In the real estate market in Singapore, the phrase “decoupling” is frequently used. Still, a lot of individuals might not fully understand what decoupling is or how it operates. Fortunately, a “divorce” has nothing to do with decoupling. In fact, while considering moving forward with their future together, the majority of Singaporean couples talk about divorcing.
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In this piece, we will dispel the myths about decoupling and explain to readers why it can occasionally be more expensive than anticipated. The article discusses the differences between joint tenancy and tenancy-in-common, how homeowners might disconnect their property, and the substantial costs associated with doing so.
What is DECOUPLING?
Decoupling was instituted by the Singaporean government in December 2011 as one of the “cooling measures” to dissuade individuals from buying several houses and reselling them for a profit. It meant that if a couple decided to invest in many houses, they would have to pay a significant property tax, also known as ABSD.
Note: The acronym for additional buyer’s stamp duty is ABSD. It is an additional tax that is applied on residential property purchases, such as private homes or HDB apartments, in addition to the ordinary Buyer’s Stamp Duty (BSD).
A common practice among Singaporean couples, or co-owners, is decoupling in order to avoid having to pay this substantial cost. One of the two co-owners must give the partner their portion of the property.
By doing this, you are essentially giving your spouse exclusive ownership of the property and relinquishing title to them. As a “first-time buyer,” you can now purchase a new home without having to pay ABSD tax.
Additionally, under their existing Loan-to-value (LTV) limit, the spouse selling their property portion will subsequently be eligible for a larger loan amount for the purchase of real estate. In Singapore, a lot of husbands and wives decouple their property and purchase residences independently. Quite clever, huh?
Decoupling can happen for a number of reasons, such as divorce, however the main motive for most Singaporeans is to save money on real estate investment by avoiding paying 20% ABSD. This is intended to allow them to purchase several houses under their household’s name without having to pay hefty stamp duties.
HOW IS DECOUPLING APPLIED?
Disconnection in favor of HDB. A portion sale between couples is prohibited by HDB, with the exception of divorce. The HDB apartment cannot be divorced by married couples as of May 4, 2016.In a same vein, “gifting of ownership” between HDB couples who owe money on their loans is prohibited by banks.
HDB decoupling is only possible under specific circumstances for each case at a time. There should be no outstanding debt on the HDB apartment, and gifting is the only way to make payments. That being said, HDB must validate this. Decoupling for HDB is, in essence, prohibited.
Note: Since April 1, 2016, owners of HDB flats are not permitted to transfer their ownership to a family member without certain medical circumstances, a renunciation of citizenship, financial difficulties (such as bankruptcy), an owner’s death, a divorce, or a marriage. Decoupling is often restricted to private homes.
Disconnection for Private & EC Properties. Legally, decoupling for EC and private properties is permissible. Nevertheless, EC properties that are owned during a ten-year period cannot be separated. This is a result of the EC currently having the status of “HDB.” However, you are only able to separate jointly held private properties.
WHAT IS THE TIMEFRAME OF THE DECOUPLE PROCESS?
If a bank loan or CPF funds are needed to transfer the acquisition, the decoupling procedure in Singapore typically takes ten to twelve weeks to finish. Decoupling will take two to four weeks if there isn’t a bank loan or CPF money involved.
It should be noted that the co-owner does not have to wait for the procedure to be finished in order to transfer their portion of the property. They are free to buy their new second home as planned.
Homeowners mistakenly believe that decoupling is a less complicated and expensive alternative that is practically identical with the notion of avoiding ABSD costs. It’s not, at all. Decoupling entails a legal process and associated expenses. In many cases, decoupling might end up costing homebuyers far more than the ABSD.
But first, let’s examine the two approaches to decoupling for private properties before talking about the many elements that raise the price of decoupling. You might refer to it as a sale or a gift.
passed forward through a gift. You can give your spouse your portion of the private property as a gift—that is, without getting paid—if your private property is debt-free, meaning there are no outstanding loans. Recall that the property you wish to separate from will be thoroughly examined to ensure it is paid for in full.
If there is an outstanding debt on the property, additional money would be needed to pay it off in order to complete the ownership transfer of the CPF funds and/or the existing loan. In this instance, the property might not be able to be sold for a few years.
Remember that, depending on the arm’s length sale, the IRAS tax on the property is still due. As such, you are unable to understate the worth of your gift. Furthermore, an impartial appraisal is required.
transferred through a contract for sale and purchase. You can disconnect by selling your portion of the property to your spouse, regardless of whether you own a private residence or a HDB apartment. That will, however, rely on how much ownership you have in the property. Tenancy-in-common (separate stakes; often 99-1 split) or joint tenancy (50/50 split) are the two options available to you. We’ll talk about Keep in mind that there must be a real monetary transfer in both situations.
partial acquisition of the property with a balance due on the loan. Part-purchase, sometimes called “part-sale,” with an ongoing bank loan is the most popular decoupling strategy for private homes. It is an arm’s length transaction requiring an independent appraisal. Part acquisitions are often disliked by Singapore’s current banks as they don’t distribute fresh loans. Part-purchasing with an outstanding debt is actually additional labor for the banks at no profit. Due of the high objectives they must reach, the majority of banks willfully disregard such a request.
partial purchase of a paid-in property. Another arm’s length transaction that calls for an independent appraisal is the decoupling approach. It requests that any CPF funds utilized to purchase your portion of the property be returned to the CPF member’s account, together with any interest that has accumulated.
PRICES FOR A SINGAPORE DECOUPLING
Overdue mortgage payments
Decoupling comes with expenses, one of which being outstanding home loans. You have to secure a new mortgage from the bank and pay off any existing house loans. Be aware that there are additional, hidden charges involved with a new home loan.
Duty stamp fees
We are aware that couples separate in order to avoid having to pay the ABSD. On the portion of the property being transferred, however, additional stamp charges apply. The Buyer’s Stamp Duty (BSD) comes first. It is paid when one of you or your spouse purchases the other partner’s property portion.
Property transfer costs
Transferring ownership and overseeing property purchase are two aspects of the decoupling process. This calls for legal documentation, which you will want a conveyancing lawyer’s assistance with.
In order to handle the transfer and sale of their piece of the property, the spouse transferring their share will also need to employ an attorney. As a result, conveyancing expenses for divorcing spouses can range from $5,500 to $6,500. Contacting a licensed mortgage broker is a smart move as they can assist in locating the best deals without adding to your expenses.
Penalties for early payback
For people who want to pay back their house loan early, there are typically penalties associated with early redemption or prepayment. When decoupling your property, you may be subject to a prepayment penalty, which is typically 1.5% of the remaining loan amount, if the current house loan is redeemed or paid off before the lock-in term expires.
Please take note that depending on the home loan package you select, this may or may not apply. Prepayment penalties usually last for the duration of your lock-in term, which is three to five years.