Decoupling EC - My Steps and Costs
Dreaming to be a landlord making income from capital appreciation and rental income?
Decoupling an Executive Condo can offer valuable advantages for homeowners who require greater flexibility in keeping their property and avoiding Additional Buyer Stamp Duty in the 2nd property for a couple. However, it's important to evaluate the associated costs and potential opportunity costs, as well as seek professional advice before making a decision.
As my wife and I got an Executive Condo owner in 2017 that fulfilled the Minimum Occupancy Period of 5 years, we were given the following options:
- Sell the Executive Condo, and buy another condo or 2 separate condos - We were not ready to sell the executive condo since we saw the potential to go higher and more importantly, we want to take our time to clear the home. Buying another condo is off the question given the insane Additional Buyer Stamp Duty and loan restriction to have a 2nd loan.
- Hold the Executive Condo and prepare to sell it (as per Option 1) - We could wait for 5 more years whereby foreigners can buy the Executive Condos and also have time to clear the home. However, we wanted to live nearer to our child's future schools.
- Decouple or part transfer the executive condo and the other buy another condo - This was the most feasible solution to our problem of not being ready to sell our condo and staying near my child. You could either do it via a Sales & Purchase Agreement (SPA) or a Deed of Gift (which we didn't try as some shared the clawback implication if bankruptcy ever happened).
Eventually, we decided on Option 3 which was to decouple our executive condo via SPA and bought another condo (via sub-sale). Many months forward, we are renting out the old condo after clearing it and will be using it to cover the mortgage.
How does decoupling work for executive condos?
The steps for decoupling an executive condo are the same as for a condo which includes
- First, make some calculations to ensure profitability. Make sure the sales proceed exceeds the CPF used, inclusive of accrued interests, so that there is no need to top up the CPF with cash outside the sales proceeds. Also, ensure your mortgage loan is not locked in and check the cost/penalty for early full repayment.
- Getting an estimated value for the lawyer to input into the draft Sales & Purchase Agreement. (Actually, I realized as I did the IPA first that my estimate based on online figures works out the same as the valuer from my bank).
- Find lawyers with the lowest fees and located most convenient for you (as you need to go down twice to sign). Most law firms don't operate on weekends so you will end up using 2 days off/leave. It might be good to find lawyers from your preferred bank's panel too.
- Get the In-Principle Approval (IPA) from your preferred bank. Usually, I just go for Redbricks (but I think PropertyGuru also trying to compete in this space).
- Get your chosen lawyer to update the Sales & Purchase and head down to sign. Pay the cheque for the deposit. There will be around 8 weeks to complete the deals thereafter. You can provide the S&P to your bank and get the Letter of Offer.
- Upon completion, the lawyer would have issued the respective Cashier Order to the previous mortgage bank, CPF refund, and the spouse who sold the share. They will inform the MCST of the change too.
Costs in Decoupling An Executive Condo
The main cons of decoupling the executive condo were the additional cost (easily $16k including stamp duty) and the potential opportunity cost of holding your current executive condo. Typically, the costs involved in decoupling an EC include:
Stamp Duty (9.6k for our case of $500,00, around 4% of the sales/market value): When transferring the share of ownership from one party to another, stamp duty is applicable based on market value or the sale value, whichever is higher. The stamp duty amount depends on the market value of the property and the share being transferred. It's calculated based on the prevailing stamp duty rates set by the Singapore government.
- Legal Fees (Around $5.2k): Engaging a lawyer to assist with the decoupling process will incur legal fees. The exact amount may vary depending on the complexity of the transaction and the rates charged by the lawyer or law firm. Your lawyer will find another lawyer to act as an outgoing lawyer.
- Early Repayment Fee for Mortgage (Around 1.5% of the remaining loan): As you will redeem the existing loan early, there is usually an early repayment fee based on the remaining loan amount.
- Penalty for Locked-In Mortgage: Your loan can be locked in due to recent repricing and you can avoid this by waiting out.
- Opportunity Costs: If the EC property has already experienced significant appreciation in value since its purchase, buying and holding another condo instead might have higher capital appreciation.
- Reset in Seller Stamp Duty: The executive condo will be subjected to Seller Stamp Duty again if you try to sell it within 3 years again since you bought it again.
- Future Mortgage Loan Interest: You probably need a new mortgage loan and incur interest to facilitate the decoupling unless you have enough cash to facilitate the decoupling.
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Sky Hoon. Read Full Bio
Website Owner, Twitter-er
He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.