Why HDB Decoupling Is Not Permissible Anymore?

HDB resale flats EHG grant
Buyers of old HDB resale flats may not be able to obtain the full grant.

Before the practice of HDB decoupling was restricted in April 2016, it was a practice that was taught by real estate professionals like property agents to their clients to help them avoid paying the hefty Additional Buyers’ Stamp Duty (ABSD) lawfully.

It also became an open secret to solving the funding woes of some property buyers. So what is this decoupling? In this article, we’ll discuss this former legal loophole, its benefits and why the government clamped down on it.

What Is Decoupling?

HDB decoupling happens when the husband or wife transfers full ownership over an HDB flat to the other. There are many valid reasons why a spouse undertakes this action. Primary reasons include marriage, divorce, death of an owner and financial hardship.

However, when the additional buyer’s stamp duty (ABSD) was beefed up in 2013, people took advantage of it to avoid paying the charge. This is because not only was the levy imposed on Permanent Residents (PRs) buying their first home, but Singaporeans purchasing their second residential property also had to pay an ABSD of seven percent back then. Previously, it was only levied on Singaporeans acquiring their third house.

Important: the ABSD for Singapore citizens buying their second home was further increased to 12 percent on 6 July 2018, when the government announced a new round of cooling measures.

New and Former ABSD Rates

On/after 12 Jan 2013 to 5 Jul 2018
On/after 6 Jul 2018
Singapore Citizens buying 1st residential property
 
 
Singapore Citizens buying 2nd residential property
7%
12%
Singapore Citizens buying 3rd and subsequent home
10%
15%
Permanent residents buying 1st residential property
5%
5%
Permanent residents buying 2nd and subsequent residential property
10%
15%
Foreigners buying any residential property
15%
20%
Entities buying any residential property
15%
25%

Source: Inland Revenue Authority of Singapore

As a result, some couples started leveraging on it to avoid the ABSD by transferring full ownership over an HDB flat and gifting it to their significant other. That way, one of the spouses will no longer own a home and he or she is free to purchase another residence without the need to pay the ABSD as it will be considered as his or her first property.

In addition, there is another motive for HDB decoupling. This is to tap a larger percentage of your CPF monies when purchasing a home. This is because a home buyer with no outstanding residential mortgage can borrow up to 75 percent of the unit’s selling price (the 75 percent refers to the Loan-to-Value Ratio). Of the remainder, between five to 10 percent needs to be paid in cold cash, while the rest can be paid through your CPF savings.

For instance, if you are buying a residential property valued at S$1 million, you can typically use S$150,000 from your CPF savings to fund the acquisition.

But if you own an existing home, you need to save a Minimum Sum (MS) or half of the Full Retirement Sum when using it to purchase another house. Notably, the MS is an amount that needs to be set aside to establish a Retirement Account (RA) upon hitting the age of 55. Below is the Full Retirement Sum.

Full Retirement Sum of CPF Members

55th birthday on or afterFull Retirement Sum
7/1/2003$80,000
7/1/2004$84,500
7/1/2005$90,000
7/1/2006$94,600
7/1/2007$99,600
7/1/2008$106,000
7/1/2009$117,000
7/1/2010$123,000
7/1/2011$131,​000
7/1/2012$139,000
7/1/2013$148,000
7/1/2014$155,000
7/1/2015$161,000
1/1/2017$166,000
1/1/2018$171,000
1/1/2019$176,000
1/1/2020$181,000

Source: CPF

Assuming you will be turning 55 on or after 1 January 2018, your Full Retirement Sum is S$171,000, so the minimum amount you must set aside is S$85,000 if you already own a property. For more details, please visit the CPF website.

But by decoupling, a would-be home buyer can fully utilise his CPF savings to fund the purchase of the property as his or property ownership will be transferred to his spouse.

After the ABSD rules became more stringent in 2013, property agents thought their clients how to do decoupling not only to avoid the tax, but to fully utilise their CPF monies. Some also posted information on websites on how to do it.

Revised Rules on HDB Decoupling

However, the government plugged this loophole to prevent people from using it to evade paying the ABSD. Decoupling is also not advisable as it can be tough for a single person to shoulder the entire responsibility of repaying a mortgage as his income may not be enough to meet such hefty financial obligation on top of paying for daily necessities. It may also cause potential disputes in the future, as decoupling means you are giving away you right over your HDB flat.

As such, under the rules that took effect in April 2016, transfer of ownership of an HDB flat is only allowed for divorce, marriage, medical reasons, death of an owner, financial hardship and renunciation of Singapore citizenship.

Permitted cases include terminally ill individuals who wish to bequeath their flat, as well as those who require assistance from other family members to pay off the housing loan. According to HDB, situations outside of the aforementioned circumstances will be considered on a case-by-case basis.

What If Decoupling Was Still Allowed Today?

With the new property cooling measures implemented by the authorities on 6 July 2018, if the use of decoupling was not restricted, more people might have resorted to it to evade the more stringent curbs.

Please see details on the new property cooling measures below.

Revised LTV Limits on Housing Loans Granted by Financial Institutions for Individual Buyers  

Former Rules
New Rules
Former Rules
On/after 12 Jan 2013 to 5 Jul 2018
On/after 6 Jul 2018
On/after 12 Jan 2013 to 5 Jul 2018
LTV Limit
80%; or 60% if the loan tenure is more than 30 years* or extends past age 65
75%; or 55% if the loan tenure is more than 30 years* or extends past age 65
Minimum Cash Down Payment
 No change to existing rules
5%; or 10% if the loan tenure is more than 30 years* or extends past age 65
25%

  Source: Monetary Authority of Singapore

New Rules on LTV Ratio and Minimum Cash Down Payment

Number of Outstanding  Housing LoanZero
Type of PropertyHDB FlatPrivate Property
Sum of Loan Tenure and Borrower's age at time of applicationLoan tenure greater than 25 yrs; OR extends pass borrower's age of 65Loan tenure less than or equal to 25 yrs AND doesn't not extend pass borrower's age of 65Loan tenure greater than 30 yrs; OR extends pass borrower's age of 65Loan tenure less than or equal to 30 yrs AND doesn't not extend pass borrower's age of 65
LTV Cap55%75%55%75%
Minimum Cash Down Payment10%5%10%5%
 
Number of Outstanding  Housing LoanOne
Type of PropertyHDB FlatPrivate Property
Sum of Loan Tenure and Borrower's age at time of applicationLoan tenure greater than 25 yrs; OR extends pass borrower's age of 65Loan tenure less than or equal to 25 yrs AND doesn't not extend pass borrower's age of 65Loan tenure greater than 30 yrs; OR extends pass borrower's age of 65Loan tenure less than or equal to 30 yrs AND doesn't not extend pass borrower's age of 65
LTV Cap25%45%25%45%
Minimum Cash Down Payment25%25%25%25%

 

If you found this guide helpful, don’t hesitate to check our other guides. You may also browse our resale HDB flats and private condos for sale.

 

To get more guides like this, check out PropertyGuru

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