Many have heard of the term “decoupling” when it comes to property ownership, but not all have a very clear idea of how it works and what’s involved.  In this article, we discuss what’s involved in the sale and purchase of part-share in a property from one spouse to another, or for that matter, from any one owner to another.

With ABSD (additional buyer’s stamp duty) raised to 20% on a 2^nd residential property purchase for Singaporeans with effect from 27 April 2023, there’s continued interest for couples to decouple in order to acquire another Singapore residential property for investment and asset transfer.

Before we talk about decoupling, understand this is not the same as taking out one owner from the mortgage loan which is easily done during refinancing by way of a loan restructuring.  By removing one spouse from the mortgage, it frees him or her up to take on another home loan as the first mortgage where the LTV (loan-to-value) limit can be maximised at 75%, as opposed to 45% for 2^nd mortgage and 35% for third mortgage and beyond.

Such a loan structure with “two mortgagors (or owners) but only one borrower” is also commonly referred to as 2M1B in the mortgage industry.  However, note that not all banks allow such structures, albeit most do.  In the past, banks will only allow that for private properties but not HDB properties. The good news is there are some exceptions now.

Still 2M1B does not exempt you from paying ABSD which is based on property ownership and not how many residential mortgages you have in Singapore. Thus, decoupling of property ownership is still necessary.

Decoupling means, for example, the wife buys out the 50% (usually) stake of the husband’s ownership in the property after which she would then own the property 100%.  And that is exactly how decoupling of property is done – just like a sale and purchase.  For this reason, decoupling is sometimes referred to as “part-purchase” (from perspective of the buyer) in the industry.

The best way to illustrate what happens in decoupling is by way of an example.

Case Study

Mr & Mrs Tan, both Singaporeans, are owners under joint-tenancy (equal shares like a joint bank account) to an existing private condo which they have been staying for years.  As Mr Tan’s income has risen over the years, he is now able to take on a bigger mortgage to buy a landed property for the family to move into, while they plan to rent out the existing condo for rental income.

As this is a fictitious case study, we’ll keep all the numbers simple.  We first look at the financials involved in decoupling and how much cash outlay is needed. After that, we’ll look why it makes financial sense to decouple an existing property before making the purchase for a 2^nd property.

Condo Valuation = $1.5m

Selling Price = 50% = $750,000 (half-share)

Existing Housing Loan = $700,000

Mr Tan’s CPF used todate (plus accrued interest) = $150,000

Mrs Tan’s CPF used todate (plus accrued interest) = $10,000

Mrs Tan’s current CPF Ordinary Account Balance = $250,000

We’ll look more closely at the buyer side financials as that is crucial to determine if the couple can proceed with the decoupling exercise. How much cash outlay is needed is dependent on how much loan Mrs Tan could secure based on her income, as well as how much balance she has in her CPF.

As this is still her 1st mortgage, she can get up to a maximum LTV (loan-to-value) of 75%, and she needs to put down 5% of $750,000 (purchase price) as cash, i.e. $37,500 as deposit and another 20% ($150,000) which can come from cash or CPF.

In this example, we will assume based on income (which must support both purchase and refinance portions of the new loan combined) she can only secure purchase loan of $525,000 (about 70% LTV, not up to the maximum), but her CPF balance of $250,000 will be sufficient to cover fully the remaining 25% ($187,500) plus the stamp duties and legal fees involved.

Purchase Financials (For Buyer)

Initial Deposit 5% (in cash) = $37,500 (5% of $750,000)

New Purchase Housing Loan 70% = $525,000

Balance payment 25% = $187,500 (in cash/CPF)

Buyer’s stamp duty (BSD) = $17,100 (3% of $750,000 less $5,400)

Legal fee for decoupling & refinancing = $5,500

Total CPF usage = $210,100 ($187,500+$17,100+$5,500)

Total Mortgage (For Buyer)

Refinanced Housing Loan 1 = $350,000

New Purchase Housing Loan 2 = $525,000 (Not more than max LTV of 75%)

Total Housing Loan applied for decoupling = $875,000 (this is maximum loan Mrs Tan can secure based on income)

There is no ABSD for Mrs Tan as this is still her first residential property. Note the legal fee for sale and purchase of part-share is usually in the range of $5,500 to $6,000 as it involves two law firms acting separating for the buyer and seller.

As Mrs Tan has sufficient CPF balance to be used for the part-purchase, she only needs to come up cash upfront of $37,500 for the purchase.

On Completion

This is what happens on completion of the part-sale & purchase.

New bank will disburse a total of $875,000 as follows:

• $700,000 to redeem existing bank’s loan in full
• $150,000 to pay back Mr Tan’s CPF
• $25,000 as sales proceeds to Mr Tan

After settling the loan, Mr Tan will receive his sales proceeds of $250,000 as follows:

• $37,500 in Cashier’s Order from buyer as initial deposit
• $187,500 from CPF (released from Mrs Tan account)
• $25,000 from bank loan above

With decoupling process explained, we will now see if it makes financial sense to do so from the couple’s collective standpoint, which means we will only look at “net incremental cost” basis to the couple, ignoring items like cash outlay or sales proceeds from the decoupling exercise.

Landed Property Purchase Price = $2.5m

Option 1: Buying Without Decoupling

As Mr Tan is existing owner of a condo with his wife, he is liable for ABSD of 20% on the purchase of 2^nd residential property purchase by a citizen. He can, however, first do a restructuring on his condo loan to 2M1B in order to free himself up for maximum financing (Otherwise, as his 2nd mortgage he’s unable to get LTV 75%).

Buyer’s stamp duty (BSD) = $94,600 (graduated duties up to 5% for >$1.5m)

Additional buyer’s stamp duty (ABSD) = $500,000 (20% on purchase price or valuation whichever is higher)

Legal fee for purchase = $3,000

Total costs for purchase = $597,600

However, since we are looking at net incremental costs from the couple’s standpoint, the BSD and legal fee for purchase will not be factored in this calculus. Hence the net costs for buying without decoupling will be just the ABSD of $500,000

Option 2: Decouple First Before Purchase

As we have seen in the earlier financials for Mrs Tan on the part-purchase,

Buyer’s stamp duty (BSD) = $17,100

Legal fee due to decoupling = $5,500

Total incremental costs = $22,600

On net incremental costs basis, Mr and Mrs Tan would save on ABSD but they incur incremental costs of $20,600 which they would not have to pay if they skip the decoupling exercise first.

Conclusion

No matter which way you look at it, the savings involved is astronomical here simply because of the punitive level of ABSD and the purchase price of the 2nd property involved. It won’t change the calculus much even if you had decoupled from a bigger first property to purchase a smaller second property.

It’s noteworthy to point out there could be other costs involved for decoupling for example ABSD on the incumbent spouse buying out the share of outgoing spouse if he or she is a Singapore PR (5% for 1^st property), or SSD (seller’s stamp duty) on the part of the outgoing spouse depending on how long they have been holding on to the subject property.

With such steep cost differentials involved, it is no wonder we continue to see strong interest from clients requesting for decoupling whilst they seek refinancing of their home loan. It’s the best time to do so when one is out of the lock-in so you can do the part-sale and part-purchase without penalties. Plus, there’s another good reason – some banks might provide legal subsidy on the “refinanced” portion of the loan which helps to defray some transaction costs. Incidentally, there’s one bank providing legal subsidy even for the “purchase” portion of the loan.

Speak to us if you are thinking of decoupling with your lock-in expiring round the corner.  Our partner law firm who is adept on the decoupling process can give you more expert advice before you make the final decision.

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