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Understanding Joint Tenancy and Tenancy-in-Common

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In my previous article, I shared the strategy of using 99-to-1 Tenancy-in-Common to avoid paying hefty Additional Buyer Stamp Duty (ABSD) for investors looking at buying second property. Some followers were skeptical while there are those who may not seem to grasp the concept. As such, this follow-up article will explain in more details on how the strategy works.

Before I proceed, readers must understand that 99-to-1 Tenancy-in-Common only works for Executive Condominiums (EC) and private properties. This is important to note because in April 2016, HDB has banned the transfer of HDB flat ownership among married couples. So now married couples cannot decouple their HDB flat. However, this new HDB rule is not applicable to private properties.

Tenancy-in-Common

When you buy your first property with your spouse/family, it is important to understand the implication of “Manner of Holding”, specifically the significance of Joint Tenancy and Tenancy-in-Common. This is because this relatively unknown term could have major impact on your future property investments and could even result in bitter court cases in the event of divorce cases or death.

No, I am not exaggerating. In my blog, several readers have written in to share their sad stories. This is real and I want you to fully comprehend this article before making judgement. You certainly would want to avoid such pitfalls.

Most people mistakenly thought that the term Joint Tenancy meant that 2 joint owners would each have 50% share of the property. This is not true! Under Joint Tenancy, each party actually has 100% of the property. Holding a property under Joint Tenancy actually means that the right of survivorship applies. When one of the tenant dies, the other party would have sole ownership of the property.

It is important to note that even if the deceased tenant made a Will indicating how he wanted the property to be distributed, the Joint Tenancy would override it. This is how powerful it is. I have read so many court cases whereby Singaporeans challenged this term over disputes over properties signed under Joint Tenancy. In most cases, the only winners are the lawyers.

For Tenancy-in-Common, each tenant holds a separate distinct shares in the property. The right of survivorship does not apply and if there is a Will, the property will be distributed according to the Will. In addition, if you and your spouse wanted to invest in property in the future, Tenancy-in-Common can be extremely helpful. I would elaborate on this further later but first of all, you must have clear understanding on the difference between the two types of manner of holding.

Assuming your property is made under Joint Tenancy and you want to convert to Tenancy-in-Common, you may do so by engaging the assistance of law firm. This is because of the need to change the manner of holding of your property by making declaration to the Singapore Land Authority. You may change the manner of holding anytime but would incur legal costs. So it is best to think through and decide on the manner of holding during the Sale and Purchase Agreement phase.

If you owned an EC or private property and wanted to purchase a second property, there is a chance of exploiting Tenancy-in-Common to avoid paying the expensive 7% stamp duties. You can do so through the 99-to-1 Tenancy-in-Common.

Scenario 1

A married couple owned an EC/private condominium made under Joint Tenancy. They wanted to purchase a second property and wanted to decouple to avoid paying the ABSD.

Remember I mentioned that under Joint Tenancy, each tenant holds 100% of the property? Because of this, the “buying party” needs to pay the Buyer Stamp Duty (BSD) when purchasing the shares of the property from the “selling party”. Hence, the applicable BSD would be as follows:

 First $180,000  1%
 Next $180,000  2%
 Remaining Amount  3%

Source: IRAS

Furthermore, if the “selling party” transferred shares within three 3 years of the purchase of the property, there is a need to pay Seller Stamp Duty (SSD).

In this case, the decoupling cost would be the sum of the legal fees, BSD and SSD.

Scenario 2

The same married couple owned an EC/private condominium made under Tenancy-in-Common. They wanted to purchase a second property and wanted to decouple to avoid paying the ABSD.

With a 99-to-1 Tenancy-in-Common structure, the party holding 99% of the shares would buy over the 1% of the shares from the “selling party”. However, instead of paying the BSD on the purchase price of the property, the “buying party” pays the BSD levied on the 1%. This significant reduces the amount to be paid. In addition, the applicable SSD is also applied to that 1% instead of 100% purchase price of the property.

In this case, the decoupling cost would also be the sum of the legal fees, BSD and SSD, but with much cost savings.

You can see that in the above scenarios, the couple chose to go for decoupling to avoid paying the ABSD for the second property but the outcomes are significantly different in terms of the cost savings. But like all things in life, there are always risks involved.

When you choose to go for 99-to-1 Tenancy-in-Common, the party holding on to 1% of the shares is still liable for the mortgage loan even though the he/she holds a smaller portion of the property. This is because the mortgage is disbursed based on the income eligibility of the borrowers and not the manner of holding. Due to the fact that loan repayment is a joint liability for the tenants, this is a risk that the 1% party needs to bear.

Secondly, in the event of a divorce, the party holding 1% would lose out big time because he/she is entitled to that 1% of the shares. Hence, 99-to-1 Tenancy-in-Common is suitable for couples who have stable and strong relationships.

Conclusion

It is possible to build wealth through property investments but the decision we made in the past can have huge bearing in our future endeavors. Therefore, it is important to have sound asset planning to avoid complications down the road.

A good real estate agent may help you buy or sell property but a great property agent will share with you various secret strategies on how to enhance wealth through asset management. Don’t have this mindset that you can buy or sell properties by yourself through online portals. You can certainly do so but you would never learn the various ways on how to beat the system and enhance wealth.

Join me in my wealth building journey and start exposing yourself to new ways of enhancing wealth. Start meeting smart people and grow your wisdom. You may want to subscribe to my blog for notifications of new articles.

Read my other articles on property-related investments:

  1. 99-to-1 Tenancy-in-Common
  2. Frightening HDB rules
  3. Managing your CPF proceeds from the sale of your HDB to build wealth
  4. HDB: The thin fine line between Joint Tenancy and Tenancy-in-Common

 

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Updated: July 17, 2017 — 1:33 pm

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