HDB Decoupling not permissible – Find your alternative

HDB Decoupling is no longer Permissible

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Some years have passed since you and your spouse purchased your HDB / BTO property.
You have now stashed up a little stockpile of cash savings and your outstanding mortgage is no longer as intimidating as it used to be.

You are now on the quest to live the Singaporean dream of owning a HDB and a condo .
And “Decoupling” seems to be the term that comes to mind.

Sorry to disappoint you.

Since 2016, decoupling is no longer permissible for HDB flats, It is only allowed only under 6 special circumstances

  • Marriage
  • Divorce
  • Death of an owner
  • Financial complications
  • Renunciation of citizenship
  • Medical reasons

None of these circumstances says “2nd property investment”.

The point of this article

The point of this article is not to turn you away, but to draw you further down the rabbit hole.

We will quickly touch on the general concept of decoupling, why it is no longer applicable for HDB and get into the meat of exploring alternative solutions available, specifically for HDB property owners.

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A little bit about ourselves, before you commit the next 5 mins reading the article.

We are a team of specialist realtor, specialising in decoupling property. We focus on helping HDB property owners in Singapore derive the best strategy to purchase your second property without ABSD.

Feel free to drop us a text to explore strategies tailored to your budget and lifestyle requirement. We have assisted numerous HDB property upgrade by purchasing 2 private condominium.

What is HDB Decoupling or BTO Decoupling ?

Decoupling is the process whereby you buy over your spouse’s share of the property. It is also known as Sale of Part-Share. The end goal is to “free up” one party’s name from the current property, to purchase the next property free of ABSD.

In many ways, it mimics the usual sale and purchase process between a buyer and seller. It involves 2 conveyancing lawyers, representing each party, executing the transactions with the usual sale and purchase agreement. The usual buyer stamp duties and seller stamp duties will also be at play.

For more in depth discussion on decoupling and the cost involved check out this article.

Why HDB decoupling and BTO decoupling is no longer permissible

The overarching view that the Singapore government takes towards public housing is that it is meant for Singaporean’s residential usage. Its priority is to ensure that it remains affordable and accessible for everyone.

The last thing that the government wants to see is a landlord dominant housing landscape, whereby less savvy but hard working Singaporeans end up renting from a property investor.

Bearing that in mind, enter the 2016s.

It was the period in which HDB home owners, under the influence of zealous property agents, were actively decoupling. The typical asset progression is to upgrade to a private condominium, repurposing the existing HDB flat into a rental property for passive cash flow.

Leading up to April 2016.

The government stepped in to tighten HDB property part share transfer regulation to only allow share transfer under 6 special circumstances.

What are the options available for HDB and BTO property owners

Wealth rewards those who preserve.

Now that we are clear that decoupling is no longer available for HDB home owners. Let’s persist in exploring the alternatives available to HDB property owners to own their 2nd property without having to pay ABSD.

Method 1 – Sell current HDB or BTO. Purchase another resale HDB under the Owner Occupier Scheme

Steps

  1. Sell current HDB
  2. Purchase another resale HDB – under the Owner Occupier Scheme
  3. Wait out 5 year minimum occupancy period
  4. Purchase 2nd property

Why purchase another HDB?

The premise for this strategy is built around the objective of helping you own one HDB and one private condominium. Having a HDB as one of the properties in a duo property portfolio has its benefits

A resale HDB normally comes with a smaller price tag as compared to a private condominium.
To put things into perspective. At the date of writing, an average resale 3 bedder HDB in Ang Mo Kio, with a minimal floor area of 1000 sqft would cost around $600,000 to $800,000 tops.
While a resale private condominium with the same floor area, in Ang Mo Kio would cost around $1.5 million.

From an affordability standpoint, that makes a substantial difference in the amount of capital required for you to acquire one HDB and one private condo versus two private condo.
And as a by-product of having a lower purchase price, a HDB resale property tends to have higher rental yield.

What is the HDB essential occupier scheme ?

There are three different types of “manner of holding” you can choose from, when purchasing a HDB.

  1. Joint Tenancy (50/50) ownership – the usual option for couple
  2. Tenancy in Common (each couple hold different share proportion, eg 99-1)
  3. Owner occupier scheme

The 1st option is most probably the manner of holding that you are currently adopting. The 2nd option is an option that is commonly adopted by owners that are looking to decouple. As decoupling is no longer permissible, option 2 is out of the question.

Enter option 3.

The owner occupier scheme allows you to purchase your HDB by listing one party as the owner and the other party as the essential occupier.

The key benefit behind this is that, after a 5 year minimum occupancy period the party listed as the HDB occupier can purchase another private property, free from ABSD.

It is important to note that, you can’t convert your current manner of holding to an owner occupier scheme for your existing property. The only way to go about doing this is at the onset of a new HDB purchase.

Side note, one downside to this manner of holding is that only one party’s CPF can be used to fund the property. The party listed as essential occupier is not seen as a legal owner. Hence cannot utilise his/her CPF to fund the property.

Pros and Cons for method 1

The main risk that we are looking at is change in government regulation. The government tightened its HDB share transfer aka “decoupling” regulation in 2016, there is no telling when they would make adjustments to this Owner Occupier Scheme.

In the worst case scenario, you could be caught in a situation whereby regulation changes to prohibit the occupier from purchasing a 2nd property while you are serving out your 5 year minimum occupancy period.

The upside to this method.

This is the only way you can still own a HDB and a private property at this point of time. And the 5 year wait out period can be seen as an opportunity to accumulate enough capital and contingency funds for your 2nd property purchase.

Method 2 – Upgrading to a condo with a 99-1 ownership structure

Steps

  • Sell current HDB
  • Upgrade to a private condo with a 99-1 tenancy in common ownership structure
  • Decouple down the road – normally after waiting out 3 year seller stamp duty duration
  • Purchase another private property

You would have noticed the commonality between method 1 and method 2 by now. Both methods would require you to sell your current HDB and restructure your “manner of property ownership”, by purchasing another property.

Getting ready for decoupling in the future

For method 2, you would have the opportunity to first upgrade into a private condominium, setting up the right foundation for decoupling as the next step.

Remember, decoupling is permissible for private property.
Hence transiting from a HDB to a private property gives you the opportunity to eventually buy over your spouse’s share in the property, and “free” up his or her name for the 2nd property purchase.

What is a 99-1 ownership structure

For private property, there are generally two forms of ownership structure.

Joint tenancy whereby couples own 50/50 share and tenancy in common whereby couples can allocate different share percentages to each other.

For more insights on the pros and cons between joint tenancy vs tenants in common refer to this in-depth article we have written about the topic.

For this method, the optimal structure to adopt, would be a 99-1 tenancy in common structure, with 99% share allocated to you and 1% allocated to your spouse.

As the first property would normally be meant for your home stay, it tends to be bigger and comes at a higher price tag. Hence the higher earner in the household would be taking 99% share and be responsible for purchasing the 1% share from your spouse.

Why 99-1 percent share split

Wouldn’t it be fairer to have a 50-50 share split ? Yes it is, but it is less cost efficient when we decouple down the road.

One of the major cost elements in decoupling is buyer stamp duty. In the process of freeing up your spouse’s name. You will be levied a buyer stamp duty when buying over your spouse’s share.

A 50-50 share split would meant that you have to pay buyer stamp duty on 50% of the property value. Where else a 99-1 share split would mean that you only have to pay stamp duty on 1% of the property value. This would lead to significant cost saving.

Refer to our dedicated article on the decoupling 99-1 strategy.

For the complete breakdown of the decoupling process and the different cost involved refer to this article on cost of decoupling.

For those who are attentive, you would be thinking, why not just do a straight up 100% ownership by one party instead ?

Giving your spouse a 1% stake in the first property, allows her to use her CPF to join you in supporting the downpayment and monthly mortgage of the first property purchase. This would lessen the financial burden at the onset.

Waiting out 3 year before decoupling

You could be wondering, why do I have to wait 3 years before taking the next move ?
Unlike HDB and EC (executive condominium), there is no mandatory wait out period for a private property. The only thing to note is that there is seller stamp duty to be incurred when you sell your property within 3 years of your purchase.

This seller stamp duty will be applicable when your spouse sells her share to you, during the decoupling process.


Source: IRAS 

To put things into perspective, selling within the first year will require you to pay a 12% duty on the share value to be transferred, where else there will be no seller stamp duty payable if you were to sell after 3 years.

Is 99-1 share split legal ?

In case you are concerned with the legality of this method.
Check out the following article where we discuss what’s illegal and is being audited by IRAS.

In short, the adoption of a “99-1 share-split” ownership structure is not illegal.
What’s illegal are artificial schemes, whereby one owner first front 100% of the purchase first, then later selling 1% to another party, with the intention to avoid taxes.

If you are concern about the legality of decoupling refer our article on the 99-1 ABSD loophole which we will highlight elements which are illegal and legal in decoupling.

Pros and cons of method 2

There are several benefits that come with using method 2.
Top of mind would be the fact that you are “asset progressing”, upgrading from a HDB to a private property. Giving you an opportunity to relocate to a location nearer to your child’s school or parents place, assuming the property fits your budget.

From an execution perspective, there is also less risk of a change in government policy. The probability of government restricting regulations on decoupling for private property is much lesser than that of government restricting the owner occupier scheme regulation for HDBs.

The down side to this is that purchasing 2 private condo vs 1 HDB and 1 private condo would require a lot more cash and cpf as downpayment. And the maintenance of higher monthly mortgage and condo maintenance fee would be another recurring obligation that needs to be property thought through

Method 3 – Sell HDB / BTO and purchase two private condominium

Steps

  1. Sell current HDB
  2. Purchase 2 private condo simultaneously

This is a method applicable for those of you that are financially well endowed. You could be in an ideal situation whereby both you and your spouse are high income earners and the price of your existing HDB / BTO has appreciated significantly.

You can then consider selling your current HDB, re-allocating the sale proceeds to purchase 2 private properties at the same time. Typically, the higher income earner would purchase a higher value property and the other party would purchase a property of lower price value.

This is also known as the “sell one buy two” strategy, we have written an extensive article on it.

Financial planning as a key to this strategy

Without going into too much detail here, the premise to the success of this strategy lies in prudent financial planning and risk management.

You would first need to work out a comfortable loan quantum that you and your spouse are willing and eligible to take. The loan quantum would have an impact on the monthly cpf and cash outlay you need to set aside to maintain mortgage payment.

At the same time, this monthly mortgage obligation needs to be viewed in totality with your other recurring payment obligation like car loan and credit card payment. Factoring all monthly obligations over your total monthly income, it should stay within the 55% total debt servicing ratio (TDSR) stipulated by MAS.

With the loan quantum settled, you can then consider that together with cash and CPF you have from the sale of your current property and determine the price point for each of the private property that you would be looking to purchase

Pros and cons of Method 3

Speed is the pro to this strategy.

There would not be any specific wait out period, you can execute as soon as you sell your current HDB.

And similar to method 2, you would not be facing a risk of government regulation changes as you are purchasing two property immediately using separate names, without reliance on decoupling or HDB Owner Occupier scheme.

The drawbacks would be the heavier financial burden that comes with this strategy. Hence is may not be applicable to everyone, only those with the right financial circumstances should explore this strategy.

Conclusion

This brings us to the end of our article.
Even though we have established that HDB decoupling is no longer permissible, there are still three different methods that can be considered to achieve the same ideal outcome of owning your 2nd property in Singapore.

Parting note, never give up, always be researching !

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.