With the Additional Buyer's Stamp Duty(ABSD) hitting investors who are purchasing their second property and above, as well as tightening back in 2013 that limited the max LTV quantum for loans granted for borrowers with more than one loan, more and more investors are beginning to consider decoupling as a way to reduce their cost when looking to make a new property purchase.
What is decoupling?
Decoupling, simply put, is the "divorcing" or splitting up with regards to a jointly owned property, involving one party buying out another's share, thereby freeing up the other party to buy another property without incurring ABSD and take a 80% loan.
Example - With and without decoupling
Mr and Mrs A owns a 1million property and are planning to purchase another 1m property for investment.
Couple pays 7% ABSD of the purchase price(70k) + standard buyer's stamp duty
Are able to take 50% LTV loan,so must fork out 500k in cash+cpf
Mr A buys over Mrs A's share, pays buyer's stamp duty on 50% share of 1m property
= (3%x500k)-5400 = 9600
Mrs A does not incur ABSD as now she has no more ownership of the first property
So they save almost 60k(9.6k vs 70k paid)
Mrs A is also able to loan up to 80% of the valuation/purchase price of the new property provided her income is able to support it
Other issues with regards to the part purchase process:
Loan for part purchase buyer/borrower
For the buyer, he can refinance his existing loan to another bank which will finance his current share of the loan, and finance the purchase of the seller's share.
Using the same example, Mr and Mrs A owns a 1m property and Mr A is buying out Mrs A's 50% share.
Let's say outstanding loan is 500k.
Loan amount eligible = (Refinancing of 50% of 500k outstanding loan) + 80%x500k share purchased
=250k + 400k = 650k
Do note that:
Under the Bankruptcy Act, if:-
-An individual enters into a transaction at an undervalue, or if he makes a gift (section 98)
- for a 5 year period (section 100)
-The transaction is declared null and void (for undervalue transactions), or the gift vests in the official assignee
which means you have to base the part purchase on the valuation provided from an established valuator (usually done by the banks if you seek financing from them)
1)Decide on bank for financing or seek help from a mortgage broker
2)Go to bank of choice and get indicative valuation
3)Buyer and seller to go to respective lawyers and enter into a sales agreement
4)Provide sales agreement and all other required documents for the loan to the bank of choice
5)Sign letter of offer once ready, then provide lawyer a copy - lawyer will then stamp and exercise the sales agreement