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How to 'Avoid' ABSD in Singapore: 7 Legal Ways Reduce Your ABSD Payment (2023)
Additional Buyer’s Stamp Duty (ABSD) has always been one of the biggest concerns for property investors, and many are often looking at how to avoid ABSD in Singapore.
Effective 27 April 2023, the government announced new property cooling measures, which raised the ABSD rates; most significantly, the ASBD rate for foreigners increased from 30% to 60%.
Having to pay ABSD on top of Buyer’s Stamp Duty (BSD) means that investing in and owning multiple properties in Singapore has become even more expensive. Thus, it’s not surprising that most homebuyers want to know how to ‘avoid’ ABSD in Singapore at all costs.
For some investors, purchasing an overseas property is an alternative to avoid paying ABSD (you can find properties and get expert insights on purchasing an overseas property at the Invest Asia Property Show 2023). For others who still want to purchase an additional property in Singapore, you may be wondering, “Is there any way I can avoid paying ABSD legally?” Well, let’s find out!
Watch Our Video on Additional Buyer’s Stamp Duty
But First, What Is ABSD in Singapore (2023)?
The ABSD is a tax that’s levied on top of the Buyer’s Stamp Duty (BSD) for all residential property purchases. ABSD is taxed according to the valuation or selling price of the property, whichever is higher. It is also based on whether the buyer is a Singaporean, Singapore Permanent Resident (SPR), or foreigner.
It was introduced in December 2011 as a property cooling measure to discourage Singaporeans, foreigners, and entities from purchasing multiple properties and flipping them for profit, while helping to keep property prices affordable. Since then, ABSD rates were adjusted thrice, in 2013, 2018, 2021 and again in 2023, in line with market conditions.
What Is the ABSD Singapore Rate and Who Needs to Pay It?
Buyer’s Profile | ABSD Payable (on or after 23 April 2023) |
Singapore Citizen buying first property | No ABSD charge |
Singapore Citizen buying second property | 20% |
Singapore Citizen buying third and subsequent properties | 30% |
Singapore Permanent Resident (PR) buying first property | 5% |
SPR buying second property | 30% |
SPR buying third and subsequent properties | 35% |
Foreigners buying any residential property | 60% |
Entities (company or association) buying any property | 65% |
Housing developers for any residential property | 35% (additional 5%; non-remittable) |
Trustee buying any residential property | 65% |
As you can see, the ABSD tax adds up to a substantial amount. For a Singapore citizen, an ABSD for a 2nd property amounting to $1 million, for example, would mean an additional $200,000 costs. And remember this doesn’t include other fees like agent’s fee, BSD, etc.
SPRs would need to pay ABSD when they buy a property independently. However, if you’re jointly purchasing a property together as a Singaporean-SPR couple, where both of you do not own any property, you can apply for ABSD remission. You can also receive ABSD remission for your 2nd property if you’re jointly buying as a Singaporean-SPR couple. Still, you must sell your property within six months after buying your second property.
How to ‘Avoid’ ABSD in Singapore? Who Is Exempted From ABSD?
So, with sky-high ABSD Singapore rates, it’s understandable why people would want to avoid paying for it. So how and in what ways can one ‘avoid’ paying ABSD in Singapore? But before we get into that, there are also situations where you can be exempted from paying ABSD.
1. When You Upgrade to an Executive Condominium (EC)
When you upgrade from an HDB flat to a private property, or if you purchase another private home, you will need to pay ABSD upfront in cash or CPF (within 14 days of signing the Sales and Purchase Agreement). You can apply for an ABSD remission if you sell your 1st property within six months.
However, when you buy a new EC, you don’t have to pay ABSD upfront. You do need to dispose of your home within six months after collecting the keys to your EC (or once your EC receives its Temporary Occupation Permit), but at least you don’t have to fork out the huge ABSD fee at the start (you may need to pay the HDB resale levy though).
2. When You Sell Your Current Property Before Signing the Option to Purchase For The New Property
You can sell your home first before buying a new property to ‘avoid’ paying ABSD. However, this would mean that you need to rent a place or have a temporary place to live.
3. If You’re a National or PR of These Free Trade Agreement Countries
Earlier, we mentioned that foreigners would be slapped with a hefty 60% ABSD when buying a property in Singapore. However, under the respective Free Trade Agreements (FTAs), Nationals or Permanent Residents of the following countries enjoy the same ABSD rates as Singaporeans:
Iceland
Liechtenstein
Norway
Switzerland
United States of America
In other words, they are exempted from ABSD for PR for the 1st property, but will still need to pay ABSD for 2nd property and subsequent properties.
4. Buying Under One Owner’s Name
If you’re buying as a couple and both of you are first-time property owners, then you can buy under one spouse.
This allows the other spouse the freedom and flexibility to purchase another property in the future without incurring ABSD for 2nd property when you both have saved enough.
The repercussion of this is that the spouse would need to carry the weight of the mortgage single-handedly, and must have enough cash and CPF funds for the downpayment and mortgage.
5. Buying a Commercial Property
Unlike residential properties, you won’t be affected by ABSD Singapore rates when you buy commercial properties. Besides that, commercial properties also command higher rental yields on average (5% compared to 2% to 3% for residential).
But do know that commercial properties come with their risks. For instance, they cost more than residential properties. They also require more cash outlay and the downpayment can only be paid in cash. Additionally, there’s also a GST charge which must be paid in cash.
6. Buying a Dual-Key Unit
With dual-key units, you’re essentially buying a home with two units side by side, but for the price of one. As it’s considered as one property, you avoid incurring ABSD for your 2nd property.
The main unit and sub-unit share a common foyer but have their own living spaces. Depending on how the unit is designed, each unit may have its living area and common facilities such as kitchens and bathrooms.
As such, dual-key units appeal to both home buyers and investors alike because you can rent out the sub-unit and still have your privacy. But given the uniqueness of dual-key units, they often come with a higher price per square foot and can cost up to 25% more.
7. Decoupling
If you jointly purchased a property as a couple, you could choose to decouple your property. Basically, when you decouple, you transfer your share of the property to your spouse, leaving you free to purchase a new property without incurring ABSD (since it counts as your 1st property).
For this to work, both of you would need to be tenants-in-common or joint tenants. This means that both of you can either have different ownership stakes in the property (e.g. 70-30, 60-40) or equal stakes. Also, know that transferring your shares isn’t free, as your spouse would need to buy them from you, which means that it will incur BSD.
For example, say that you both own a 50% share of your home, which is valued at $1 million. You sell 50% of your share to your spouse ($500,000). In case you forgot, below is the BSD rate for residential properties:
Purchase price or market value of the property | BSD rate |
First $180,000 | 1% |
Next $180,000 | 2% |
Next $640,000 | 3% |
Next $500,000 | 4% |
Next $1,500,000 | 5% |
Amount exceeding $3,000,000 | 6% |
So based on the above, here’s how much your spouse would need to pay:
(1% of $180,000 = $1,800) + (2% of 180,000 = $3,600) + (3% of the remaining $140,000 = $4,200) = $9,600
On top of BSD, you would also need to pay Seller’s Stamp Duty (SSD) if you decouple within three years of buying the property, as well as other costs such as conveyancing fees and penalties for taking a new mortgage, which could amount to thousands of dollars.
Lastly, when decoupling to buy a new property, also consider if the sole owner has the income to support the fresh mortgage. If you’re using your CPF funds, then you need to return your CPF monies (including accrued interest) back to your CPF account.
Do note that the transfer of ownership for HDB flats is only allowed under six special circumstances:
Marriage
Divorce
Death of an owner
Financial complications
Renunciation of citizenship, and
Medical reasons
However, while decoupling is not illegal, scheming to evade tax is. As such, be warned that the government is now clamping down on people using decoupling to evade paying ABSD. On April 2023, the Inland Revenue Authority of Singapore (IRAS) announced that they will be investigating homeownership arrangements split in a 99-to-1 ratio. In fact, the government is so against decoupling that whistleblowers who expose buyers utilising such tactics can receive a reward based on 15% of the tax recorded (capped at $100,000 )from IRAS.
For couples who are caught trying to evade tax, they can also expect to fork out an additional 50% surcharge on the additional duty payable!
We also do not recommend pursuing decoupling due to the potential challenges of a sole individual bearing the full burden of repaying a mortgage, given that their income may not suffice to cover such a substantial financial obligation alongside daily expenses. Furthermore, decoupling may lead to future conflicts, as it involves relinquishing ownership rights over your HDB flat.
Dr Tan Tee Khoon, Country Manager – Singapore, PropertyGuru said, “Besides not having to worry about the legalities of such ABSD avoidance strategies, paying ABSD could in fact be less costly, given the expenses that could be incurred. With decoupling, there are conveyancing fees, BSD, and SSD (if the property is decoupled within the first three years of purchase), prepayment penalties for a bank loan, and other miscellaneous costs such as valuation fees – the total of which could amount to more than the ABSD payable depending on the value of the existing property in question and especially if the next property to be purchased is comparatively cheaper than the current.”
Consider Buying an Investment Property Overseas: Invest Asia Property Show 2023
An alternative to not paying the ABSD tax is buying an overseas property instead. Not only can the overseas property serve as a way to expand your real estate portfolio without incurring the ABSD tax, but you could also have the property serve as your holiday or retirement home.
If you’re not sure where to start looking for an overseas property or want more information, sign up for the upcoming Invest Asia Property Show 2023, which is taking place on 29 and 30 July 2023.
The two-day event will feature a curated list of property projects by acclaimed developers across the region in countries such as Indonesia, Malaysia, Thailand and the Philippines.
Furthermore, renowned real estate gurus and investment experts will host panel discussions and talks, giving you the latest updates and crucial market information. From explaining legal and tax considerations to understanding the APAC and SEA real estate outlook in 2024, up to 14 topics will be discussed to guide you towards making a successful overseas property investment.
Begin confidently navigating the dynamic property market in the region by registering for the Invest Asia Property Show 2023 now. And if you pre-register and are among the first 100 participants each day to attend the Invest Asia Property Show 2023, you’ll win a $10 Grab voucher.
But Does Avoiding ABSD Always Save Money?
So now that you know how to ‘avoid’ ABSD rates, should you always avoid paying ABSD when you can? Are there scenarios where paying ABSD is more sensible?
Andrew Nair, Associate Division Director, ERA Realty Network says that sometimes it’s worth paying ABSD in Singapore, particularly when the property has a huge potential for appreciation.
“It’s all about opportunity. If you miss a good buy because you are waiting for a situation where you can save ABSD, you might miss a good deal. Saving money does not mean you make more in the long run. There are some properties that have a good rate of appreciation and a good rental yield. In that vein, ABSD can be seen as one of the ‘costs’ of business,” he says.
He adds, “For example, most will sell their HDB flat and buy a condo to avoid paying ABSD. But what if they had kept the HDB and paid the ABSD? They would be able to rent out the HDB and get good rental yields, in some cases more than 10% per annum.”
Financing Your New Property Purchase
While it may be tempting to purchase an investment property, remember that buying a property is a huge financial commitment. Buyers should always evaluate their finances thoroughly before proceeding to upgrade or buy a new property, whether locally or overseas.
Andrew’s advice is to buy a property when you’re younger, and you would most likely get a bank loan with the maximum tenure.
“Use free-to-use mortgage tools to help with the bank loan assessment. Remember price is not everything. Cheaper does not mean better. Sometimes paying more for a property in a good location is better than buying a cheaper property in a not-so-ideal location.
“When is the best time to plant a tree? 10 years ago. But if you have not planted, when is the next best time? The time is now. This is the same with property.”
If you need help financing your property or considering what kind of property choices you can make, consult one of PropertyGuru Finance’s Mortgage Experts. They’ll provide you with tailored advice and cross-compare bank interest rates across banks in Singapore, at no cost!
