Tenancy in common is the manner of holding a property in separate shares in the form of percentage, for example 99/1 split refers to two owners holding on to 99% share and 1% share of a property respectively. Under Tenancy In common, the right of survivorship does not apply. Upon demise of a co-owner, his interest will be distributed according to his will instead of passing on to the remaining co-owners. In the absence of a will, his interest will be distributed according to the Intestate Succession Act.
However, in Singapore, the more common manner of holding for married couples will be Joint Tenancy, whereby the right of survivorship is in place. This means that the remaining co-owner takes over the interest upon the demise of a co-owner.
Buying In 99/1 Tenancy In Common Manner
With the implementation of ABSD in Singapore, there has been an increasing widespread in trend for couples to purchase and hold a property in the Tenancy In Common manner for Private Properties as it will be easier for homeowners to decouple and purchase a 2nd property without ABSD in time to come.
As HDB decoupling has been restricted, it is not viable anymore for HDB scenarios, unless you fall into any of the six special circumstances listed by HDB.
Some advantages of this purchase model include having a HIGHER loan amount and the ability to utilise BOTH owners CPF Monies, hence reducing the cash up front. At the same time, it is easier for homeowners to decouple in scenarios when the owner holding a higher percentage buys over the smaller percentage interest of the property.
For example, when a 99% stakeholder buys over a 1% stakeholder’s interest in the property, the cost is only $10,000 for a $1,000,000 property excluding necessary fees such as conveyancing fees etc.
But is it just so simple? No! It is not!
When other numbers and figures are involved, a prudent plan helps and 99/1 split may not be the most feasible percentage split for you.
Here, we have listed 4 things you should consider before going into a 99/1 split Tenancy In Common manner of holding.
1. Bank Loan
During purchase, irregardless of the percentage split, the loan amount is derived from both owners income. In the event of decoupling, the remaining owner must be substantial to take up a loan for the balance loan amount, or otherwise, the excess amount will be paid in CASH or CPF Monies.
2. CPF Usage From Exiting Owner
The amount of CPF monies used by the exiting party will greatly affect the split percentage. If the intended exiting party uses a fairly huge amount of CPF monies i.e $100,000 derived from down payments and monthly instalments to service the mortgage loan, 99/1 Tenancy in Common split is less feasible unless you are prepared to pay a lump sum of CASH (subject to CPF approval on waival of CPF Loss).
Let us look at the example below comparing a 99/1 split to a 65/35 split holding manner. For case study purpose and ease of understanding, this calculation is done in its simplest form to let you have a general idea how it relates. Other factors such as CPF accrued interest, conveyancing fees, stamp duty are not included in the case study below.
In our example above, if the minor stakeholder is using $100,000 CPF Monies, a better golden ratio will be 65/35 percentage instead of 99/1. Otherwise, upon decoupling, the remaining owner will require to pay $96,900 in CASH back to the outgoing owner’s CPF account.
3. Monthly Mortgage
With one owner exiting, only the remaining owner’s CPF Monies can be used to service the monthly mortgage and the balance after CPF deductions will be paid in cash. It is always good to understand your available CPF funds every month and ensure that you are comfortable with the cash amount for servicing the loan.
4. Relationship & Trust
Relationship is also another major factor which you may want to consider on. By planning ahead on exit solutions on various situations, including one whereby the relationship took a bad turn will be helpful. Of course, who wants a relationship to turn sour right? However, I have seen scenarios whereby couples, siblings and even parents & child quarrelled and fight over assets. By having a major and minor stakeholder on a property, the minor might feel insecure if there is insufficient amount of trust in the relationship, needless to say to co-invest into a subsequent 2nd property.
Purchasing in Tenancy In Common holding manner is no doubt advantageous if you are looking to decouple and purchase a 2nd property in the near future. However, if the minor stakeholder will utilise his/her CPF Monies, then 99/1 percentage split may not be ideal. 99/1 percentage split works well if no CPF Monies is required from the minor stakeholder but instead only requiring their name to secure a higher loan amount.
There are also some other variations to use this method to avoid paying ABSD. However, they are more complex and less suitable to be penned. If you need any advice, feel free to reach out to me.