Introduction
For property owners that are serious in realising their plans of decoupling their current property and achieving the ultimate goal of purchasing a 2nd investment property without ABSD.
You would most probably have to work through the following considerations before executing your plan.
- Calculating the cost of decoupling
- Finding out the decoupling lawyer and decoupling legal fee
- Determining your budget for 2nd property purchase
- Understanding the decoupling timeline
- Deciding who should be the party buying over shares when decoupling
- Deciding what property you should be consider buying after decoupling
- Understanding the risk of decoupling
Focus of this article
To get everyone on the same page, decoupling property involves one spouse transferring his or her share of ownership in the existing property to the other spouse, also known as the “buying party”.
In this article, we will specifically cover the factors you should consider to help you decide who should be the party buying over shares and who should be the one selling sales and eventually purchasing the 2nd investment property.
Quick intro – Decoupling Expertise
Quick introduction, before you decide to commit the next 5 mins reading this article.
We are decoupling expertise, a team of specialist realtors 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.
#1 Primary factors to consider
To help you in deciding who should be the party buying over shares from the other joint owners when decoupling, we will first list down the obvious primary factors to be considered.
- Earning power of husband – both current and future
- Earning power of wife – both current and future
- Market price / valuation of current property
- Market price of 2nd investment property
Earning power of husband and wife
The individual earning power is an important factor to consider. Given that decoupling entails both husband and wife to each shoulder the mortgage of a property under their name. Earning power expressed in terms of gross monthly income, determines if they each qualify for the loan to be undertaken individually.
Market price or valuation for both the current property and Investment property
The valuation of the property directly impacts the loan quantum that needs to be undertaken by both husband and wife individually.
Scenario #1 – When the value of the current property is greater than that of the 2nd investment property
Consider the following example.
Couple John and Sally decide to decouple and purchase a 2nd investment property.
- John earns $15,000 per month
- Sally earns $9,000 per month
- The current property is valued at $2.0 mil
- The estimated price of the 2nd property is $1.5 mil
To set the context, for those that are new to the concept of decoupling. The total loan to be undertaken for the existing property is an aggregate of two component, 1) the buying party’s share of the current outstanding loan + 2) the new loan to be taken to fund 75% of the selling party’s share value.
If you like to dive into greater details with regards to the flow of funds and calculations to be made when decoupling, refer to our decoupling calculator for more details.
Back to our example, assuming a greater loan quantum is required for the higher valued current / 1st property, then John, the party earning higher income should be the one buying over Sally’s share.
This frees up Sally’s name to purchase the lower valued 2nd investment property without ABSD.
Scenario #2 – When the value of the 2nd investment property cost more than the 1st property.
On the flip side, if the value of the 2nd investment property cost more than the existing property, then Sally, the party with the lower monthly income should be the one taking over shares of the current property and John, the one with the higher income should be purchasing the investment property.
More factors to consider
Now that we established the basic premise of how to determine who should be the party buying shares during the decoupling process. Let’s throw in more factors to consider.
- Outstanding loan for the current property
- Career plan for wife
- Career plan for husband
Scenario #3 – When the outstanding loan for the current property is minimal
In several of our consultations with our readers, we have come across many cases whereby our readers own highly valued / priced property. But over the years, they have managed to lower their mortgage significantly.
With that in mind, the spouse with the lower income should be the one buying over shares during the decoupling process and freeing up the name of the higher earner to purchase the 2nd investment property.
This is beneficial as a higher earning power equates to a bigger budget, which opens up more options for consideration when selecting an investment property.
In our separate article, best condo size for investment, transaction data has shown that larger 3 bedroom units tends to rein in a higher capital gain than smaller 1 bedroom or 2 bedroom investment properties.
Other factors to consider
- If one couple is a Singaporean PR
Scenario #4 – if one party is a Singapore PR and the other is a Singapore Citizen
We have discussed at length the cost implication of who should be the party buying and selling share in our decoupling property for Singapore PR article.
The added variable to consider when there is a Singapore PR spouse in the mix, is the 5% ABSD that a Singapore PR needs to pay.
This 5% ABSD is applicable either when the PR spouse buys over share from the other joint owner during the decoupling process or when the PR spouse purchases the 2nd investment property.
So an additional factor to consider for couple comprising of Singapore PR spouse is whether the spouse should be the one staying and buying over shares from the Citizen spouse, incurring 5% ABSD on the valuation of the share to be bought over, or should the PR spouse be the one selling share and eventually purchasing the 2nd investment property.
The variable to consider when making this decision is again the valuation of the shares to be bought over vs the purchase price of the 2nd investment property.
Using an extreme case as an example, consider the case whereby a PR and Citizen couple is looking to decouple a $3.0 mil property held in a 50-50 share split.
- 50% share is valued at $1.5 mil
- PR spouse will incur a 5% ABSD of $75,000
For the 2nd investment property, if the couple is looking to purchase a 2nd investment property priced at $1,200,000.
- PR spouse will incur a 5% ABSD of $60,000
Strictly from a ABSD cost perspective, it will make more sense for the PR spouse to be the party staying and buying over share from the Singapore citizen spouse.
Non monetary, trust concerns when deciding who should be buying over shares
Other than cost and monetary factors discussed above, often there are trust issues to be considered when deciding whether the husband or wife should be the one buying over shares in the current property, especially if the existing property is the marital home.
Scenario #5 – Wife owning the lower value property
Assuming the scenario where the investment property is of much lower value than the current property, and if the wife was the one owning the investment property.
She would be concerned with the worst case scenario of fair asset distribution in case of a divorce. Given she had contributed to funding and supporting both properties, but would she only be entitled to the lower value property ?
We discuss at length with regards to the consideration of “What happen if divorce after decoupling property” within the article link inline.
In short, asset distribution between spouses during divorce have little to do with name tagged to property ownership. The court will decide asset distribution in accordance to the women’s charter.
