Introduction
EC homeowners often find themselves in an unique and advantageous position, First time owner of EC purchased their unit directly from HDB at a subsidised price. They often see their property value appreciate significantly after clearing the 5 year minimum occupancy period.
You probably landed on this article because you are an EC homeowner and as your property approaches its MOP timeline, you are planning for your next big move.
In this article, we will deep dive into the topic of how you can consider decoupling your EC and work towards owning a second property, without incurring ABSD.
A quick note on ABSD
Under normal circumstances, most EC homeowners will be co-owning their property with their spouse under a joint ownership structure. In this case, both names are lodged in the property’s title deed.
The challenge arises when the couple seeks to purchase a second property.
They will be deemed as second property owners and a hefty ABSD stamp will be levied on the purchase price or the valuation of the property, whichever is higher.
Prevailing rates for 2023 as follows
- Singapore citizen buying their second property – 20%
- Singapore PR buying their second property – 30%
- Foreigner buying any property – 60%
What is decoupling ?
Decoupling is the process of removing or freeing up one party’s name from the current property. This is achieved through an internal buy and sell process between the co-owners that jointly owned the property.
The final outcome will result in one party’s name being freed up, to purchase the second property without ABSD.
In many ways the decoupling process mimics an actual property’s buy and sell process. It will require the use of the usual sale and purchase agreement, with relevant stamp duties and legal fee incurred.
If you are not familiar with what decoupling is in general, start with our main decoupling property in Singapore guide, then come back to this article for EC‑specific rules and scenarios.
When can you decouple an EC ?
Unlike private condominiums where there is no restriction on when owners can decouple their property.
For EC, owners would have to ensure that they have passed their 5 years minimum occupation period before decoupling.
The MOP start date is calculated from the temporary occupation permit issue date, also known as the TOP date.
Free consultation for decoupling an EC ?
Quick primer on what we do. We are a team of specialist realtor, specialising in decoupling property. We focus on helping Singaporean property owner decouple their property to purchase a second investment property without ABSD.
We helped EC owners with the following
- Calculate cost of decoupling EC
- Determine if it is even worthwhile decoupling the EC
- Managing decoupling timeline vs timeline of purchasing 2nd property
- Decoupling lawyer recommendation
- 2nd Investment property selection
Pros of decoupling EC
Aside from the obvious reason of not incurring ABSD when acquiring a second property, there are several common motivators that drive EC owners to consider decoupling as an option.
Decoupling allow EC owners to retain current property, in anticipation for future capital appreciation
The merit of decoupling lies in the fact that it allows EC owners to retain their current property, while allowing them to move forward with the plan of acquiring their second property.
With this arrangement, owners need not rush into selling their property during the MOP period. In fact they could wait out for price to appreciate further, as their neighbours set higher transaction prices.
In some cases, the EC could be located in an area undergoing URA urban transformation or is pending a completion of a MRT line. In this case, having the luxury to wait for the right time to sell the property could result in higher capital appreciation.
Decoupling, provides EC owners the flexibility to purchase a second property nearer to child’s school
Many EC home owners are young families with children approaching primary school application. Decoupling provides the opportunity for families to purchase a second property nearer to the child’s school or parents place.
In this arrangement, the current EC could be converted into a rental property and the family can then move into the second property to facilitate the child’s primary school application.
Enhanced financing for second property
Under MAS regulation, If the buyer of a property has one outstanding housing loan, he or she is only allowed to take up to 45% loan for the second property.
For the remaining 55% that is not covered by loan, 25% is required to be funded by cash, while the remaining can be funded by cash or CPF.
This would have significantly increased the cash and cpf requirement for EC owners to finance their second property.
However, if EC owners were to decouple their property, he or she will be able to enjoy maximum 75% loan financing for the second property, with the remaining 25% to be paid in cash or CPF.
Out of this 25% down payment, only 5% is required to be paid in cash.
Cons of decoupling EC
While decoupling brings with it several benefits, there are some challenges that property owners should be mindful of.
Significant cost can be incurred when decoupling
Cost of decoupling would include legal fee, buyer stamp duties, seller stamp duties and early loan redemption penalty.
This cost could stack up, so one should weigh the cost of decoupling against the cost of paying ABSD. Decoupling would only make sense when the cost saving from not paying ABSD supersedes the cost of decoupling.
Financing challenges
One downside of decoupling is that both you and your spouse will now have to shoulder greater financial obligation.
Instead of maintaining one mortgage together using both party’s income and CPF, you will now have to each maintain one housing mortgage.
This would require more attention to planning, setting aside more contingency funds to cater for unforeseen circumstances that results in loss of income.
To get a detailed calculation of how much funds you need to decouple and how much proceeds you will receive from decoupling, head over to the decoupling calculator.
Should I decouple EC to buy 2nd investment property or Should I simply sell my EC ?
As we deliberate on the pros and cons of decoupling an EC in the section above, we understand that there could be more factors unique to EC owners to be considered when making the decision to decouple the EC to purchase a second property as compared to the alternative option of simply selling the EC and upgrading to another private condo.
To address this, we have published a dedicated article diving deep into the key considerations of decoupling and EC vs all the alternative pathway available in the following article “Should I decouple EC to buy 2nd investment property?“.
Steps in decoupling EC
Now let’s proceed to outline the steps in decoupling a EC
- Engaged a real estate agent with experience in EC decoupling
- Work with real estate agent to confirm the date in which EC will clear its 5 years MOP requirement
- Financial planning, reviewing financials to ensure both parties is able to shoulder their respective mortgages and there is sufficient cash to fulfil the decoupling requirement
- Engage a experience conveyancing lawyer to guide you through the decoupling process
- Signing of sale and purchase document to proceed with the sale of one parties share
- Making payment of stamp duties
- Await completion
For a detail elaboration on the timeline and steps involved in decoupling refer to the following article
Cost of decoupling EC
To clearly illustrate the cost involved in decoupling, we will use a actual EC Treasure Crest as an example
About Treasure Crest EC
Treasure Crest EC achieved its TOP status on 2018 and fulfil its 5 years minimum occupation period in 2023
About the owners
John and Sally are both 50/50 co-owners of treasure crest EC.
They own a 3 bedder unit, which is valued 1.5 million.
- John earns 10,000 per month.
- Sally earns 8,000 per month.
Illustrating calculation for cost of decoupling EC
Sally to buy over John’s share
- Sally buys over 50% of John’s Share
- Purchase price: $750,000 (50% of 1.5mil)
Payment to be fund by cash and CPF
- 25% of $750,000 = $187,500 (to be paid in Cash and CPF, with mandatory 5% cash)
- Cash requirement : 5% of $187,500 = $9375
- Cash and CPF : 95% of $185,500 = $178,125
Payment to be fund by bank loan
- 75% of John’s share = 75% x $750,000 = $562,500
- Sally’s share of existing loan for the EC = 50% x $500,000 (current outstanding loan) = $250,000
- New loan to be shouldered by Sally = $562,500 + $250,000 = $812,500
Decoupling related expenses
- Buyer Stamp Duty (rates as of 15 Feb 2023) on $750,000 (John’s share) = (180,000 x 1%) + ($180,000 x 2%) + (($600,000 – $180,000 – $180,000) x 3%)) = $17,100
- Legal Fee – $5000
John to sell 50% of his share in current EC to Sally
- Sale Price : 50% of 1.5mil = $750,000
Pay off existing home loan
- Less 50% of $500,000 (existing loan) = $250,000
CPF Refund
- Less $150,000 including accrued interest
John’s cash proceed = $350,000
John will now have a budget of $350,000 in cash and $150,000 in CPF to shop for the 2nd investment property
As a side note, feel free to use the decoupling calculator to calculate the funds you need for decoupling with ease.
Final words
Decoupling is an intricate process that requires detailed financial planning. To ensure a smooth decoupling process make sure to engage a engaged property consultant with experiences in decoupling to assist you.
