The Singapore government recently imposed a new Additional Buyer’s Stamp Duty on properties in a Trust. Experts share how this will affect the private home market.

How does one create a legacy for loved ones? Heirloom jewellery, luxury accessories or a family secret passed down generations hold sentiment, but when it comes to leaving one that will stand the test of time despite the volatility of the market, property purchases rate high on the list. More so in a country like Singapore where real estate straddles the roof-over-the-head concept with one that caters to a lifestyle against unpredictable inflation. And now, with the pandemic, the parameters have become even more succinct.

“In a world of uncertainty, owning physical property in a safe haven like Singapore is attractive. Moreover, property is an asset class that can hedge against rising inflation,” explains Lewis Cha, executive director of List Sotheby’s International Realty. 

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Above The Ardmore Park and Draycott Park condominiums, which feature apartments marketed by List Sotheby’s International Realty. (Photo: List Sotheby’s International Realty)

On 9 May, 2022, the Singapore government stated that going forward an Additional Buyer’s Stamp Duty (ABSD) of 35 per cent will be imposed on any transfer of residential property into a living Trust.

Buyers will incur this ABSD even if there is no identifiable beneficiary at the time the residential property is transferred into a Trust—whereas, prior to this ruling, this was a clause for ABSD waiver of second home purchases of this kind.

A trustee may apply to IRAS for a refund of ABSD (Trust), but it is subject to meeting a few stringent conditions, explains Leonard Tay, head of research, Knight Frank Singapore. “Buyers who use living Trusts to acquire property will need to specify an ‘identifiable beneficiary’ at the time of transfer before becoming entitled to an ABSD (Trust) refund. For instance, attaching certain conditions to be fulfilled such as graduating from a university before interest in the property is vested in the beneficiary would not be regarded as identifiable,” he adds.

Read More: Everything to Know About the New Additional Buyer’s Stamp Duty on Transfers of Residential Property

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Above A view of the Central Business District in Singapore from Marina Bay Sands. (Photo: Stephanie Yeh / Unsplash)

For the Singaporean ultra-high-net-worth (UHNW) investors, the nation’s stature in the world rules above all. The same goes for legacy buyers, who purchase a residential property in a Trust, of which their child will be a beneficial owner after a stipulated time.

“Purchasing homes in Trust for children can make financial sense, as the said homes can be used to generate rental income and potentially enjoy capital appreciation,” says William Wong, CEO and founder of Realstar Premier Group, on the other draw for such investments.

Tay of Knight Frank Singapore agrees. “Wealth can find a safe home in Singapore, and the number of family offices set up here has increased substantially in 2021, especially amid the pandemic.”

A recent report released by the Economic Development Board corroborates that—Singapore is now home to 46 per cent of Asian regional headquarters across a diverse range of industries, spurring foreign investment. This is despite a steep 30 per cent stamp duty on property purchases for foreigners.

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Above Landed houses in Sentosa Cove, Singapore, which are among the property marketed by List Sotheby’s International Realty. (Photo: List Sotheby’s International Realty)

Regardless, given that residential properties that are transferred into a Trust require upfront payment, this will significantly increase the cash required at the time of purchase, says Clive Chng, associate director at Red Brick Mortgage Advisory.

Christine Sun, senior vice president of research and analytics at OrangeTee & Tie sees this new ruling as cooling measures initiated to control property prices as well as maintain a steady supply of buyers in the market. “This ensure homeowners remain prudent in their property purchases and do not overstretch their finances”, she says. “Although there are already measures that were put in place in the past such as the TDSR (total debt servicing ratio) to ensure homeowners do not overleverage.”

Despite all these, she believes that there could still be some pockets of buyers who may be overstretching their finances, including those who have taken the maximum loan and not chalked in the adequate buffer.

“This new rule plugs the loophole in preventing a situation where the beneficiary is eventually not the real owner of the property. The property is in fact controlled by the person who created the Trust to avoid paying ABSD by not buying it in his own name,” explains Wong.

Chng agrees that the ruling and the refund conditions ensure the property is genuinely in the interest of the said beneficiary. “This deters those who purchase under Trust for the purpose of selling it off for financial gains in future.” 

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Above A Good Class Bungalow in Singapore marketed by Realstar Premier Group. (Photo: Realstar Premier Group)

“This is unlikely to have an impact on the private housing market as the number of properties being bought under Trusts is relatively small as compared to the number of property transactions in the market,” says Chng.

And the real buyer will remain, adds Tay. “It will also not affect foreign buyer investment among the UNHW with other aspects such as our strategic geographical location, modern infrastructure and stable pro-business environment ensuring Singapore remains a magnet for wealth.” 

“Another reason why the impact is minimal is because properties bought under a Trust must be funded only with cash, and usually only the minority UHNW investors can afford and are prepared to do so. They also would not mind paying the additional 35 per cent upfront, as they will likely be able to ask for the remission,” says Wong.

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Above A view of the Singapore skyline. (Photo: Jason Rost / Unsplash)

Wong quotes a report by Credit Suisse which was released in January this year, which shows that there are a total of 1,367 UHNW individuals with a net worth of more than US$50m in Singapore. “This number is steadily rising,” he adds. “There will be more and more families that will explore purchasing properties under a Trust and this new rule is in place to cater to this new rising trend.”

As Cha concludes, “For genuine legacy planning cases in which wealthy parents desire to buy landed homes or apartments in the same neighbourhood on Trust for their children, this practice will probably continue.” 

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