The perks and pitfalls of young couples going solo for a BTO flat

Thinking of purchasing a Build-To-Order (BTO) flat under just one partner’s name to avoid paying stamp duty on a second property in the future? You may want to think twice.

Holding the BTO flat under a sole owner bears some long-term planning benefits for young couples, but experts warn of potential drawbacks, especially in the current uncertain economic landscape.

Statistics from the Housing and Development Board (HDB) showed that about 3 per cent of BTO flat buyers had one spouse listed as an owner and the other spouse as an essential occupier between 2014 and 2023.

This figure has remained relatively stable during that time, averaging around 350 cases a year, said the agency.

But recently, the figure has slightly decreased, reaching 2.3 per cent in 2023. “This is due to an increase in overall flat bookings, following the ramp-up of the new flat supply,” HDB told The Business Times.

From 2021 to 2024, authorities launched some 82,700 BTO flats, with another 19,600 units slated to launch this year.

The arrangement – colloquially known as the owner-essential occupier scheme – is when couples purchase a new or resale HDB flat, and opt to list one partner as an owner and the other as an essential occupier. The essential occupier will form a core family nucleus with the flat applicant, or owner, to qualify for the home purchase.

One of the biggest reasons that some couples, whom BT spoke to, opted for the owner-essential occupier scheme is to avoid paying Additional Buyer’s Stamp Duty (ABSD), should they decide to purchase a private property in the future.

Unlike in a joint tenancy ownership structure, the essential occupier who is not a co-owner will not have any legal rights to the flat. The couple will also only be able to use half of any HDB grants given for the flat purchase.

But that also means the essential occupier will be free to purchase a private home after the minimum occupation period (MOP) without incurring ABSD, since it would be considered their first property.

That partner may also be able to obtain a higher loan-to-value limit for the mortgage if they do not have other outstanding loans, said Joel Lim, a consultant at mortgage broker DollarBack Mortgage.

This is slightly different from a decoupling of homeownership since it is done from the outset, said Kenji Wong, a consultant at Decoupling Expertise – a real estate agency specialising in the decoupling of properties.

A decoupling takes place when one spouse transfers their share of the jointly owned residential property to the other spouse.

Decoupling has not been allowed for HDB homes since April 2016, when authorities tightened the rules of flat ownership. Since then, changes in flat ownership are allowed only on the grounds of marriage, divorce, death of an owner, financial hardship, renunciation of citizenship and medical reasons.

Future planning

One couple in their 20s, who declined to be named, said that owning an HDB flat under one partner’s name would allow them to earn passive income from renting it, while living in a condominium.

The couple appealed to HDB for a change in their upcoming BTO flat’s manner of holding last October – following in the footsteps of some friends who had done the same – but was rejected.

“We (tried) for this because we are fortunate enough to be able to afford the mortgage on only one person’s income, so we wanted to invest in another property,” they said.

Another couple – who bought a BTO flat as an owner and essential occupier, and are now two years into the five-year MOP – believes that doing so will help them achieve early financial independence.

“The main thing for us is to retire, and one of the more stable ways to do that is via property investment in Singapore,” they said.

Unlike other investments, property is quite a stable asset, they added. “You have a roof over your head and the potential to earn a monthly income.” And with their HDB unit fully paid for, any yield from renting it out can go towards the mortgage for their condominium.

Social media posts have popped up on platforms such as Instagram and Lemon8, sharing tips on carving out ownership. These posts have drawn hundreds of “saves” and “likes” with a flurry of comments – some looking for more advice, others simply giving their two cents on the arrangement.

Wong from Decoupling Expertise also noted a steady flow of enquiries from prospective homebuyers, as well as those who had already purchased a flat, since the consultancy launched more than two years ago.

He believes that such alternative arrangements may have grown in popularity since there is now more awareness among the younger generation.

“Consumers want to find a way to grow their assets, and homes are the biggest purchase of their lives,” said Wong.

HDB said that it does not track the number of appeals for a change of BTO flat ownership structure prior to key collection.

Risky business

Still, market players highlighted that these cases are the exception rather than the rule, and there are drawbacks to a couple holding a BTO under one name.  

Clive Chng, associate director at Redbrick Mortgage Advisory, said that it is more common for homeowners to sell their BTO flat and use the proceeds for the down payment of two private homes.

“Loan eligibility is also a killer (when purchasing a flat under a single name), since you can rely on only one person’s income,” he added. The essential occupier will not be able to use their Central Provident Fund (CPF) to finance the mortgage either.

Those who choose to do so tend to have stable careers and higher-than-average earning potential, said DollarBack Mortgage’s Lim.

Eric Fesselmeyer, assistant professor of economics at Singapore Management University, said that the average couple might struggle to afford the mortgage since only the owner can tap their CPF.

“Also, there is less of a cushion if a spouse is retrenched or has a medical emergency,” he said. “These couples likely wouldn’t have the resources to buy a private property later, so the scheme doesn’t seem like a prudent choice.”

That was one of the main reasons Cheryl Tan and her partner decided against buying a BTO under the owner and essential occupier structure.

Tan also noted that there is a MOP of 10 years for her upcoming flat and another five years before the key collection. With the two of them in their late 30s, she said that they “may not have money or runway for a second property”.

Sing Tien Foo, provost’s chair professor of real estate at NUS Business School, added that should the spouse who was the sole owner pass on, the essential occupier – since they do not have right of ownership – may not be able to take over the flat.

That is, unless the demised spouse has willed the property to their surviving spouse, said Professor Sing.

And if the property has been willed to the surviving spouse, he or she may be forced to sell the flat – and possibly in a down market – if he or she already owns another property.

DollarBack Mortgage’s Lim reckoned that another risk for married couples is that in the event of a divorce, the essential occupier may have a harder time justifying their stake in the property.

“You will need a lot of trust in your partner and a promise to see it out till the MOP ends,” said Lim.

Couples should also consider carefully how much of their assets should be invested in real estate, said Professor Fesselmeyer.

“Given the recent history of the property market in Singapore, it has become conventional wisdom that investing in real estate is the best path to making money... But I think that there is something to be said for having a more balanced (and diversified) portfolio.”

Prof Sing added that the current high prices in the private property market could add risks to real estate investment. “Buyers should be mindful of cyclical risks in the private property market, as well as external risks that could derail price trends.”

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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