Saying Goodbye to Decoupling?

For those who are unfamiliar with property terms, ‘Decoupling’ does not usually refer to a couple splitting up (although this can be a reason to decouple). Rather, the term became popular after the ABSD (Additional Buyer’s Stamp Duty) was imposed on the second property for home owners and property investors sought to find a loophole to have saving on paying the additional tax.

And lo and behold, this loophole was…the process of decoupling. In short, decoupling involved the transfer of the full ownership of one’s flat to their spouse, thus allowing them to be a ‘first-time’ property buyer and thereby without need to pay the ABSD.

Another reason to decouple was that by transferring flat ownership to one owner, the other spouse’s CPF funds could be freed up to buy the second property. A buyer with no existing home loan can utilise her available funds in th Ordinary Account (OA) in her CPF to purchase the home. However, if the buyer were already servicing an existing property, he/she is required to set aside half of the prevailing Minimum Sum in his/her Ordinary and Special accounts before buying the second property. 

If all of the above just flew past your head, the TL;DR version is that basically, someone without an existing property is able to utilise more CPF funds to purchase property.

The flipside of decoupling

Well, as awesome as decoupling sounds, there is always a catch. Since ownership of the first property is transferred to one spouse, the spouse also has to bear the entire responsibility of paying the housing loan for the first property. Taking on a second loan to buy the second property might thus lead to over-borrowing, and the couple might find that the monthly amounts needed to furnish the loans turn out to be quite hefty. In short, decouple only if you have sufficient liquidity and finances to support two properties.

Policy changes

Well, in any case, the recent changes by HDB effective from 1 April 2016 states that a transfer of ownership will only be allowed on specific grounds of:

• Marriage
• Divorce
• Death of an owner
• Financial hardship
• Loss of citizenship
• Medical reasons

These changes are expected to affect potential property investors who might have wanted to use decoupling to avoid paying ABSD, as that is no longer possible.

Some thoughts…

The policy revisions might seem like bad news for property investors seeking to find a way to beat the system. Furthermore, in an already soft market, measures that have the possibility of dissuading investors will only serve to lower sales volumes.

However, from the perspective of societal good, this revision will help prevent asset-rich but cash poor Singaporeans (as is the case for many of us) from over-utilising CPF funds that were meant for their retirement. This preserves the original intent of having CPF savings to retire well.