I'll be covering on ways in which we can reduce the hefty ABSD when buying a second property in Singapore.
For most Singaporeans, the dream is to eventually owning a second property. It could be after you're done with your mortgage loan, and are looking at investment options, or even to support your children by getting another property. Do note that in any event that your children would like to consider going for a BTO as long as you dispose (sell) your property, your children would be able to qualify for BTO as a first-timer after a 30 month cooling period.
The ABSD varies from Singaporeans to Permanent Residents (PR), and Foreigners. From 12% to 15, then 20 respectively. However today I'll share more about the 99-1 Tenancy in Common, together with 2 other methods that one could explore when you're looking at buying a second property.
99-1 Tenancy in Common
This is one of the commonly used tactics by buyers alike if they want to avoid buyer stand duty but would still like to undertake a loan under the individual who has an existing property.
Breaking down the property to the share of 1%, you'll be liable for the following.
1) 12% Additional Buyer Stamp Duty
2) 12% Seller Stamp Duty
3) 1% Buyer Stamp Duty
Taking a $1M property into consideration, you would be looking at a total fee of under $10k inclusive of legal fees, compared to the $120k ABSD.
I will be breaking it down for you for your consideration.
Property Price: $1,000,000
1% Share = $10,000
12% Additional Buyer Stamp Duty = $1,200
12% Seller Stamp Duty = $1,200
1% Buyer Stamp Duty = $100
Lawyer Fee $7000
With a great team of lawyers (fees from $6-7k), afew trips down to the law firm is required as you'll be down to first settle the "exercise" fees and stamp duty, before the "selling process" of the 1% to the co-owner.
With the structure/idea of the tenancy in common in mind, I would assume that you would like to have 2 names on the property. So other than that you can also consider Pleding and also unpledging with also have the same functions, but there would be no ABSD instead. The catch, however, would be the need to have adequate cash in hand to go into a "fixed deposit", or a "show fund".
Both pledging and unpledging works the best if the other party (your supposed 99% buyer) have a payslip to get going. With this, the party who is without any property would be able to take a loan but some funds would be required as a means to secure a higher loan amount to match or cover more of the property price (up to 75%). This fund serves as a mean to back your "credit ability".
For Pledging, you would require to pledge an amount for a fixed deposit for a time period (say 4 years). During this time this fund is locked in, but with this fixed deposit, they would increase the loan amount to your desired amount (base on the amount required).
In this scenario, similar to pleading, we would be using the funds that your family currently have to enable you to undertake the loan, but a fixed deposit won't be required. However, this method makes use of another way to back your credit ability through the means of "Show funds". By showing the bank you have a certain savings/asset on hand, they would be able to increase the amount of loan you can undertake. You are required to show your funds twice, once during the loan application, and the second time during the loan disbursement. This method is great for homeowners with high cash on hand who want to go for a loan instead.
Both pledging and unpledging would only require your name to work, and it works the best if you have an income/payslip to undertake the loan. I'd love to help you do up a more accurate calculation, let me know if you would want me to do it, I just need a few simple details from you!
With this, as a realtor, I'd say resources are very important. To have the best team of bankers and lawyers so that we could help clients to create a seamless property purchase experience. Feel free to drop me a text, reach out, or even share this with anyone who might benefit from this!