GuidesHow To Avoid ABSD For Singapore Properties (Legally)
- by Ryan J Ong
- August 3, 2020
- 6 min read
Remember back in the 1990’s? Those were the days when Singapore property investors strutted around, explaining how every home they bought made the next home purchase even easier.
The rent from one property paid for the next property, the rent from that property paid for a third, etc. You could say those were the glory days for a property investor in Singapore.
Well those days are long over. Today, the massive tax on second or subsequent housing – called the Additional Buyers Stamp Duty (ABSD) – has put a damper on it. The good news is, it indirectly makes your first home more affordable. The bad news is, it can cost you a pretty penny when you’re ready to expand your property portfolio.
Here are the fair, legal ways you can be excused from paying the ABSD:
- Buy an Executive Condominium (for upgraders)
- Decouple (if the cost doesn’t exceed the ABSD)
- Purchase under trust (if you have a lot of cash in hand)
- Sell one, buy two
- Get a dual-key unit
- Buy a commercial property
1. Buy an Executive Condominium (for upgraders)
One annoying thing about ABSD is that, even if you’re just upgrading and have no intention to own two properties, you still need to pay the ABSD first (you can apply for remission if you sell your previous home within six months of getting the new one).
This means you still need to have the hefty 12 per cent tax (or 15 per cent for Permanent Residents) in cash or your CPF*.
But here’s the good news: that only applies to private condos. If you purchase an Executive Condominium (EC), you don’t need to pay the ABSD first. You do still need to dispose of your flat within six months of course; but at least you won’t be faced with needing more cash or CPF savings upfront.
*You can pay stamp duties like the ABSD with your CPF.
2. Decouple (if the cost doesn’t exceed the ABSD)
This is the most heavily promoted way to avoid the ABSD; but note that it has costs of its own, and it doesn’t always work.
The idea is that one spouse transfers her share to the other, and then goes out and buys a second property under her own name. She won’t pay ABSD because, having transferred her share of the property to you, she no longer counts as owning a property when she buys the next unit.
Before you do this though, bear in mind that transferring one’s share of the property is not free. If your spouse transfers her share of the property to you, you still need to pay the Buyers Stamp Duty (BSD).
For example, if the property is worth $1 million, and your spouse transfers 50 per cent of the property to you, then you’d have to pay BSD on $500,000 (in this case, $9,600).
In addition, other stamp duties – such as the Sellers Stamp Duty (SSD) – still apply (SSD is payable if you sell the property within the first three years of buying it, and it applies on the transferred portion).
You also need to factor in the cost of the decoupling process, which is often in the range of $5,000.
Always make sure that the cost of decoupling is less than paying the actual ABSD; otherwise there’s no point. If you think this might happen, drop us a message; we can help you work out the numbers.
3. Purchase under trust (if you have a lot of cash in hand)
This involves buying the property under trust for your children. You’ll need the help of a conveyancing lawyer to do this. There won’t be any ABSD payable on this; but do be aware there are other consequences.
For example, if your children were to take possession of the property, they can’t then apply for an HDB flat while owning it. And of course, they’d be subject to ABSD if they try to get another property for themselves.
Some law firms have also cautioned us that, if the government decides the purpose of the trust is purely to avoid the ABSD, they can go ahead and impose the tax even with the trust; so talk it over carefully with your
Besides this, there are no bank loans for properties held in trust. You need to pay for the property in cash.
4. Sell one, buy two
The idea here is to sell your existing property. Then with the sales proceeds, you buy one property, while your spouse buys a smaller one.
Say you sell your five-room flat for $575,000. You then use $375,000 as the down payment on a $1.5 million condo. You buy this under your own name.
Your spouse then looks for a smaller condo – say an $800,000 shoebox unit – and puts down $200,000 for it. She also buys this under her own name.
As both of you have no property at the time of purchase, neither of you will incur ABSD.
For this to work, both of you must qualify for the respective mortgages.
Here’s another comparison taken from the Straits Times.
5. Get a dual-key unit
We’ve covered this in a previous article on dual-key floor plans. But to recap: a dual-key unit often has a common foyer, after which it splits into two separate sub-units. This allows two immediate families (e.g. your family and your in-laws), or a tenant and a landlord, to co-exist with privacy.
The dual-key unit still counts as a single property, so you don’t need to pay ABSD on a second unit.
We’ve compiled a list of 93 condos with these dual-key units for you.
6. Buy a commercial property
For all you pure investors out there, you’ll be glad to hear there’s no ABSD on commercial properties. You only have to pay the GST, which is seven per cent at the time of writing.
So instead of buying another condo to rent out, you could consider a coffee shop, industrial space, etc. Be sure to do your homework though, as commercial property is a whole different ball game from residential.
Finally, the simplest method for ambitious couples: just put the first home under one spouse.
If you have the means to shoulder the mortgage alone, then consider not having a co-borrower.
Later on, with sufficient savings, your spouse can simply go on and buy another property as a first-time buyer. This will put two properties in your family, without incurring any ABSD. This is the slow and patient method, but it’s also the most hassle-free.
To find a great second property, start with our condo reviews. We provide insights and news into Singapore’s property market, as well as the most detailed condo reviews.