Duty (ABSD)? Some property consumers have been known to consider an alternative: decoupling. This involves one spouse giving up their co-owner status, and becoming an “authorised occupier”.
Here’s how it works: you transfer your share in a property to your partner, leaving him or her as the sole owner. Since you now don’t own any property, you’re free to buy your second home without having to pay ABSD. On paper, this looks like a win-win situation, and many couples have jumped on the bandwagon, and opted to decouple.
But there’s more to meet the eye when it comes to decoupling. More specifically, here are some things to take into consideration:
#1: Stamp duty
Transferring a half share to one of the co-owners counts as a “transaction”, and as such, you’ll be incurring the standard buyer stamp duty rate. On top of this, ABSD is payable on the value of the share transferred if the party who is receiving the half share has more than one property. If the property was purchased less than three years ago, you might need to fork out extra to cover the seller’s stamp duty.
You may also now have to pay more since the revision in Buyer’s Stamp Duty kicked in today (20 February 2018).
#2: Legal fees
According to Ms Lie Chin Chin, managing director of local law firm Characterist, couples who are looking to decouple can expect to pay at least $5,600 in legal fees.
#3: Complications with outstanding home loans
If you have an outstanding home loan, you’ll need to discharge the loan, and obtain a new mortgage from the bank. There are plenty of hidden costs associated with this – you might incur a penalty for redeeming the loan, and you’ll also have to take into consideration the cost of getting a fresh mortgage.
#4: Gift or sale?
When transferring a property from one spouse to another, you have two options: you can either term it a gift, or sale. If you choose to go with a sale, do note that an actual cash transfer has to take place. If it’s a gift, the property may not be marketable for a few years.
#5: Decoupling with HDB flats
As of 2016, HDB flat owners are no longer allowed to transfer their ownership to a family member, barring certain circumstances. Today, changes in flat ownership are possible only on grounds of marriage, divorce, death of an owner, financial hardship, renunciation of citizenship and medical reasons. This makes it pretty much impossible to decouple with public housing.
To decouple, or not to decouple?
As a general rule of thumb, if you and your partner currently only own one residential property, and your home loan’s lock-in period has expired, you’re more likely to make money from decoupling. However, if you and your partner already own more than one property, and you’ll need to pay a penalty before redeeming your loan, decoupling might not make financial sense. Be sure you calculate your decoupling costs thoroughly, before you decide to go through with it!
If you found this article helpful, 99.co recommends Home ownership: Why you shouldn’t put properties in your child’s name and Stamp duty loophole: What closing it might mean for property buyers.
Find your investment property today at 99.co!