Real Estate 101: Your guide to Decoupling

Decoupling – this term has always been perceived as a negative act in real estate terms, due to its association with divorces. However, this is not always the case. Decoupling is, in fact, one method of ensuring a cost effective manner of paying taxes for your property! Here are some quick facts to know about decoupling:

Decoupling aka Fractional purchase

Decoupling can be simply defined as a disengagement or separation from something else. However, in real estate terms, it can also be referred to as the freeing up shares of the property. As such, this simply means that, assuming a property has 2 owners, 1 owner simply purchases the shares of the property from the other, and henceforth owns 100% of the property. Simple concept, isn’t it?

Who can undergo decoupling?

Basically, anyone can undergo the process of decoupling. However, ‘anyone’ in this case refers to the parties or co-owners of a specific property. As such, it does not necessarily involve a married couple that owns a property; in fact, there are several cases where the relationships of the co-owners are parent-child, friends, or unmarried couples – as long as they all share the same property.

When does this usually occur?

Of course, decoupling usually occurs is during a divorce. However, another common situation is when a couple seeks the most cost effective tax payable for the purchase of a second property.

Purchasing a second property in Singapore always incurs the Additional Buyer’s Stamp Duty (ABSD). As such, decoupling offers a route away from the ABSD, and thus allows substantial savings or the opportunity to maximize the amount of loan they wish to finance for their second property.

As a recap, this method usually occurs when a co-owner purchases the shares of the property from the other co-owner, thus resulting the former fully owning the property. Hence, this leaves the other co-owner, who has no shares in the property, to buy another one without having to pay ABSD, due to the fact that it will be regarded as his/her first property owned.

Does it apply to any property types?

It is important to note that decoupling is currently only allowed for private residential properties. HDB flats used to be able to involve this process, however, this was no longer applicable as of April 2016. This method is also applicable for commercial and industrial properties. However, this rarely occurs due to the simple fact that ABSD does not apply for the aforesaid types of properties.

How does the process of decoupling occur?

A couple that has decided to utilize the decoupling process usually go through a bank. By declaring the intention to do so, the value of the part purchase of the shares of the property would be based on the fair market value of the property as financed by the bank. Besides the financing amount, a co-owner can also expect other fees involved such as legal fees, valuation fees as well as the stamp duty payable for the part purchase. Nevertheless, it is important to always check the loan eligibility before the lawyer drafts out the Sales and Purchase (S & P) agreement to ensure that the whole transfer goes smoothly.

Another method is via ‘way of gift’ – a method where a partner simply transfers their share of ownership of the property to the other partner without expecting any monetary compensation. However, this way is highly unadvisable as banks are unlikely to assist with the financing involved, plus several fees are still payable. Furthermore, there are several considerations involved under the Bankruptcy Act that might complicate the whole procedure.

Jo'An Tan

Jo'An Tan

Armed with a local degree with a major in Economics, Jo’An embarked her career in the world of secured lending with her previous roles in SME Banking at leading banks for this segment; UOB and OCBC.

Her extensive job scope included commercial and industrial property financing, issuance of LC and business term loans.This has allowed her to confidently embrace the processes involved in the mortgage industry at Redbrick.
Jo'An Tan