Real Estate & Financial Planning

• In this article, we will focus on the different forms of real estate ownership and how it can become complicated in the area of Financial Planning.

Typically, the ownership of property can be held in one of these ways:

1. Owned by one person

   If only one person owns the property, he has the sole discretion on how to deal with the property. He can decide to sell, refinance, or take an equity loan. He can also decide on the use of the property as well as the distribution of the property upon his death.

   The setback of single owned property is the ability to obtain bank loan or the refinancing of property, especially when the property market is down or/when the owner’s employment or business is not doing well.

   There may be slight complications arising when the owner dies. If the property is rented out, the tenant may not be willing to pay the rental to the executor or family during the period when the application for appointment of executor or administrator is in progress. The executor-to-be may not be able to rent out the property as he is yet to be appointed by the Court.

2. Owned by two persons under Joint Tenancy

   Property held under Joint Tenancy assumes that both the owners own 50% of the property. Of course, there have been many recent cases where the Court decides otherwise. Generally, a property held under Joint Tenancy assumes that both the owners have equal interest in the property. However, when there is dispute, it is common that the Court takes into account the contribution by each owner, both in cash and kind, to determine the percentage of ownership.

   The benefits of having property under Joint Tenancy allow the joint owners to use the income of both owners to apply for loan and to fulfill the Total Debts Servicing Ratio (TDSR) requirement.

   It is common to assume that having held the property under Joint Tenancy means the decision has to be made by both parties jointly. It is not necessarily the case. When the owners decide to take up a mortgage loan or refinance the property, both owners are required to agree and sign on the letter of offer. However, if one owner decides to sell, he may be able to sell his portion of his ownership or apply to the Court to sell the entire property. A joint owner may unilaterally change the ownership from Joint Tenancy to Tenancy In Common.

   Upon the death of any of the joint owners, the surviving owner automatically inherits the portion of the property owned by the deceased. However, there are cases where the family of the deceased family is able to inherit the ownership of the deceased owner. Therefore, it is important to know the intention of each of the owners in the event of death or disability.

3. Owned by two or more persons under Tenancy in Common

   A property held by two or more persons is in the form of Tenancy In Common. Each of the owners is normally entitled to their share of the ownership and also responsible for payment of their share. For example, the owner that owns 10% of the property will usually pay 10% of the down payment required. He will also be responsible for paying 10% of the mortgage loan and be entitled to 10% of the sales proceed and 10% of the net rental income.

   However, this may not always be the case.  From the bank’s point of view, all borrowers are jointly responsible for the entire mortgage loan. In the event where any of the owners cannot pay the mortgage loan, the bank has the right to seek payment from the owners who are able to pay the outstanding loan.

   In some cases, the husband and wife can decide to own the property under Tenancy In Common with one party having 99% and the other 1%. The purpose of such ownership may be due to many reasons, such as contribution by each party or intention to transfer the 1% ownership when they decide to buy the second property. Some owners prefer this manner so that they can use the CPF of both parties; meaning the income of both parties can be used to apply for the loan.

   However, complications do occur especially when one of the owners become bankrupt, die or encounter business failure. Complications may also happen when any of the parties go through divorce.

4.  Other forms of ownership

• The property may also be held in trust.There are some who will buy property to be held in trust for the benefit of the beneficiaries (which very often are the family members).  In recent years, it is increasingly common to see parents purchasing property held in trust for the benefit of their new born, with the intention of leaving an inheritance to the child. However, the property has to be paid in full as the banks in Singapore are not able to provide loan to a property held in trust for others.The purpose of holding the property in trust may also be to protect the property from the reach of creditor or to avoid paying Additional Buyer Stamp Duty. It should be noted that Basic Stamp Duty and Additional Buyer Stamp Duty is payable if the owner remains as the legal owner but transfers the beneficial ownership to a trust.
• A Private Limited company can own the property.There are investors that set up a Private Limited company to own the property. This is common in the past for both residential and commercial property. However, in recent years, this structure is only feasible for the purchase of commercial property. A Private Limited company that purchases a residential property has to pay Additional Buyer Stamp Duty which can be an additional 25% of the purchase price.

I hope this gives you useful insights on how you can better advise your clients about their real estate and financial planning needs.

Sincerely yours,
Stephen