News: More parents buying homes through their children to avoid ABSD

Jul 31, 2019

While data is limited, property agents said they observed a noticeable increase in apartments being purchased by rich families for their children since the cooling measures came into effect in July 2018.

Not a lot of 24-year old university students get to live in a $1.2 million penthouse, especially in Singapore, one of the world’s priciest property markets, reported Bloomberg.

Shawn, whose apartment in central Bukit Timah region was bought by his mother, is among the lucky few. But his group is growing as families find ways to work around the cooling measures by purchasing properties for their children.

The measures set the additional buyer’s stamp duty (ABSD) at 12 percent for second homes and 15 percent for third and succeeding properties.

“Anecdotally we’ve observed more young home buyers entering the market,” said Christine Sun, OrangeTee & Tie Pte head of research and consultancy.

She added that while first-time home purchasers who are unaffected by ABSD dominate, many citizens see the value of accumulating real estate as a store of wealth.

In fact, parents are now taking the lead when it comes to house hunting.

“The high ABSD rate has induced parents to act vicariously, using their children’s names to acquire another private residential property,” said Savills (Singapore) executive director of research and consultancy Alan Cheong.

“Parents are either genuinely concerned that their children won’t have the wherewithal to acquire private residential properties on their own or using the first reason as an excuse to acquire properties for themselves.”

Such tactic will only work if the child is at the legal age to own property.

If the child is below 21, Cheong said families go around the ABSD by setting up a trust account under their child’s name, allowing parents to hold the property for them.

“A trust is a structure whereby a parent can hold a property for their minor child. But the property belongs to the child, and not to the parent,” said Dentons Rodyk & Davidson LLP senior partner Edmund Leow.

This is, however, a more expensive route to take.

“The costs involved are usually quite steep, and it’s only a viable option for the wealthiest of families in Singapore,” said Nicholas Mak, APAC Realty Ltd. unit ERA Singapore head of research.

Meanwhile, Leow does not see the trust option as a case of tax avoidance.

“This is not a way to avoid stamp duty,” he said. “The liability for ABSD will be assessed looking at the profile and property count of the child beneficiary. For example, any rental income, or proceeds of a subsequent sale, will belong to the child and not the parent who bought the property.”

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Fiona Ho, Digital Content Manager at PropertyGuru, edited this story. To contact her about this or other stories, email [email protected]

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