- In March of 2019, Singapore was ranked as one of the most expensive cities in the world for the sixth year in a row.
- In an effort to avoid the new and increased tax on homes in Singapore that are not used as permanent residences, parents are buying luxury homes in their children’s names, Bloomberg reported.
- The trend extends to Canada, where buyers are renting mansions to college kids to avoid a new empty-home tax.
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Singapore is one of the most expensive cities in the world.
Unsurprisingly, wealthy buyers dominate its housing market: In July, for example, British billionaire James Dyson bought the country’s most expensive penthouse for $54.2 million.
But now, a new trend is emerging: Parents in Singapore are buying expensive homes and putting them in their children’s names, and it might be an effort to avoid an uptick in second- and third-home taxes, Bloomberg reports.
Tax changes in Singapore
Singapore first put an additional buyer’s stamp duty (ABSD) – a tax on homes that are not used as permanent residences – into place in 2011. At the time, buyers were grouped into three categories with varying rates: Singapore citizens, Singapore permanent residents, and foreigners or non-individuals.
According to Bloomberg, many Singaporeans accumulate wealth through property investments. For these buyers, the original ABSD on second homes stood at 7% and 10% for all additional home purchases.
In July of 2018, in an attempt to cool its market, Singapore increased the ABSD and added two buyer categories to the existing three: entities and developers.
For Singapore citizens, the ABSD jumped to 12% for second homes and 15% for all additional home purchases.
Since the revised ABSD was first put into place a year ago, industry professionals told Bloomberg there has been an increase in properties being bought for wealthy children, and it’s likely an effort to avoid paying the tax.
In order to claim ownership of a property in Singapore, you have to be 21 or older. But that doesn’t mean parents with underage children are out of luck. Bloomberg reports that another potential way for parents to avoid the ABSD is to open trust accounts in their children’s names. That way, even though the trust is in the child’s name, the parent is able to hold the property for them, according to Bloomberg. While opening a trust is expensive, and there is no concrete data to prove it’s being done to avoid the ABSD, industry professionals told Bloomberg there has been a rise in trust-fund inquiries.
But Singapore isn’t the only place where kids are living in luxury homes thanks to tax changes. In 2017, in an attempt to increase Vancouver’s rental housing supply, Canada implemented an annual 1% Empty Homes Tax based off a property’s assessed taxable value from the previous tax year. As a result, owners began renting their mansions to college kids for shockingly low amounts.
In April, Bloomberg’s Natalie Wong and Natalie Obiko Pearson reported that a Vancouver mansion worth around $3 million was being rented out for $3,378 a month. Another Vancouver mansion with nine bedrooms, a steam room, and a billiards room is being rented by fourteen students who each pay $825 a month.