Buying property involves money, often larger amounts. This is also where a lot of people get stuck as they are under the misconception that they cannot afford to buy or upgrade their property. There are many (sometimes creative) financial strategies available to help clients like yourself to make their property dreams come true. What if we could help you to buy the property that you thought you could not afford? Or save you tens or even hundreds of thousand of dollars (legally) in ABSD?
Some of these strategies are briefly described here to give you ideas what might be possible. Please do not try to use them yourself though without the advise and guidance of a professional (see also: Disclaimer)
Fractional Sales (a.k.a. “Decoupling”)
A common scenario is that a married couple owns a property together under both names (typically 50/50 share). When they want to buy another one they would be liable to ABSD, which many clients are not willing to pay. The solution to this can potentially be a fractional sale of the existing property (which commonly is called “Decoupling” – though it has nothing to do with the relationship of the couple).
In a fractional sale a fraction (i.e. the percentage owned) of the existing property is sold to the other party so that he/she owns all of it. For example the husband sells his half of the existing property to the wife, so that after the transaction is settled the wife owns the existing property and the husband owns no more property. Therefore if they buy their next property under his name, it is considered his first property and (assuming he is a Singapore citizen) does not attract ABSD at all, or on the lower ABSD rate of the first property if he is a PR or foreigner.
Many couples have saved tens or even hundreds of thousands of dollars (compared to paying ABSD for the second property) legally this way. A fractional sale involves complex rules, regulations and calculations and does not work in all cases. It depends on the individual situation and financials, so please do not attempt to do this yourself. Schedule your no obligations, free consultation to find out more. If you are considering such a fractional sale, we are also happy to do a calculation for you.
Equity Term Loan
Equity Term Loan, Equity Loan and Term Loan all mean exactly the same thing, only that different people prefer one version over the other. Such a loan is the second (or even third) loan on a property and hence not to be confused with a home loan or housing loan, which is the first loan on the property.
What is referred to as ‘equity’ in a property is it’s value less it’s liabilities (outstanding loan). If for example a property is worth $1 million and the outstanding housing loan against it is only $200,000, then this property has equity of $800,000. This equity can be used as collateral to take an equity term loan. For example here if taking a 45% LTV (loan to value) equity term loan, you could receive 360,000 from the bank.
The main advantages of equity term loans are that you firstly can keep your existing property, but secondly literally can pull out cash from it (based on the equity it has) that thirdly is at a low interest rate, which typically is similar to the one of housing loans. For a comparison of current interest rates by Singapore based banks you can refer to our Compare Housing Loans page.
Most banks support Equity Term Loans. Whether this might work for you depends on your individual situation and financials, so please do not attempt to do this yourself. Schedule your no obligations, free consultation to find out more. If you are considering such a term equity loan, we are also happy to do a calculation for you.
Obtain Loan With Insufficient Income
How much do you think is the minimum income to own a property? You might be surprised by the answer. It is zero. This is not a scam, but simply a strategy how to make up an income shortfall when wishing to buy a property. The simplest way to do this is of course to pay full cash, in which case no loan is required and therefore also no income.
Not many people can afford to pay full cash though. There are other ways how to make up income shortfalls though. Let’s say for example to take a housing loan for the property you wish to purchase (assuming you have sufficient cash and CPF-OA for the down payment) you need to have an income of $5,000 per month, but you earn $4,200 and therefore think you cannot buy it. In order to make up the shortfall you can pledge other assets like for example a Term Deposit (or others) to the bank and they will recognize this and consider as additional monthly income so as to meet the minimum income requirement.
So even if you have not a big income or even non at all at the moment, it is still possible to purchase a property, if you have enough other assets that the bank recognize. Which those are and how much is required depends on your individual situation and financials, so please do not attempt to do this yourself. Schedule your no obligations, free consultation to find out more.
Minimizing ABSD And Tax
When it comes to investment property (not own home) many buyers are concerned about having to pay taxes and Additional Buyers Stamp Duty (ABSD – for more details see our Stamp Duty page). There are a few different ways how you can minimize or even eliminate ABSD. Please note that we cannot give you individual tax advise, but we can share these generic strategies with you and how you can apply them. Those are for example buying under a different person’s name (e.g. parents or children), buying under trust, fractional sales (a.k.a. ‘decoupling, see above) or buying an overseas property. All of those have of course many other aspect than only taxes to be considered, so it is very important to fully understand the implications of them before proceeding, so schedule your no obligations, free consultation to find out more.
The Power Of Leverage
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world” said Greek mathematician and scientist Archimedes more than 2,000 years ago. Such is the power of leverage. What is leverage and how can it benefit you? To leverage means to magnify something or in this context to use borrowed money and expect the profits to be made to be greater than the interest to be paid.
There are many ways how this can be done. The most basic one you most likely know: you have some money that is enough for a down payment towards a property purchase and borrow the rest from the bank (take a housing loan or equity term loan) and hence are leveraging your capital. Even if you had sufficient funds to pay full cash for it, would you really?
There are many more and more advanced strategies available that cannot be described here. Don’t be afraid of debt – as long as the debt makes you money it is ‘good debt’ as Robert Kiyosaki says (in comparison to ‘bad debt’ that only costs money and should be avoided like e.g. a car loan). Just make sure you do not over-leverage yourself and bring yourself into financial trouble. Schedule your no obligations, free consultation to find out more.
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