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New ABSD rule on trusts plugs a gap, but won't affect broader property market: Experts

New ABSD rule on trusts plugs a gap, but won't affect broader property market: Experts

Landed property in Singapore. (Photo: Gaya Chandramohan/CNA)

SINGAPORE: New rules imposing an Additional Buyer’s Stamp Duty (ABSD) on residential properties transferred into a living trust will close a loophole in the existing system, said experts.

But they will have a limited impact on the broader property market, as the changes will likely only affect a small minority of well-heeled buyers purchasing property via trusts structured in a specific way, they said.

Under the new rules announced on Sunday night (May 8), an ABSD of 35 per cent will be imposed on any transfer of residential property into a living trust, starting from May 9. 

However, trustees can then apply for a refund if certain conditions are met. These include ensuring all beneficial owners of the property are “identifiable individuals”, and ensuring beneficial ownership has been vested in all these owners when the property is transferred into the trust.

Before this, if a living trust had no identifiable beneficial owner when the property was transferred into the trust, ABSD did not apply. 

Dr Lee Nai Jia, deputy director of NUS’ Institute of Real Estate and Urban Studies (IREUS) said the move closes a loophole for such buyers, who are usually high net worth individuals.

“A lot of them purchase (on) trust for various reasons, some because of succession planning, some because they (don’t want people to know they own the property), or because of the ABSD.”

He added: “This is really just to close the loophole – when you transact, you pay the ABSD first. Then whether you qualify for a refund, we talk later.”

Mr Lam Chern Woon, Head of Research and Consulting at Edmund Tie, said the move serves to “level the playing field” among buyers.

“While it is the intention of parents to leave an advance legacy for their children, some have bemoaned that this runs the risk of exacerbating the state of inequality,” he said.

He also said the “writing was on the wall” for implementing such a move, given the recent added focus on creating a fairer and more inclusive society.

WILL IT HALT SUCH ARRANGEMENTS?

Mr Lam said the new “punitive” ABSD rate may lead families to reconsider providing a conditional legacy for their kids via the trust route.

This is because if the child’s interest in the property is contingent on a condition, such as graduating from university, he is not an “identifiable individual beneficiary” – a necessary criterion for a refund, according to authorities.

But with rising property prices, some families may still decide to “bite the bullet” and get a property as a head-start for their young children – by vesting the beneficial interest in them immediately, he said.

Mr William Ong, managing director of Alpha Law, agrees this method would likely allow them to apply for a remission.

He added that such arrangements, where wealthy parents buy properties on trust for their children, will also still probably continue.

“Those who have deep pockets, who would be the ones interested to have trusts for their children, if they have to pay another 35 per cent, I don’t think they’ll mind,” he said.

“At the end of the day if they can get back the money, then it’s a small issue.”

LIMITED IMPACT ON BROADER MARKET

All said, the impact on the broader property market will be limited, experts told CNA.

Nicholas Mak, head of research at ERA Realty, suggested that the main targets of this new ABSD regime are living trusts that are structured such that there is no identifiable beneficial owner when the residential property is transferred into the trust.

"For example, the beneficial owner of the living trust could be another trust, and the owner of the second trust could be a third trust," said Mr Mak.

"Some high net worth individuals (HNWIs) or family offices may use complex multi-layer ownership structures to mask the true ownership of certain assets."

Such arrangements are rare, said Mr Mak, and are usually used by HNWIs to "acquire or transfer very expensive real estate, which is already a small minority among the tens of thousands of private housing units transacted each year".

NUS’ Dr Lee estimated there were about 50 such deals a year, but admitted that there could be more, given the opaqueness of such transactions.

“Even though the number (of deals) is not that huge, the quantum (of total ABSD to be paid) is large because we’re talking about 35 per cent, and if each deal is S$10 million, you get the picture.”

Though the broader property market should remain the same, the luxury market – including penthouses and good class bungalows – may slow slightly, as buyers pause to digest the new rules, he said.

Source: CNA/cl(ac)

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