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Strategies to Beat ABSD and Own Multiple Properties in 2023

Updated: Oct 18, 2023


Strategies to Beat ABSD and Own Multiple Properties in 2023

The Additional Buyer’s Stamp Duty (ABSD) is a tax that is levied on top of the standard Buyer’s Stamp Duty (BSD) for all residential property purchases in Singapore. ABSD was introduced in December 2011 to cool the property market, which had rebounded sharply from the global financial crisis.


At the time, the highest ABSD rate then of 10% was imposed on foreign buyers, which had accounted for 19% of all private residential property purchases in 2H2011. An ABSD of 3% was imposed on Permanent Residents (PRs) for their second and subsequent residential property, as well as Singapore citizens for their third and subsequent property purchase.


By increasing the transaction or frictional costs, it was designed to discourage multiple property purchases and “flipping” of properties, and aimed to “moderate investment demand for private residential property and promote a more stable and sustainable market”.


Since first taking effect on 8 December 2011, ABSD rates have been progressively increased. With the most recent increase taking effect on 27 April 2023, ABSD rates currently stand at:

Adjustments to ABSD in April 2023
Adjustments to ABSD in April 2023 (Source: CNA)

The government appears to have been fairly successful in achieving its aims of ensuring that residential property remains affordable for Singaporeans and that prices move in tandem with economic fundamentals.


According to a study by the Urban Land Institute (ULI) Asia Pacific Centre for Housing released on 30 May 2023, Singapore is the most expensive Asia-Pacific city in which to own or rent a private home. The median price of a private home in Singapore cost USD1,200,000, as median property prices gained 8% in 2022.


However, looking at affordability, the medium private home price in Singapore was 13.7 times the median household income. This compares to markets like Shenzhen (35.0), Ho Chi Minh City (32.5), and Hong Kong (26.5). For public Housing Development Board (HDB) flats, the ratio was 4.7. Combined, this made Singapore property rank as the most attainable or affordable in ULI's index for 2023.


For Singaporean investors with excess liquidity and keen to increase their property exposure, here are 8 legal strategies to do so with zero ABSD.

 

Buying Private Residential Property for Investment in Singapore without ABSD


For couples and families, consider:


1. Buying Under A Single Person For A Property


Many couples buy their first home together, with both co-owning the property as their matrimonial home.


However, one of the easiest way to save on potential ABSD as a family, is to simply purchase the property under just one name. The other spouse or partner, can then buy another property under their own name.


This strategy can also apply for couples looking to buy a HDB flat. The spouse or partner who will not have the first property under his or her name will be listed as an occupier. Do note that essential occupiers in a HDB or new Executive Condo purchase will also still need to fulfil the minimum occupation period (MOP) before they can buy a private property.


The caveat here, of course, is that the finances of the couple support such a move. One person must be able to individually take up the required loan for the property. The other spouse or partner's income cannot be considered for the loan application. His or her CPF funds also cannot be utilised to pay for the property.

It is also important to note that the sole owner is precisely that. He or she is the sole person obliged by law to pay the mortgage, and is also the person to whom the property belongs legally, notwithstanding how the mortgage payments are being split .


2. Decoupling, Or Setting Up Proper Structure For Future Decoupling


If you already own a home together as a couple, you can consider to “decouple” from the property. In decoupling, one co-owner sells his or her share in the property to the other co-owner. That home is thus removed from the property count of the exiting party.


For couples looking to buy your first private apartment together, but currently require the CPF funds and/or incomes of both for the downpayment and/or to be approved for the required loan, you can consider to purchase the property as tenants-in-common. A recommended ownership structure would be 99-1, i.e. one spouse owning 99%, the other owner 1%.


(Properly used, the 99-1 ownership structure is perfectly legal. News reports of IRAS probing into 99-1 property ownerships pertained to cases of possible tax avoidance by buyers who entered into such schemes in which the 1% stakes were sold immediately after the purchase option was exercised. In those cases, the initial 100% buyers are actually unable to secure the necessary loans for the purchase. The subsequent 1% buyer was always necessary for the required loan and purchase, making the initial 100% ownership a sham to avoid ABSD.)


Do note that this strategy is no longer applicable for HDB flats since 1 April 2016, when HDB tightened its regulations on transfer of HDB flat ownership, allowing changes in flat ownership only on grounds of marriage, divorce, death of an owner, financial hardship, renunciation of citizenship and medical reasons.


It should be noted, there are costs to decoupling. As with any sale & purchase of property, conveyancing is necessary. Two conveyancing law firms would be needed; this can cost around $5,000 - $6,000 and take around 4 - 6 weeks. The “buyer” also incurs the Buyer Stamp Duty (BSD) on the shareholding purchased. If this transaction takes place within the first 3 years of the couple’s initial purchase, the seller will also incur the Seller Stamp Duty (SSD) of 4 - 12% depending the year of transfer, to be paid in cash. This is the key reason why the recommended ownership structure is 99-1; to minimise the costs of decoupling.


3. Buying Under A Child (for Child More Than 21 Years Old)


If you have an adult child (more than 21 years of age), you can also buy a private property under their name, fully in cash or by providing the cash for the downpayment.


While this may appear straightforward, there are many potential considerations and implications that warrant serious discussion prior to any actual purchase.


If a mortgage is required, the adult child has to be able to finance the property under his or her own name.


Legally, the property belongs to this child, who by law can do whatever he or she wants with it. This includes decisions such as selling it, or deciding who can live in it.


With a private property under his or her name, it can affect the adult child’s eligibility to buy a HDB flat or executive condominium (EC) with their spouse in the future. To purchase a Build To Order (BTO) flat from HDB, or a new EC, they would have to dispose the private property at least 30 months ahead of their application. With the measures implemented on 30 September 2022, even to buy a non-subsidised resale flat, they would also have to dispose of the private property at least 15 months prior.


If the adult child wishes to buy other Singapore private residential property or properties in the future, he or she will have to pay ABSD on those purchases.



4. Buying Under A Property Trust (for Child Under 21 Years Old)


If your child is still under 21 years old, you can still buy a property under your child’s name by setting up a property trust for your child.


Again, the property legally belongs to the trust and your child, not you.


This is a method for wealthy individuals who are very cash rich, as you will need to pay for the property fully in cash. The bar was further raised from 9 May 2022, with the government’s imposition of ABSD (Trust).


With ABSD (Trust), the top tier of ABSD must be paid upfront by a buyer for any residential property transferred into a living trust. With the increase in ABSD rates from 27 April 2023, the applicable ABSD rate for trustees currently stands at a hefty 65%.


Trust arrangements complying with the conditions of remission must apply for a refund, within 6 months of exercising the sales & purchase agreement. It is crucial to ensure that you work with a conveyancing lawyer that is able to structure your trust appropriately so as to qualify for a full refund.



For singles, you can consider:


5. Buying a “Dual-Key” Property


A dual-key property is a property that is two "keys", or units, in one. While there is only one title deed, a dual-key unit can functionally be considered as two homes (that share a common main door and foyer).


An owner can thus stay in one of the units, while renting out the other for income. It is also a useful layout that offers the potential for multi-gen living with greater privacy.


Such units may cost slightly more on a per square foot basis. There may also be more space "wastage" and duplications, with a common foyer that may not be fully utilised by either unit, as well as a secondary kitchen and bathrooms for the second sub-unit.

Dual-key units can be found in a number of projects, including recent new launches Grand Dunman, Orchard Sophia, and Blossoms By The Park. Contact us for more!

 

Buying Other Types of Property “Exposure”

6. Investing in Commercial and Industrial Real Estate


For those with a positive view on Singapore's economy and growth, but are unable to deploy further any of the above strategies to save ABSD, you could also consider investing in commercial and industrial real estate in Singapore.


Business owners may benefit by purchasing their own shophouse, office, or industrial property for their own usage, protecting their businesses from market rental fluctuations. Banks typically also provide a higher loan-to-value for commercial loans in such cases.

Taxes and duties are generally lower on commercial and industrial properties. While GST applies if the seller is GST-registered, a GST-registered buyer can claim back the GST paid. If necessary, a GST-registered company can be easily legally set up to make the purchase.


Overall, this may be more unfamiliar territory for most, and will require more research to understand the market, risk-return profiles, and its suitability for your portfolio.



7. Investing in Overseas Property


Investors can also consider expanding their property portfolio into overseas properties.


A second home in Malaysia or Thailand is a popular choice for many Singaporeans.


With many Singaporeans sending their children overseas for further studies, properties in Australia or the United Kingdom may also be a good investment, allowing them to save on rental costs during their children's studies.

Again, this is unfamiliar territory for most. There are many considerations to study - the local property market, its rules and laws, taxes, the availability of financing, and many more. It is important to do your homework, and get help from experts when you need it.



8. Investing in Property Securities and Alternative Instruments


Another method to invest in real estate is by investing in property securities and other instruments.


On the Singapore Stock Exchange, you can purchase shares of major Singapore property developers including CapitaLand, City Developments, and UOL.


Do be aware that these companies tend to offer a diversified exposure to property. Besides being involved in multiple segments in Singapore, these developers have also ventured into overseas markets.


According to its website, CapitaLand for example is present in 262 cities across 41 countries.

One way to be more targeted could be to invest in real estate investment trusts (REITs), which tend to have smaller market capitalizations and be more narrowly focused.


Frasers Centrepoint Trust, for example, has a property portfolio comprising nine retail malls and an office building located in the suburban regions of Singapore. Sabana Industrial REIT has a portfolio of 18 properties in Singapore, in the high-tech, industrial, warehouse and logistics, chemical warehouse and logistics, as well as general industrial sectors.


How about “owning” a Good Class Bungalow (GCB)? Recently, Singapore-listed investment company Straits Trading launched a new programme, offering fractionalized exposure to properties for members of its Straits Trading Club. With a minimum investment in $500,000, you could purchase preference shares in a property investment product, with the underlying property being a GCB at 8A Cable Road, Chatsworth Park.

Straits Trading's FIR-ST Programme - 8A Cable Road
Straits Trading's FIR-ST Programme - 8A Cable Road (Source: The Business Times)

8A Cable Road has a land size of approximately 15,308 sqft. Along the same stretch, 6A Cable Road, which has a similar land size of 15,172 sqft, was sold at 18 June 2021 at $32,000,000, or $2,109psf. This is a quantum that would ordinarily be out of reach even for many of the wealthier Singaporeans. Investment is made possible, by financial innovation.


Details of each of these investments have to be carefully studied. In particular, structured products may be more apt for sophisticated investors, who can better understand details and nuances of the product.

 

Reach Out to Us at Realvestor to Discuss


What is the right strategy to employ? It depends on your family and personal profile, financial situation, and plans. More complex advanced structuring strategies may also be needed and appropriate. If you need advice, feel free to reach out to schedule a consultation.

 

About the Author

In her former life as an equity analyst, Evon analyzed companies and stocks to find the best ones for her investors to put their money in, with over a decade of consistent outperformance. Now as a realtor, she enjoys using her analytical skills to help her client secure the best properties to invest in, and finds the greatest joy in journeying with clients towards their dream homes and ideal units.

​Purchasing a property is one of the most important decisions you will ever make in life. We are here to help.


At Realvestor, we are here to provide clarity and guidance to you through our data-driven approach and deep on-the-ground experience.


Whether it is your first home, or if you are planning to upgrade or purchase a second property for investment, our systematic and objective approach will provide you with the best possible solution for your real estate journey.


Talk to us to get started today.






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