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

by Albert02

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

Will new ABSD rule on living trusts impact private housing market? Starting Monday (May 9), any transfer of residential property into a living trust will be subject to an additional buyer’s stamp duty (ABSD) of 35 percent, according to the Ministry of Finance (MOF).

The living trusts that are constructed in such a way that there is no identifiable beneficial owner at the time of transfer appear to be the major target of this new legislation.

The ABSD (Trust) must be paid in full at the time of transfer, but a trustee may ask for a stamp duty refund if certain circumstances are met. All beneficial owners must be identified, and beneficial ownership must have been vested in all of them and cannot be withdrawn, changed, or subjected to conditions in the future.

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

Head of research and consultation at ERA Singapore, Nicholas Mak:

“We believe that just a small percentage of Singapore purchasers employ a living trust to purchase residential real estate. Only the Singapore government has the authority and reach to gather such national statistics, therefore it knows the exact number of such buyers. We estimate that a single-digit percentage of private purchasers (less than 10%) employ living trusts to purchase residential real estate.”

“The majority of people who use living trusts to buy property choose their Singaporean family members as beneficiaries.” Such practices are likely to continue because 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). The primary stumbling block for these consumers is that they must first pay the ABSD before applying to Iras for a refund. As a result, the government’s new policy is unlikely to have a significant influence on the Singapore private residential property market.” For example, thinking of buying into a new project like AMO Residence.

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

“This helps level the playing field among market participants, as some have previously chosen to purchase and hold a home in trust for their underage children, where ABSD would not apply.” If specific conditions are met, the new ABSD (Trust) mechanism allows for the application of a remission. The usual case of maintaining a property in trust for minor children, on the other hand, will not be eligible for remission. For the majority of the remaining circumstances, the rebate ensures that the ABSD is effectively paid at the beneficiary’s current rates.”

“As the majority of property acquisitions are not made through trusts, the overall market impact is unlikely to be considerable.” The 35 percent ABSD (Trust) rate, on the other hand, is punitive. That being said, it is hence unlike to affect the upcoming launch like AMO ResidenceDelasa’s chief executive, Karamjit Singh: “The impact of ABSD (Trust) on most common trust transactions is primarily a cash flow issue, rather than a cost issue.” Given that such trust transactions are typically done by well-heeled families that pay in full cash, the cash flow of 35% may not be too much of a disincentive, given ABSD savings are typically large.”

“However, the trust deed may be constructed in such a way that the beneficiary must meet certain requirements before being entitled to the interest in the property, such as getting married by a particular age, turning 21 or graduating from university, etc.” Alternatively, a purchase could be made with a grandparent as the beneficiary, but only on one condition: “Because trust acquisitions with conditions related to the vesting of beneficial interest are uncommon, the ABSD (Trust) is unlikely to have a significant influence on the overall residential market.”

Lee Sze Teck, senior director (research) at Huttons Asia Lee Sze Teck: “The new rule is unlikely to have an impact on the market because the volume is so small.” Few people will purchase a property in trust since it requires full payment in cash.” “The difference between currency and deposits and home loans has expanded to 2.13 as of Q4 2021. It demonstrates that market liquidity has increased at a faster rate. Furthermore, despite recent rule changes, more family offices have been established in Singapore, with more to come. Many wealthy people want to buy a home for their children as part of their estate planning.”

“In times of market uncertainty and sufficient liquidity, more money will be allocated to physical assets such as safe-haven properties.” Because Singapore is largely recognized as a safe haven and top investment destination for both locals and foreigners, more funds may flow into real estate in the coming months.”

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