How to Legally Avoid Paying ABSD and Own Multiple Properties in Singapore

Dreaming of expanding your property portfolio in Singapore, but dreading the hefty Additional Buyer's Stamp Duty (ABSD)? You're not alone. Many aspiring homeowners and investors are seeking ways to navigate this tax, while still owning a second property and more. 

In this guide, we'll explore the ins and outs of ABSD, and unveil effective strategies on how to avoid paying it, while staying on the right side of the law. But first, let's understand the basics. When you purchase a property in Singapore, you'll encounter two primary stamp duties:

• Buyer's Stamp Duty (BSD): This is a tax applied to all property purchases, regardless of whether it's your first or subsequent property.
• Additional Buyer's Stamp Duty (ABSD): Introduced in December 2011 as a cooling measure, ABSD is an additional tax imposed on the purchase of second and subsequent residential properties. Its purpose is to moderate property demand, ensuring affordability and a sustainable property market.

What is the ABSD Rate in Singapore?

Here is a table providing the breakdown of ABSD rates in Singapore:

Can I Use CPF For My ABSD?

Yes, you can use your CPF Ordinary Account (OA) savings to pay for the ABSD when purchasing a residential property in Singapore. However, there are a few things to keep in mind:

• Completed or Resale Properties: If you're buying a completed or resale property, you'll need to pay the ABSD and BSD in cash first, and then apply for reimbursement from your CPF OA. This reimbursement usually takes a few weeks to process.
• New Launch Properties: If you're buying a new launch property (under construction), you can typically pay the ABSD and BSD directly using your CPF OA.
• CPF OA Only: Only funds from your CPF OA can be used.
• Basic Retirement Sum (BRS): If you're using CPF to pay ABSD for a second or subsequent property, you'll need to set aside the Basic Retirement Sum (BRS) amount in your CPF OA. You can only use the excess funds above the BRS to pay for the ABSD.

It’s also important to note the following:

• ABSD Payment Deadline: ABSD must be paid within 14 days of signing the Sale & Purchase Agreement (or 30 days if signed overseas).
• CPF Rules and Regulations: CPF usage for ABSD is subject to the rules and regulations of the CPF Board. It's always advisable to check with CPF directly, or to consult a mortgage specialist in Singapore for the latest guidelines.

How to Avoid Paying ABSD in Singapore

Did you know there are ways to legally avoid paying ABSD in Singapore? Here how you can own multiple properties without incurring this hefty tax:

Buy The First Home Under One Spouse’s Name

One way for couples to avoid paying ABSD on their second property is to purchase their first home under one spouse's name only. This means the other spouse will be considered a first-time buyer when they purchase their next property, even if they lived in the first property.

How To Do This:

• Ensure that only one spouse is listed as the owner on the title deed. The other spouse can be listed as an essential occupier, but not as a co-owner. Note that this only applies for HDB applicants, and that this is not required for applicants of private properties. 

Benefits:

• Avoid ABSD: Your partner can purchase their next property as a first-time buyer and avoid paying ABSD.
• Higher LTV: Your partner can qualify for a higher Loan-to-Value (LTV) limit of 75% instead of the 55% typically applied to second-time buyers.

Considerations:

• CPF Usage: Only the CPF Ordinary Account funds of the sole owner can be used for the purchase.
• Income Requirements: The sole owner must meet the income requirements to qualify for the home loan.
• MSR and TDSR Limits:
• For new Executive Condominiums (ECs) and HDB flats, the loan repayments cannot exceed 30% of the sole borrower's gross monthly income (Mortgage Servicing Ratio or MSR).
• For private properties and resale ECs, the loan repayments cannot exceed 55% of the sole borrower's gross monthly income (Total Debt Servicing Ratio or TDSR).
• Legal Obligation: Only the listed owner is legally obliged to pay the mortgage.
• Potential Disputes: In the event of a dispute or divorce, the non-owner spouse may not have legal ownership rights to the property, even if they contributed financially.
• HDB Restrictions: For HDB flats, the essential occupier must also fulfill the 5-year Minimum Occupation Period (MOP) before being able to buy a private property. Additionally, the essential occupier will not be allowed to purchase another HDB flat as their next purchase.

Purchase A Property Under A Trust For Your Children Below 21

Setting up a property trust for your child can be a strategic way to plan for their future and potentially avoid ABSD. This method involves purchasing a property and placing it in a trust where your child is the beneficiary. However, it's crucial to understand the latest regulations and requirements before proceeding.

ABSD and Trusts:

As of 27 April 2023, a 65% ABSD is payable upfront when you transfer a residential property to a living trust. This applies even if the beneficiary is an individual. However, you can apply for a refund of the ABSD after the trust document is executed.

Eligibility for Refund:

To qualify for an ABSD refund, the following conditions must be met:

• Identifiable Beneficiary: The beneficiary of the trust must be an identifiable individual. This means you cannot transfer the property to an unborn child.
• Immediate Ownership: The beneficiary must own the property at the time of application. There should be no conditions or requirements for the child to "inherit" the property in the future.

Considerations:

• Cash Purchase: You must purchase the property in cash, as banks generally do not offer loans for properties held in trust, especially if the beneficiary is a minor.
• Legal Expertise: Engage an experienced conveyancing law firm to draft the trust documents meticulously. The trust deed must meet the specific requirements for ABSD refund, or you could face significant financial losses. Here’s how you can identify a good one. 

Purchase A Property Under Your Child’s Name (When Your Child Is Above 21)

This strategy involves purchasing a private property under your child's name, who must be above 21 years old to legally own property in Singapore. This can be a way to avoid ABSD if your child is a first-time homebuyer.

Considerations:

• Future ABSD Implications: If your child decides to purchase a second property in the future, they will be liable for ABSD as a second-time buyer. If you intend to transfer the property back to yourself later on, you will also incur ABSD.
• Mortgage Qualification: Your child must be able to qualify for the mortgage loan independently, as your income and financial status cannot be considered in the application. This means they need sufficient income and a good credit score.
• Affordability: Ensure your child can comfortably afford the mortgage repayments, property taxes, and other associated costs of owning a property.
• Legal Ownership: Remember that the property legally belongs to your child. They have full ownership rights and can make decisions about how to manage the property, including selling it or using it as collateral for a loan.

ABSD Exemption for Nationals and PRs under Free Trade Agreements (FTAs)

While foreigners typically have to pay ABSD even for their first property purchase in Singapore, there's an exception for nationals or permanent residents of certain countries that have Free Trade Agreements (FTAs) with Singapore.

FTA Benefits:

If you're a national or permanent resident of one of the following countries, you'll enjoy the same ABSD rates as Singapore citizens:

• Iceland
• Liechtenstein
• Norway
• Switzerland
• USA

This means you won't have to pay ABSD on your first property purchase, but ABSD will apply to your second and subsequent property purchases, just like for Singapore citizens.

• ABSD Remission Process: To claim this exemption, you'll need to work with a conveyancing lawyer who can facilitate the ABSD remission process through the e-Stamping portal on the IRAS website.

Decoupling

Decoupling property is a strategy where joint owners of the property transfer ownership to one party, allowing the other to purchase a new property as a first-time buyer and avoid ABSD. However, it's crucial to understand how this process works, and to note the prerequisites and considerations before pursuing this option.

Prerequisites:

• HDB Flats: Decoupling for HDB flats is restricted and only allowed under specific circumstances:
  • Marriage
  • Divorce
  • Death of an owner
  • Financial complications
  • Renunciation of citizenship
  • Medical reasons
• Private Properties: Decoupling is generally allowed for private properties.

Considerations:

• Stamp Duties: Buyer's Stamp Duty (BSD) is payable on the transferred share. If the property is decoupled within the first 3 years of purchase, Seller's Stamp Duty (SSD) will also apply.
• Additional Costs: Factor in conveyancing fees, and the cost of returning the existing party's CPF OA funds with accrued interest.
• Financial Capacity: Ensure you have sufficient cash or CPF to refund the existing party's CPF and enough income to take over the full loan independently.

Consider Investing in Commercial or Industrial Property

If you're looking to diversify your investment portfolio while still wondering how to avoid ABSD, consider venturing into commercial or industrial properties.

Benefits:

• No ABSD: Commercial and industrial properties are exempt from ABSD, making them an attractive option for investors looking to own multiple properties without incurring this additional tax.
• Higher Rental Yields: These properties often generate higher rental yields compared to residential properties. On average, commercial properties can yield an average of 5%, while residential properties typically yield 2% to 3%.

Considerations:

• Higher Costs: Commercial and industrial properties generally come with a higher price tag than residential properties.
• CPF Restrictions: You cannot use your CPF Ordinary Account (OA) savings for the down payment or mortgage repayments for these properties.
• GST: These properties are subject to Goods and Services Tax (GST), which is currently 9% in Singapore.
• Shorter Leasehold: Commercial properties usually have shorter leasehold tenures (e.g., 60 years) compared to residential properties (e.g., 99 years or freehold).
• Market Volatility: The prices of commercial and industrial properties can be more volatile and are influenced by economic conditions and industry trends.

Sell Your Property Prior to Buying Second Property

If you're planning to buy a second property and want to avoid ABSD, consider selling your existing property before committing to the new purchase.

How it Works:

• Timing is Key: Ensure you have a legally binding agreement to sell your current property before you sign the Option to Purchase (OTP) for the second property. This way, you won't own more than one property at the time of the second purchase, thus avoiding ABSD.

Considerations:

• Temporary Accommodation: You'll need to find temporary accommodation between selling your first property and moving into your second property. This could involve renting a place, staying with family or friends or using short-term accommodation options.
• Financial Planning: Make sure you have a solid financial plan to cover the costs of temporary accommodation, moving and any potential overlap in mortgage payments.
• Market Conditions: Be aware that market conditions can change, and there's a risk that your second property purchase might fall through even after selling your first property.

Consider Upgrading To An Executive Condo

Executive Condominiums (ECs) are a unique hybrid housing option in Singapore, offering a blend of public and private housing features. They are typically more affordable than private condominiums but come with certain eligibility conditions and restrictions.

ABSD Exemption for ECs:

One significant advantage of upgrading to an EC is that you don't have to pay ABSD upfront. This can be a substantial cost saving, especially if you're currently liable for ABSD on your second property purchase.

Resale Levy:

However, there's a catch. Since ECs are considered public housing for the first 10 years, you'll need to sell your existing HDB flat within six months after the Temporary Occupation Permit (TOP) is issued for the EC. This ensures you don't own two HDB properties simultaneously.

Considerations:

• Funding an EC Purchase: You'll need to secure financing for the EC purchase, which usually involves a bank loan. Consider your financial eligibility and affordability for a new mortgage.
• EC Criteria: ECs have specific eligibility criteria, including income ceilings and restrictions on previous property ownership. Ensure you meet these criteria before committing to an EC purchase.
• Resale Levy: If you're selling your HDB flat to buy an EC, you might be liable for a resale levy, which is a fee imposed by HDB to moderate demand for resale flats.

Do I Need To Pay ABSD If I Have An Overseas Property?

Good news! ABSD applies exclusively to residential properties located within Singapore. This means that any overseas property you own does not count towards your property count for ABSD purposes.

So, if you're a Singaporean citizen and already own a property overseas, you won't be liable for ABSD when buying your first residential property in Singapore. However, if you purchase a second property in Singapore, you'll be subject to the ABSD rates for second properties, regardless of your overseas property ownership.

Does Avoiding ABSD Always Save Money?

While the strategies outlined in this guide can help you to avoid paying ABSD, it's crucial to remember that avoiding ABSD doesn't always guarantee the most cost-effective approach.

Here's Why:

• Alternative Costs: Some methods, like decoupling, involve costs such as conveyancing fees, Buyer's Stamp Duty (BSD) and potentially Seller's Stamp Duty (SSD). These costs can sometimes outweigh the ABSD you would have paid.
• Opportunity Cost: Focusing solely on avoiding ABSD might lead you to miss out on potentially lucrative investment opportunities. For instance, if a property has high appreciation potential or strong rental yield, the gains might outweigh the ABSD cost.
• Long-Term Financial Goals: Consider your long-term financial goals and investment strategy, and how they tie into ABSD. Sometimes, paying ABSD might be a worthwhile investment if it aligns with your overall objectives.

The Bottom Line:

Don't let the desire to avoid ABSD dictate your property investment decisions entirely. Carefully evaluate each opportunity, considering the potential costs, benefits and your long-term objectives. Sometimes, you may question whether a second property is even worth it, and other times you may just decide paying ABSD might be the most strategic move in the long run. 

If you’re keen to learn more, reach out to our team at Mortgage Master today!

References

1. Stuart Chng | Property Investment Blog | NAVIS Huttons
2. SG Luxury Condo
3. The Open House SG
4. Darren Ong Singapore Realtor
5. Property Guru
6. Decoupling Expertise
7. Ministry of Finance
8. Inland Revenue Authority of Singapore (IRAS)
9. SG Housez