7 ways to avoid ABSD legally in Singapore

PHOTO: Stackedhomes

Remember back in the 1990s? Those were the days when Singapore property investors strutted around, explaining how every home they bought made the next home purchase even easier.

The rent from one property paid for the next property, the rent from that property paid for a third, etc. You could say those were the glory days for a property investor in Singapore.

Well, those days are long over. Today, the massive tax on second or subsequent housing – called the Additional Buyers Stamp Duty (ABSD) – has put a damper on it.

The good news is, it indirectly makes your first home more affordable. The bad news is, it can cost you a pretty penny when you're ready to expand your property portfolio.

In fact, since we last wrote this piece, the ABSD rate has become even more expensive. Here's what it looks like now after the December 2021 cooling measures:

Cooling measure Old measure Dec 16 2021 new measure
Loan-to-Value (LTV) Ratio
90 per cent for HDB loans
75 per cent for bank loans
85 per cent for HDB loans
75 per cent for bank loans
Total Debt Servicing Ratio 60 per cent of monthly income 55 per cent of monthly income
Additional Buyers Stamp Duty
Singapore Citizens
None for first property
12 per cent on second property
15 per cent on subsequent property
Permanent Residents
Five per cent on first property
15 per cent on subsequent property
Foreigners
20 per cent
Entities
25 per cent + five per cent non-remissible for property developers
Singapore Citizens
None for first property
17 per cent on second property
25 per cent on subsequent property
Permanent Residents
Five per cent on first property
25 per cent on second property
30 per cent on subsequent property
Foreigners
30 per cent
Entities
35 per cent + five per cent non-remissible for property developers

Given the new changes, here are the fair and legal ways you can be excused from paying the ABSD in 2022:

  • Buy an Executive Condominium (for upgraders) 
  • Decouple (if the cost doesn't exceed the ABSD) 
  • Purchase under a Trust (if you have a lot of cash in hand)
  • Sell one, buy two
  • Get a dual-key unit 
  • Buy a commercial property 

1. Buy an Executive Condominium (for upgraders)

One annoying thing about ABSD is that, even if you're just upgrading and have no intention to own two properties, you still need to pay the ABSD first (you can apply for remission if you sell your previous home within six months of getting the new one). 

This means you still need to have the hefty 17 per cent tax (or 25 per cent for Permanent Residents) in cash or your CPF*. 

But here's the good news: That only applies to private condos. If you purchase a new Executive Condominium (EC), you don't need to pay the ABSD first.

You do still need to dispose of your flat within six months of course, but at least you won't be faced with needing more cash or CPF savings upfront. 

*You can pay stamp duties like the ABSD with your CPF.

PHOTO: Stackedhomes

Note: For ABSD payments, if it's a new development, CPF can be used right away. However, resale properties requires payment in cash first through your lawyer.

Once you are the legal owner, you can then apply to pay it using CPF.

2. Decouple (if the cost doesn't exceed the ABSD)

This is the most heavily promoted way to avoid the ABSD, but note that it has costs of its own, and it doesn't always work.

The idea is that one spouse transfers her share to the other, and then goes out and buys a second property under her own name.

She won't pay ABSD because, having transferred her share of the property to you, she no longer counts as owning a property when she buys the next unit.

Before you do this, though, remember that transferring one's share of the property is not free. If your spouse transfers her share of the property to you, you still need to pay the Buyers Stamp Duty (BSD).

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For example, if the property is worth $1 million, and your spouse transfers 50 per cent of the property to you, then you'd have to pay BSD on $500,000 (in this case, $9,600). 

In addition, other stamp duties – such as the Sellers Stamp Duty (SSD) – still apply (SSD is payable if you sell the property within the first three years of buying it, and it applies on the transferred portion). 

You also need to factor in the cost of the decoupling process, which is often in the range of $5,000 to $6,000.

Always make sure that the cost of decoupling is less than paying the actual ABSD; otherwise, there's no point. If you think this might happen, drop us a message; we can help you work out the numbers.

Finally, if you are thinking about decoupling to buy a new property, do take note if the sole owner is able to support the new mortgage.

Do also remember that if you're using your CPF funds, then you need to return your CPF monies (including accrued interest) back to your CPF account.

Regarding the transfer of ownership for HDB flats, that "loophole" has been plugged since 2016.

Right now you are only allowed to do so under six special scenarios: Grounds of marriage, divorce, death of an owner, financial hardship, renunciation of citizenship and medical reasons.

3. Single Owner and Essential Occupier scheme

In a continuation of the previous point, because the transfer of ownership for HDB flats is no longer allowed outside of the six special scenarios, you will have to plan ahead if you are planning to buy two properties from the beginning.

The one way to do so is to adopt the Single Owner and Essential Occupier scheme. In this method, your spouse can be listed as an essential occupier instead of a co-owner.

To qualify for this, you have to list one of the applicants as the single owner, and your spouse/fiance as the essential owner during the flat application.

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This means that as the essential owner is not seen as a homeowner (and after the five-year minimum occupation period is up) you will be considered to be a first-time homeowner when buying a private property.

As such, you will be able to avoid the ABSD and also qualify for the higher loan quantum (75 per cent of LTV), as compared to the maximum 55 per cent limit for a second property loan if you hadn't done so.

It's not for everyone though, there are cons to think about.

First, as an essential occupier, you can't use your CPF to fund the purchase (meaning you can't help your partner to pay off the flat, down payment or monthly instalments).

You can of course use cash directly to help finance the unit. But because the essential occupier isn't seen as having legal ownership right, you will have no claims over the property if there's a fallout at the end.

Second, because only the single owner will be qualified to take on a mortgage, the assessable income will naturally be lower. In that way, not everyone will be able to "afford" such a scheme.

4. Purchase under a Trust (if you have a lot of cash in hand)

This involves buying the property under trust for your children. You'll need the help of a conveyancing lawyer to do this.

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But as of May 8, it was announced that a 35 per cent Additional Buyer's Stamp Duty charge will apply on any transfer of residential property into a living trust occurring on or after May 9.

So while previously if you do so under your children's name (and they don't have any properties under their name), you could do so with no ABSD payable.

Now, 35 per cent ABSD will be payable (upfront, there's no way around this) upon any transfer of a property to a living trust, regardless of whether there is an identifiable beneficiary.

However, you can apply for a refund of the ABSD within six months after the trust document is extended, as long as the following conditions below are met:

  • All beneficial owners of the residential property are identifiable individuals
  • Beneficial ownership of the residential property has vested in all of these beneficial owners at the time of property transferred into the trust
  • The beneficial ownership cannot be changed or revoked, or be subject to any condition subsequent, under the terms of the trust

As a result, it is now crucial to ensure that your conveyancing lawyer drafts the trust document in a manner that fulfils the ABSD refund conditions. If not, you could lose a huge chunk of cash here.

Do remember though, that if your children were to take possession of the property, they can't then apply for an HDB flat while owning it. And of course, they'd be subject to ABSD if they try to get another property for themselves. 

Besides this, there are no bank loans for properties held in trust. You need to pay for the property in cash.

5. Sell one, buy two

The idea here is to sell your existing property. Then with the sales proceeds, you buy one property, while your spouse buys a smaller one.

For example:

Say you sell your five-room flat for $575,000. You then use $375,000 as the down payment on a $1.5 million condo. You buy this under your own name.

Your spouse then looks for a smaller condo – say an $800,000 shoebox unit – and puts down $200,000 for it. She also buys this under her own name.

As both of you have no property at the time of purchase, neither of you will incur ABSD. For this to work, both of you must qualify for the respective mortgages. 

Here's another comparison taken from the Straits Times.

PHOTO: The Straits Times (via Stackedhomes)

6. Get a dual-key unit

We've covered this in a previous article on dual-key floor plans.

PHOTO: Stackedhomes

But to recap: A dual-key unit often has a common foyer, after which it splits into two separate sub-units. This allows two immediate families (e.g. your family and your in-laws), or a tenant and a landlord, to co-exist with privacy.

The dual-key unit still counts as a single property, so you don't need to pay ABSD on a second unit. 

7. Buy a commercial property

For all you pure investors out there, you'll be glad to hear there's no ABSD on commercial properties. You only have to pay the GST, which is seven per cent at the time of writing. 

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So instead of buying another condo to rent out, you could consider a coffee shop, industrial space, etc. Be sure to do your homework though, as commercial property is a whole different ball game from residential. 

Finally, the simplest method for ambitious couples: Just to put the first home under one spouse.

If you have the means to shoulder the mortgage alone, then consider not having a co-borrower. 

Later on, with sufficient savings, your spouse can simply go on and buy another property as a first-time buyer.

This will put two properties in your family, without incurring any ABSD. This is the slow and patient method, but it's also the most hassle-free. 

This article was first published in Stackedhomes.