With rising of property prices and endless cooling measures, more buyers are considering buying their property under their children’s names. In Singapore, HDB flats are everywhere such as in Woodlands. If you are planning to get one and your HDB flat or condo under your child’s name, there are some important considerations before you make your move.
1. Children’s own home ownership as first-time buyers will be endangered
Your children will become the owners of the property, once the house is registered under their name. Meaning that, unless the property is disposed of, they are going to have problems buying their own HDB flat. Remember that your child cannot buy an HDB flat, once they own a private property. If they are going to buy a private property, and there is an outstanding mortgage under their name which you are paying, they will get a lower loan. Normally, they will be getting 60% financing instead of 80%. There is also the consideration of Additional Buyers Stamp Duty (ABSD), of 12% on the second property, and 15% on subsequent properties for Singapore citizens as of 6th July 2018 when the Government suddenly increased ABSD rates.
2. Your child’s creditworthiness
If you are buying through your child just to get a better loan, remember you are not the one listed as a borrower. As far as the banks and the Credit Bureau of Singapore are concerned, your child is the one who charged the property to the bank for home loan. If you cannot pay this for some reason, your child will either have to pay it out of pocket, or be taken legal action in your place. And a history of late payments will destroy your child’s creditworthiness.
3. You lose legal rights over the occupancy of the house
We have seen many real life cases in which the children and their parents have home ownership disputes on who can live in the house. Sometimes disputes may occur when children wanting to rent out the property, while the parents disagree. Other times, the children may want a favourite uncle or a girlfriend to stay with them, against the wishes of the parent. Once the house is under your children’s name, you lose the power to command who stays under that roof. This can result in living arrangements that are unfavourable to you, and transform a financial asset into a family rift.
4. Using your children’s name to escape taxes is asking for trouble
This is a home ownership hack we see some people use. They purchase a second property and rent it out. Now the tax rate for a rental property is different, so they list one of their children as a resident in that property instead. Now, even if the property is for rent, it has an owner-occupier’s tax rate. In some cases, the child whose name it’s under does not even stay there. If you get caught doing this, the Inland Revenue Authority of Singapore (IRAS) would run after you. You will probably face a fine of several times the tax avoided and if they catch you at it after 10 years, the accumulated sum you owe them could mean selling off the house in order to pay for it.
5. Your children’s social welfare benefits will be affected
If your children are unemployed or going through a bad patch, but are recorded as the property owners, their social welfare benefits could be affected. For example, if they need to reach out for Medifund because their health insurance is dry, or they are getting GST offset vouchers, the reputation of their private property will weigh against them.
6. Your children can take out loans against the property
If your children take out large loans using the property as collateral as a second mortgage, which they can do so because the property is registered under their names, your property is at risk. If they fail to repay the loan, the financial institution in question could take legal action or foreclose on the home.
Therefore, think twice before putting a property’s title deed under your child’s name. It may affect both your own and your children’s home ownership. However, it is always good to buy under your child’s name if you truly intend it as a gift, and not a “stealth investment”. As long as it’s a genuine gift for your child, it is typically a good idea.
