Quick takes: Will new ABSD rule on living trusts impact private housing market?

May 09, 2022

ANY transfer of residential property into a living trust will now be subject to an additional buyer’s stamp duty (ABSD) of 35 per cent starting Monday (May 9), the Ministry of Finance (MOF) announced late on Sunday night.

The main target of this new rule appears to be living trusts structured in such a way that there is no identifiable beneficial owner at the time of transfer.

The ABSD (Trust) is to be paid upfront when the transfer is made, but a trustee may apply for a refund of the stamp duty if certain conditions are met. All beneficial owners must be identifiable, and the beneficial ownership has been vested in all of them and cannot be revoked, varied or subject to subsequent conditions.

Here are some quick takes from property analysts on the new ABSD rule on living trusts:

Nicholas Mak, ERA Singapore head of research and consultancy:

“We believe that only a small minority of homebuyers in Singapore use living trust to acquire residential real estate. Only the Singapore government knows the actual number of such buyers as it has the authority and reach to compile such nationwide statistics. We estimate that a single-digit percentage (that is, less than 10 per cent) of private homebuyers use living trusts to buy residential real estate.”

“Most of the people who use living trusts to buy properties would put their Singaporean family members as the beneficiary of the trust. Since the net impact on these users is neutral because they can apply to Iras (Inland Revenue Authority of Singapore) for a refund of ABSD (Trust), such practices will likely continue. The main hurdle to these users is that they have to pay the ABSD upfront first, before applying to Iras for a refund. Therefore, this new policy by the government is unlikely to have a major impact on the Singapore private residential property market.”

Lam Chern Woon, Edmund Tie head of research and consulting:

“This serves to level the playing field among market players, as prior to this, some have opted to purchase and hold a property in trust for their minor children, where ABSD would not be applicable. The new ABSD (Trust) mechanism allows for the application of a remission if certain conditions are met. However, the common scenario of holding a property in trust for minor children will not qualify for remission. For most of the other scenarios, the refund ensures that the ABSD would be effectively paid at the prevailing rates of the beneficiary.”

“The overall market impact is not likely to be significant, as the majority of property purchases are not made via trusts. However, the punitive ABSD (Trust) rate of 35 per cent is likely to cause quite a few families to reconsider providing a legacy for their children via the trust route. At the end of the day, with the rising costs of properties, some families may still decide to bite the bullet and secure a property as an early head-start for their young children.”

Karamjit Singh, chief executive of Delasa:

“The impact of ABSD (Trust) on most typical purchases by trusts tends to be a cash flow issue, not a cost issue. Bearing in mind that such trust purchases are usually made by well-heeled families paying fully in cash, the cash flow of 35 per cent may not be too much of a deterrent, as the savings of ABSD tends to be significant.”

“However, at times, the trust deed is structured in a manner where the beneficiary needs to fulfil certain conditions, such as getting married by a certain age, turning 21 or graduating from university, etc, before being entitled to the interest in the property. Or a purchase could be made with a grandparent as beneficiary, but on the condition that the property is willed back to the trustee who is funding the purchase. In the eyes of Iras, because of the unfulfilled conditions attached to it, the beneficiary is not regarded as identifiable. In these cases, the trustee would not be entitled to the refund of the ABSD Trust paid. ABSD (Trust) hence closes the loophole for such purchases.”

“Because cases where trust purchases are made with conditions attached to the vesting of beneficial interest are not common, the ABSD (Trust) is not expected to have much an impact on the wider residential market”.

Lee Sze Teck, Huttons Asia senior director (research) Lee Sze Teck:

“The new rule is not expected to affect the market as the volume is insignificant. Very few people will buy a property under trust as this means full payment in cash.”

“As of Q4 2021, the gap between currency and deposits and mortgage loans has widened to 2.13. It shows that the level of liquidity in the market has grown at a faster rate. Furthermore, there has been more family offices setup in Singapore and more to come despite the change in rules recently. Many wealthy individuals are interested to buy a property for their children for estate planning purposes.”

“In times of uncertainty and ample liquidity in the market, more monies will be allocated to physical assets like properties in safe havens. Singapore is widely regarded as a safe haven and first choice for investment among locals and foreigners hence more monies may flow into properties in the coming months.”



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