Property Decoupling: How to Save Up to $200,000 on Your Next Investment

Imagine this—you're looking to invest in a second property in Singapore, but the hefty Additional Buyer’s Stamp Duty (ABSD) hits you with a 20% surcharge. That’s $200,000 on a $1 million property! It’s enough to make anyone think twice. But what if I told you there’s a perfectly legal way to avoid that cost? Enter decoupling.

Decoupling allows one owner to transfer their share of a property to the other, freeing up the first owner to make a new purchase without being slapped with the ABSD. Sounds too good to be true? It's not. But it does come with caveats. In this article, we’ll walk you through the exact steps, calculations, and risks involved in decoupling—and whether it’s the right move for you.

If you’re serious about saving money and maximizing your real estate investments, this is the strategy you need to know about. Let’s break it down.

1. What is Property Decoupling?

At its core, decoupling is the process where one co-owner of a property transfers their ownership share to the other. This allows the owner who has given up their share to purchase another property as their first property, thereby avoiding the Additional Buyer’s Stamp Duty (ABSD) that’s typically levied on second property purchases.

For example, if two people co-own a property and one transfers their ownership to the other, the person who relinquished their share can now buy a new property without being subject to the ABSD. This strategy has become more popular due to the increasing ABSD rates, which can range from 20% for second properties to 60% for foreign buyers.

2. Why Decouple? The Real Benefits

The primary benefit of decoupling is to reduce or eliminate the ABSD on subsequent property purchases. Let’s look at the numbers:

• For Singapore Citizens (SC), the ABSD for a second property is 20%.
• For Permanent Residents (PR), it’s 30%.
  
• Foreign buyers are looking at a staggering 60% for any additional property purchase.
  
  If you’re buying a $2 million property, an SC would have to pay $400,000 in ABSD on a second property. By decoupling, this cost can be completely avoided, freeing up that money for further investments.

But there’s more. Decoupling also allows for more flexible estate planning, especially when one party wants to pass on ownership to family members.

3. The Decoupling Process

Decoupling might sound simple, but it’s a multi-step process that requires careful consideration and planning. Here’s a breakdown of the key steps involved:

Step 1: Evaluate Your Current Situation

Before even considering decoupling, ask yourself:

• Do both parties co-own the property?
• Are there outstanding loans on the current property?
• How much CPF savings have been used for the property purchase? (This must be refunded to the seller's CPF account before the transfer.)

Step 2: Engage Legal and Mortgage Advisors

Decoupling involves transferring property shares, which means you'll need a good lawyer to handle the legal paperwork. On top of this, you’ll need a financial advisor to ensure you can meet mortgage loan requirements after the transfer.

Step 3: Pay the Required Stamp Duties

When one party buys out the other's share, they must pay Buyer’s Stamp Duty (BSD), and if applicable, Seller’s Stamp Duty (SSD). These are calculated based on the part-share that is being transferred:

• BSD is 3% for properties up to $1 million, and 4-6% for properties exceeding that.
• SSD ranges from 4% to 12%, depending on how soon after the purchase the decoupling occurs.

Step 4: Refinancing the Property

If there’s an outstanding loan on the property, the buyer will need to refinance the loan under their own name. Be sure to obtain In-Principle Approval (IPA) from the bank to ensure you can handle the new mortgage under your sole name.

Step 5: Complete the Transaction

Once the buyer and seller agree on the terms, both parties sign the necessary documents and the ownership transfer is completed. The seller’s CPF used in the property, including accrued interest, will be refunded, and any cash proceeds will be handed over.

4. What Are the Costs involved for decoupling?

While decoupling can save you a huge amount on ABSD, there are costs involved that you need to consider. Here’s a breakdown of some of the key costs:

• Legal Fees: Typically ranges from $6,000 to $8,000 as both parties will need separate lawyers to handle the transfer.
• BSD: Payable by the buyer on the transferred share.
• SSD: Only applicable if the property is sold within three years of purchase.
• Mortgage Refinancing Costs: If the property is mortgaged, you’ll have to refinance under a single name, which may come with additional fees.

Quick Example:
If the value of the transferred share is $1 million, the BSD would be around $24,600. Adding legal fees of $7,000, the total upfront cost for decoupling could be around $30,000 to $40,000. Still, this is significantly less than paying a $200,000 ABSD on a new $1 million property.

5. Key Considerations Before Decoupling

While decoupling may seem like a no-brainer for saving on ABSD, it’s not a decision to take lightly. Here are some factors to weigh carefully:

• Long-Term Commitment: Decoupling means one party gives up their share of the property. This could complicate matters if personal circumstances change, such as a divorce or death of the sole owner.
• CPF Considerations: Any CPF money used by the seller in the property must be returned, which may impact the seller’s ability to fund another purchase.
• Affordability: The person who takes on the full ownership of the property must be able to service the mortgage independently. Total Debt Servicing Ratio (TDSR) checks are required to ensure that the sole owner’s income can support the loan.
• Stamp Duties: Although decoupling helps avoid ABSD on future properties, BSD and SSD are still applicable and can quickly add up.

When Decoupling Doesn’t Make Sense

Decoupling isn’t for everyone. In fact, there are scenarios where it can end up costing more than the ABSD savings:

• Scenario 1: If the property value has appreciated significantly, and you are required to pay SSD, the additional cost might offset any savings from avoiding ABSD.
• Scenario 2: The sole owner’s inability to secure financing due to income limitations can result in financial strain, making the property unaffordable.

It’s essential to run the numbers before committing to decoupling. Consult with financial and legal professionals to assess if decoupling is the best route for your specific situation.

7. Conclusion: Is Decoupling Right for You?

Decoupling can be a powerful strategy for savvy investors looking to save on ABSD and expand their property portfolio. However, it’s not without its risks and costs. The key to making decoupling work lies in careful financial planning, understanding the potential pitfalls, and seeking expert advice.

For those with the financial means and long-term commitment, decoupling can unlock the door to significant savings and new property opportunities. But like any investment decision, it’s important to do your due diligence. The potential savings are substantial, but only when executed correctly.

PropZen Consultant is a trusted Singapore real estate team, offering comprehensive solutions for selling your property featuring professional photography and virtual tours at1% commission to help you navigate the real estate market effectively. The experienced team can help you create professional, high-quality virtual tours that stand out and deliver exceptional results. Let PropZen Consultant assist you in elevating your property marketing strategy and enhancing the way you showcase properties in the digital era. Contact them today to explore their range of services and transform your real estate business with the power of captivating virtual tours.