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99-to-1 Tenancy-in-Common

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Bullionstar

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During the Singapore’s Budget this year, many Singaporean investors were disappointed that the government retained the current Additional Buyer Stamp Duty (ABSD). However, instead of wishing for the stamp duties to be reduced or removed, do you know you can actually beat the system without paying an arm or leg? In this article, I will share with readers on how to avoid paying the ABSD with Tenancy-in-Common.

Note that the strategy I am sharing here is not “decoupling” (Resale part-share) for HDB, a popular move which involves the transfer of HDB ownership between married couples. In any case, Singapore government has clamped down on decoupling and tightened the rules in April 2016 to ban the transfer of HDB flat ownership between married couples. However, private residential owners are not subject to this rule.

Tenancy-in-Common

Background of ABSD

ABSD was introduced by Singapore government among a slew of property cooling measures to stabilize market prices. It was revised upwards in 2013 in light of escalating housing prices. Under this rule, home owners are required to pay ABSD if they are buying second property or if they are not Singapore citizens.

Many property investors may have come across articles on property cooling measures in Singapore. But many of these articles may not be helpful in enabling you to make asset planning. Through this article, readers would learn how to avoid paying hefty sum of money to the government through smart planning. By this, I don’t mean doing something illegal or sleazy. No, nothing of that sort.

What I am going to share is something that is gaining popularity among property investors in Singapore. Personally, I always believe in sharing wealth building ideas with my readers. In return, I hope you can support by subscribing to my blog for free. So here goes.

The biggest mistake made by property investors is the thinking that money can be made upon the sale of the asset. This is a flawed mindset and I want you to banish it as quick as possible. To be a growth investor, you must tell yourself that money must be made upon the purchase of an asset. By telling yourself that money is made upon the purchase of an asset, you are more motivated to identify buying opportunities. This principle applies not only in property investments, but also in stocks, bonds and other assets that can grow your wealth.

Build wealth with Executive Condominium (EC)

Now, we all know that new BTO is a form of subsidized public housing that allows aspiring home owners to make explosive profits. BTO owners may sell their HDB flats after meeting Minimum Occupation Period (MOP) of five years.  Through BTO, many home owners have made their first pot of gold.

But getting that pot of gold is very tricky because allocation of BTO is by balloting. This means that luck play a major factor when it comes to buying BTO. As wealth builder, you would want certainty in your investments. You want to avoid building wealth through sheer luck. Furthermore, with the ban on decoupling of HDB flats for married couples, those BTO owners who want to avoid paying ABSD for second property would be affected.

The Terrace

With Executive Condominium (EC), you have significant opportunities to grow asset and build wealth without depending on luck. This is because EC is priced at a level significantly lower than private condominium. The allocations of EC units are not through balloting but on first-come-first serve basis. In addition to that, EC buyers can get to enjoy full condominium facilities – gym, security guard, swimming pool, etc. Hence, EC is widely considered to be a form of subsidized private condominium.

The major drawback of EC is that unlike private condominiums, buyers of EC are subject to various complicated HDB regulations. This means that you cannot own both an HDB flat and EC at the same time. You and your family members listed in the flat application must dispose of the existing flat within 6 months from when the EC’s Temporary Occupation Permit (TOP) was issued.  In addition, you may be reliable for applicable resale levy.

Joint Tenancy and Tenancy-in-Common

Assuming you have overcome the hurdles and about to sign the Sales and Purchase agreement for a new EC, you need to decide the manner of holding for the property. This is an important aspect which many couples have overlooked and resulted in many tragic court cases due to disputes. Previously I have written an article on the differences between HDB joint tenancy and tenancy-in-common. Many readers wrote in and share their sad stories. I don’t want these to happen to you.

Complications often arise when couples divorce or when one of the parties passed on. So, you need to decide with your partner on whether to go for Joint Tenancy or Tenant-in-Common during the initial stage of the purchase process. Fundamentally, you can change the manner of holding anytime you want but this would incur expensive legal fees.

If you and your spouse decide to invest in a second property in the future, then it may be prudent to choose tenancy-in-common for the first property. The trick is to structure the ownership whereby one party owns 99% while the other owns 1%. In doing so, future payment of ABSD and SSD would be payable on that 1% share.

There are of course risks in this type of ownership structure. Firstly, the party who owns the 1% share is still exposed to the bank loan. So even though there is an unequal share in the property, the 1% party is still liable for the debt. Secondly, complication may also arise in the event of divorce. Probably due to this reason, most couples choose to go for Joint Tenancy which is based on the right of survivorship.

My property strategy

The approach of 99-to-1 Tenancy-in-Common only works for EC and private properties due to the new ruling implemented by government on transfer of ownership of HDB flats. My family has recently purchased an EC which is exempted from resale levy fee. Furthermore, EC is priced at a level lower than private condominium, so there is a substantial safety buffer during the point of purchase.

After meeting the 5 years Minimum Occupation Period (MOP), there is opportunity to invest in second property but in the interim, my family would need to build up savings to fund the next property. My mistake is not knowing the 99 to 1 ownership trick, hence there is a need for us to engage legal assistance to amend our manner of holding in order to avoid paying hefty stamp duties. For aspiring EC buyers, this is a golden chance to avoid paying hefty ABSD and make explosive profits from property investments.

Read my articles on HDB and property investments:

  1. Frightening HDB rules
  2. Managing your CPF proceeds from the sale of your HDB to build wealth
  3. HDB: The thin fine line between Joint Tenancy and Tenancy-in-Common

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6 Comments

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  1. Yes, this 99-1 TIC looks good if the couple knows that nothing would occur from the time they sign the S &P to declare the mode of ownership to the time they purchase another property five years or more later to exploit this 99-1 to avoid ABSD. There is no different between a 99-1TIC and sole proprietorship. Sole proprietorship allows the other spouse to purchase another property without any encumbrances. Of course it has drawbacks e.g Non-owner spouse cannot use his/her CPF or take bank loans without getting the spouse to guarantee the loan.

    Which banks/CPF are so foolish to disburse funds or loans to someone owning only 1% ownership?

  2. EHHH …. I don’t understand….

    According to IRAS, whether joint ownership or partial ownership (i.e. tenancy-in-common), the existing property will still be counted as you having 1 residential property.

    ABSD is applied on 2nd and subsequent residential properties. Currently it’s 7% of valuation of 2nd property, and 10% of valuation of 3rd & subsequent properties.

    So even if you currently own 1% of your EC and 5 years later (if the rules still the same), you buy another condo as sole owner, IRAS will still come after you for 7% of the 2nd condo’s valuation. So how to profit? The only people profiting will be lawyers doing all your jumping thru conveyancing hoops, the property developers, property salesmen, and the govt.

    ABSD is not applicable for non-residential properties. So that is 1 avenue of property market to speculate without additional taxes. But again, not many people in Singapore well-versed with non-residential property investing, and not much guides or interest in it. Except for REITs — industrial, office, retail, hospitality, etc etc.

  3. Hi Fred,

    Actually, the manner of holding has no bearing on the tenancy-in-common as loan repayment is a joint liability for the borrowers.
    The mortgage is issued based on the income of the borrowers and not on the share holding in the property.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  4. Hi Sinkie,

    When the party holding 99% bought over the 1% from the other party, the latter is free to purchase a second property without paying ABSD.
    This is how the game is played. The applicable stamp duties or selling duties is applied on the 1% and not on the purchase price of the second property.
    In doing so, this is how investors made explosive profits.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  5. Are Singaporeans allowed to purchase a HDB BTO under the fiance fiancee scheme, but elect one spouse as an occupier and the other as an owner? This allows for the purchase of a second property after the MOP without having to deal with any form of transfer of ownership.

  6. Hi there,

    I am not sure on this because under the finance scheme, there may be grants involved and so HDB may not allow this type of arrangement.
    Maybe you can write in to HDB to clarify.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

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