This article was inspired by questions from several readers texting us via our decoupling WhatsApp Q&A service.
The question goes like this …
“Hi JW, We have gotten our new condo and is planning ahead to decouple our names in our property couple of years down the road.
What would you recommend as the optimal share split for us ? Do you think we should adopt a 50-50 or 99-1 or even 70-30 share split.
Many agents have recommended that we adopt a 99-1 share split, but we are not sure if that is the best for us ?”
Which share split is better for decoupling ?
At the onset of your property purchase you will be given the opportunity to determine your share split allocation. Without any specific instruction a 50-50 joint tenancy will be recommended by your conveyancing lawyer.
But for those that are more savvy and you would be wondering if you should consider a 99-1 share split instead or should you consider some other permutations like 70-30 as compared to the defacto 50-50 share split.
Quick intro – Decoupling Expertise
Quick introduction, before you decide to commit the next 5mins reading this article.
We are decoupling expertise, a team of specialist realtor that specialise in helping Singapore property owners derive the best strategy to purchase their second investment property without ABSD.
While decoupling property is often the go-to strategy that property owners adopt. We pride ourselves for helping our client explore and evaluate other alternatives that best suit individual circumstances and objectives.
Drop us a text to explore the best strategy to minimise ABSD on your next property purchase.
How does property ownership share split affects the outcome of decoupling ?
For benefit of those that are new to the concept of decoupling property.
In a nutshell decoupling entails a internal sale and purchase of shares between you and your spouse.
The pre-allocated share percentage for the spouse that is selling share brings about the following impact.
In general, most articles out there speaks about share allocation and its impact on buyer stamp duty.
But with deeper analysis, share allocation brings about the following 4 key impact when decoupling.
*Disclaimer: This content is for informational purposes only and does not constitute legal or financial advice. Please consult a qualified professional before making any decisions regarding property ownership or decoupling.
#1 – Buyer stamp duty
The obvious variable in consideration. The lesser share allocation you assign to the spouse selling share, the smaller his or her share value to be sold to you.
As a outcome the spouse buying over share will incur minimal buyer stamp duty when share allocation is small.
That is why decoupling 99-1 is so popular. It is the share permutation that results in the least buyer stamp duty being incurred.
We will illustrate more in our calculations in latter sections.
#2 – Seller stamp duty
Another hidden benefit of adopting a lower share allocation the selling party is the amount of stamp duty to be levied.
Similar to buyer stamp duty, seller stamp duty is levied as a percentage on the market valuation of the share of ownership in the property.
Hence the smaller the share of ownership, the lower the seller stamp duty incurred.
The obvious benefits of adopting a 99-1 share split is that the seller stamp duty on the small 1% share can be insignificant. This meant that you need not wait out for 4 years seller stamp duty wait out period before decoupling.
#3 – Capital Unlocked and Sales Proceed usable for 2nd property
Capital unlock is concept overlooked by many when decoupling. Decoupling a property not only free up your name for the purchase of a 2nd property without ABSD. It also helps unlock the capital appreciation that you have accumulated in your property over the years.
Here’s how it works. Imagine you and your spouse purchase a property at a cost of 1 mil dollars. Assuming you were to adopt a 50-50 share split. 50% of the share valued at cost is $500k.
5 years down the road, assuming the property appreciate to a market value of 2.5 mil. Now the 50% share will be worth 1.25 mil instead of $500k.
In the normal course of things, without selling the property, you will never be able to realise any of the capital gain.
But with decoupling, when you sell 50% share to your spouse. He or she is able to fund 75% of the share value with a bank loan. This facilitated the unlocking of the 50% share at market value via a bank loan.
And these monies will be usable for the purchase of the 2nd property.
In some ways this is synonymous to a reverse equity loan.
#4 – Mortgage Expansion and Mortgage Expense
A – New loan to fund purchase
Inline with the topic on capital unlock by using a bank loan to fund 75% of your spouse’s share value.
The new added loan amount will be added to the staying party’s share of the current outstanding mortgage.
B- Share of current outstanding loan
Assuming the current property has an outstanding loan of $800k. The loan amount will be split into 2 portions in accordance to the percentage shareholding of each spouse.
In the context of a 50-50 share split. The spouse buying share will retain 50% of the outstanding loan amount equating to $400k.
The remaining 400k which belongs to the spouse selling share will be paid off using the sales proceeds the spouse receives from selling shares.
The new enlarged loan that the spouse retaining the property will then equate to A + B.
This is important as the party buying over share in the property must be eligible to undertake the larger loan amount and also be mindful of the higher monthly mortgage repayment that comes with it.
Comparing the outcome of decoupling a 50-50 share split vs a 99-1 share split
With the key variables identified, let’s simulate this with an actual example of decoupling a 50-50 percent share split vs a 99-1 share split.
Here are the key assumptions made
- Property market value – $2 mil
- Outstanding loan – $800k
Referencing the calculation table below.
You can observe that decoupling 50-50 brings about the following.
A much heftier capital and loan requirement is required to execute the decoupling process. The spouse buying over share must be able to shoulder an enlarged loan amount of $1.15 mil and must have a cash and cpf amount of $250k.
Buyer stamp duty expense is also higher at $24.6k.
But the key benefit of decoupling is the fact that the spouse selling shares will receive $600k cash and cpf proceeds after paying off his share of the outstanding loan.
This is a demonstration of the benefit of unlocking capital gain in the current property and repurposing it to finance the purchase of the 2nd property.
In the case of decoupling the 99-1 share split.
You would notice that there is minimal capital and loan requirement required to execute the decoupling process.
You would only need $20k cash and the staying party would simply need to be able to support the same loan amount of $800k, without any loan expansion.
Most importantly buyer stamp duty is at its lowest at $200.
But the downside to that is that the selling party will only receive $20k as proceeds for use in the purchase of 2nd property.
Note this is before the refund of CPF utilised. Factoring the refund of cpf, the selling party may end up with negative cash proceeds for use in the second property.
Capital extraction vs Loan and Cost minimization
Summarising the observation, it all boils down to maximising the sales proceeds you got for the 2nd property vs minimising the cost and capital required to execute the decoupling process.
Generally, if you foresee your current property appreciating substantially in value down the road and if you would consider leveraging up to unlock proceeds for 2nd property. Then a 50-50 share split would make more sense.
But if your goal is to minimise buyer stamp duty and simply execute decoupling with the least impact on your outstanding loan. Then adopting a 99-1 or 80-20 share split would work better for you.
Exploring the mid point of 70-30 share split
Given that we have already gone this deep into articulating the pros and cons of different share splits. Let’s explore the outcome of a 70-30 share split
Referencing the table below you would observe that the outcomes fall within the midpoint of 50-50 vs 99-1.
You would be looking at a lower mortgage expansion from $800k to $1.01 mil.
But a significant sales proceed reduction to $360k as compared to the $600k received for the 50-50 share split.
Pros and Cons of the different share split
To sum it up, here’s a summary of the pros and cons for the different share split.
| Share Split Percentage | 50-50 | 70-30 | 99-1 |
| Buyer Stamp Duty Incurred | 24,600 | 12,600 | 200 |
| Mortgage Expansion and Mortgage Expense | 1,150,000 | 1,010,000 | 800,000 |
| Funds unlocked for 2nd Property Purchase | 600,000 | 360,000 | 20,000 |
Who should be adopting what share split ?
So if you and you are both high earners and can each be eligible for a higher loan, and you foresee your property appreciating in value down the road.
A 50-50 share split could allow you to extract more sales proceeds to be used in your second property, but at the expense of higher buyer stamp duty.
On the flip side, if there is a plan for 1 party to take up less leverage when retaining the current property, while minimising cost and capital required to execute decoupling. Then a 99-1 share split will be more relevant.
