Introduction
What you are reading is a documentation of our response to several reader questions on how to secure a new launch condo first before committing to actually decouple your current property.
As specialist consultants helping Singapore property owners decouple their property to purchase a second investment property, we seek to craft strategies to optimise for every niche decoupling use case. This being one of many use cases covered.
This article was written with insights derived from our partnering decoupling lawyer Daryl. As a disclaimer, please do not take this as legal advice.
Concerns with regards to decoupling first before buying a new launch condo
This section rehashes some of the key concerns with regards to the conventional process of decoupling in advance before procuring a new launch condo:
- Property owners would not like to incur the sunk cost of the decoupling process before securing an ideal investment property in a new launch development.
- There is a degree of uncertainty in securing a unit in a new launch development, given the unit selection process is governed by a balloting process.
- Some property owners are only keen on getting a high-growth new launch unit as a second property and would not be decoupling if they are unable to get one.
Given this article was written for more advanced readers, we assume you have a basic understanding of the cost of decoupling and the new launch balloting process. If not, track back to these links for deeper understanding after you complete this article.
We are Decoupling Expertise
We are a real estate investment consultancy that specialises in helping investors procure a 2nd investment property.
Our expertise is grounded on 2 fronts:
- Tax Optimisation -Finding the most tax-optimised strategy for investment-minded property owners to procure a second property
- Research -Analyst by trait, operator of our own dual property portfolio by experience. We pride ourselves on conducting profit-focused, practical research to help our clients and readers shortlist investment property and validate purchase decisions.
You are now reading a documentation of our research work.
Feel free to drop us a text if you would like to seek a 2nd opinion on your investment decision.
Can you first secure the new launch unit before decoupling?
Yes, that is definitely doable and is also the better alternative method for addressing all the concerns with regards to decoupling first.
Having said that, this is a more complex process compared to the conventional method of decoupling in advance before securing the second investment property.
Nuances need to be noted specifically in the area of managing timeline between exercising the sale and purchase instrument involved in decoupling versus the sale and purchase document related to the new launch purchase.
Any mismanagement of timeline in this aspect will result in ABSD being incurred.
We will dive deeper into these nuances in the section that follows.
Understanding the overarching contractual requirement towards minimising ABSD
The first pass in executing decoupling in this special sequence requires us to establish appreciation for the overarching contractual requirement towards minimising ABSD.
Quoting a snippet from our broader comprehensive guide on decoupling property in Singapore:
“The second property can be purchased without ABSD, once the sale and purchase document related to the sale of share from one spouse to the other is signed during the decoupling process.”
The crux to this is that you can secure a unit in a new launch condo by “booking” it first, but can only exercise the new launch condo’s sale and purchase document after you exercise the sale and purchase document related to the decoupling transaction.
Only after signing the sale and purchase document for decoupling you will be deemed to not have any property under your name and be able to purchase the new launch unit without ABSD.
To better understand how this is being executed, we will need to dive into the overview of the two different timelines in the section that follows.
Securing the new launch unit at booking day without executing sale and purchase document
The key to note for the new launch purchase leg is that you will be able to “book” a unit in a new launch development first before signing the sale and purchase document.
The process is as follows:
1. Booking day
- Ballot for a unit, pay 5% downpayment in the form of a cheque to secure the unit you have selected.
- In return, the developer will issue you an Option to Purchase (OTP) that does not require any signature.
- Contractual execution for a new launch condo is only exercised upon signing of sale and purchase documents.
2. Receive S&P document but do not sign
- 14 days from receiving the Option to Purchase, the developer will then send you the sale and purchase document for the new launch condo.
- You will have 3 weeks to exercise this S&P document.
3. Ensuring that sale and purchase contract regarding decoupling is signed first
- At this point, it is important to ensure that you must first sign the sale and purchase document to decouple yourself from your current property before signing the sale and purchase document to exercise the purchase of your new launch condo.
- Only under such sequence will you not incur any second property ABSD on your new launch purchase.
The exact sequence step by step
Step 1 -Place a blank cheque titled to developer to participate in balloting for new launch
Step 2 -Secure a unit during balloting day by paying 5% of the property value through the same blank cheque submitted
Step 3 -Receive Option to Purchase from developer on the same day
- At this point, there is no liability to pay ABSD, as sale and purchase documents have not been signed.
- Sale and purchase document to be sent out by developer within 14 days from receiving Option to Purchase.
Step 4 -Appoint an experienced law firm to handle your decoupling transaction and your new launch purchase transaction
Step 5 -Ensure you secure the appointment to execute and sign your decoupling property sale and purchase document ASAP
- Must be executed before the signing of your new launch purchase sale and purchase document.
- Note: The new launch purchase S&P expires 3 weeks upon it being sent out, so effectively you only have a 5-week timeline from the receipt of your new launch Option to Purchase to get the decoupling property transaction executed.
Step 6 -Exercise the New Launch S&P (before Week 5 deadline)
- With the decoupling S&P already signed, the leaving spouse exercises the new launch S&P.
- ABSD is assessed at this exact point, based on how many residential properties the buyer owns at the moment of exercising the OTP.
- With the decoupling S&P signed, the leaving spouse is treated as a first-time buyer — 0% ABSD for Singapore Citizens.
Step 7 -Pay BSD and ABSD within 2 weeks of exercising S&P
- BSD and ABSD must be paid within 14 days after the date of the signed contract or agreement.
- As a first-time buyer post-decoupling, no ABSD is payable. Only BSD applies.
Step 8 -Pay remaining 15% downpayment (within 8 weeks of OTP)
- Within 8 weeks from the date of securing the OTP, pay the remaining 15% downpayment, funded by cash or CPF.
How this sequence addresses the key concern of most owners
Sequencing the decoupling of property and new launch purchase in the following sequence allows property owners to only incur and commit to the cost of decoupling, which can be substantial, only when they gain 100% certainty on the new launch unit they would like to purchase.
In the less ideal scenario whereby the ballot number turns out to be sub-optimal, the property owner can remain as joint owners financing the current property with both parties’ income until they settle on a new launch unit that is ideal for investment. Only then will they decouple and shoulder mortgage for each of two properties, each tied to their individual names.
Key risks to note
Having established the benefits associated with this method, there are key risks that come with it if not executed properly:
1. Incurring ABSD
ABSD will be incurred if you are unable to arrange for the decouple to be completed before the exercise of S&P for your new launch unit.
2. Forfeiting 5% downpayment for new launch condo
We have come across several cases of clients having to forfeit their 5% downpayment on their new launch as they mismanaged their decoupling timeline and were unable to sign on their decoupling sale and purchase document before the expiry of their new launch S&P contract.
3. Loan eligibility risk
We have also come across readers who are aware of this sequence but have not done the initial preparation work to ensure that the spouse taking over share of the existing property is able to shoulder the entire property loan by themselves. This resulted in financing challenges that prevented the decoupling process from progressing forward. This is especially common, as investors’ interest in a new launch unit can often be triggered emotionally by the fear of missing out.
4. Cashflow financing risk
For property owners counting on using the proceeds from decoupling to fund the initial deposits for the new launch condo, especially the first 5% booking fee.
Note that the cash proceeds from decoupling property are only realised 8 weeks from signing of the sale and purchase document, and CPF proceeds are only realised 10 weeks from the signing of S&P. Hence, it is important to take the cash financing timeline into consideration together with the contractual signing timeline.
Does this method also work when purchasing a resale condo as a second property?
Yes, the same sequence is executable for a resale property, but more complexities are involved. A lower contractual exercise duration is to be negotiated with the seller to ensure sufficient timeline is allocated for decoupling to be contractually completed first and for funds from decoupling to be received in time for payment for the resale property.
The specific service Decoupling Expertise offers for this use case
Decoupling Preparation
- Decoupling cost calculation
- Decoupling loan eligibility check
- Second property budget calculation
New Launch Balloting Preparation
- New launch unit research and shortlist
- Entry and walk-away price benchmark
- On-ground showroom unit review
Booking Day Execution
- Managing sequence of events during booking day
Managing Timeline
- Managing decoupling timeline
- Managing new launch purchase timeline
Managing Cashflow
- Advising and management of cashflow timeline between proceeds from decoupling and payment requirement timeline for new launch condo
Other relevant decoupling property case studies
- Decoupling Case Study –
- How a couple cautiously upgraded from a humble HDB into 2 private condos in less than 5 years, via decoupling 99-1
- Decoupling case study –
- How a savvy young couple overcame ABSD hurdle to own 2nd property in Bukit Timah?
- How Singapore citizen and PR couple can structure property ownership to avoid ABSD when buying a second property in Singapore?
