Residential Property Inheritance in Singapore, Things to Note
Updated: Aug 30
The main reason why people like to hold onto real estate is that it is a good store of value, which can translate to generational wealth in the long run.
It is said that holding onto property brings about long-term wealth. However, one will have to understand when to release the property to ensure that you have enough cash flow when a good opportunity arises.
The beginning of this article will cover the introduction of inheritance laws in Singapore.
Followed by what you should do with the inherited property in mind, as there are plenty of opportunities that are present right now so that you are able to get ahold of them since technically, we are entering into a buyer’s market because of the COVID-19 situation.
If you are the testator of a will, i.e. the person who is leaving behind the legacy, here are some actionable steps that we feel it is to the best of your beneficiaries (i.e. the one inheriting the property) interest.
I understand that this article might seem like a very overwhelming read at first, but I guarantee you that you will be better well prepared for the future.
An Introduction of Inheritance Laws
If you want the straightforward answer to your question, e.g. "Can I inherit a private property if I own a HDB" or "Can I inherit a HDB flat if I own a HDB", check the above flowchart to have a brief overview. Then, read the rest of the article for further clarification.
Singapore has two inheritance laws, one of which is the Intestate Succession Act and for Muslims, the Muslim intestate law through the Administration of Muslim Law Act.
In the scenario in which you are a rightful beneficiary to an inheritance, there are different scenarios that will play out to determine if you are able to keep the property in question.
Some of these factors will include
- Type of private property inheritance
- Existing HDB property
- HDB eligibility conditions
- Existing private properties
For the deceased’s interest in the property to be distributed based on the will, a court order called a Grant of Probate, should be applied once you engage a private solicitor. This will provide legal authority to the trustee or executor to proceed with the management of the deceased estate.
If there is no will, a court order called a Grant of Letters of Administration, should be applied once you engage a private solicitor. This will provide legal authority to the administrator to proceed with the management of the deceased estate. The administrator will usually be the trustee or executor. However, if there is no appointment, the court will appoint an officer.
The HDB website provides a very complete breakdown should you require more information.
How an Inherited HDB Can affect the Beneficiary
Existing HDB eligibility conditions will make it quite a stumbling block when it reaches the hands of the beneficiary. The following are some main points to take note.
Provides a Home to Stay In
As a HDB is a form of public housing, its main purpose is to serve as a home to live in for its owners. Inheriting a HDB is the best possible scenario for beneficiaries who are;
- Unable to afford the monthly housing instalments
- Do not have a home
For HDB flats, using CPF for your loan repayments automatically entitles you to the Home Protection Scheme (HPS). This means that upon your death, the HDB flat will be fully paid off.
This ensures that your beneficiaries will not be left homeless in the event where there is a default in your home loan for private properties. However, there are private insurers who do cover mortgage loans too.
Manageable Expense for Incoming Owner
Inheriting a HDB property also provides reduced miscellaneous fees such as its Service & Conservancy Charges and property taxes as compared to private properties.
These are charges which are not anticipated by beneficiaries of the property and might be a hindrance to their own financial goals.
Beneficiary Have an Existing HDB
A general rule of thumb is that you can only hold one HDB at a time. If you’re intent is for the beneficiary to hold onto your property, this is not possible.
Beneficiary Have an Existing Private Property
The beneficiary can inherit the HDB flat without issues, provided that they still meet HDB eligibility criteria. In addition, the flat must be a non-subsidized flat purchased before August 2010.
How an Inherited Private Property Can affect the Beneficiary
There is not much to elaborate on this point as there are not as many restrictions that are put in place in the inheritance of a private property as compared to inheriting a HDB flat.
If You Are the Testator
If you are holding onto a residential property and considering what to do with them for a smooth transition, here are some of our recommendations based on our past experience. However, there are other scenarios that can result in different strategies to take and we have not mentioned all of them, therefore do always exercise caution when planning ahead for the future.
1) Testator: Currently holding a fully paid HDB, beneficiaries are working adults
The is for the testator who intends to provide a good base for wealth building for the beneficiary, start looking for a suitable private property. Having a fully paid HDB enables you to afford a higher downpayment, reducing the financial strain that the beneficiary will need to undertake upon inheritance. However, always ensure that you are not overleveraging.
Inheritance of a private property is a great way of adding an extra count of the property while avoiding Buyer Stamp Duties/Additional Buyer Stamp Duties (BSD/ABSD), which can be a huge amount should the beneficiaries make the purchase themselves! ABSD can be of varying amounts, from as low as 5 to 20 percent! This presents the best bang for the buck for the beneficiary.
One caveat is that if there is no mortgage insurance bought, (i.e. we really hope you do, please purchase one) for the private property, ensure that the beneficiary is financially capable in making the repayments or has sufficient inheritance in liquid assets.
2) Testator: Currently making payments on the HDB, beneficiaries are not financially stable
Hold onto the existing HDB first, because if you are using your CPF to make payments to your HDB, the asset is protected and fully paid due to the HPS. This is also a scenario where the beneficiaries are children and the HPS will ensure that they will not be homeless.
No private mortgage insurance will be needed as this is a HDB property, however, the testator should keep in mind that the HDB will primarily serve as a shelter with a reduced focus on wealth building.
3) Testator: Currently holding on a fully paid private residential property, beneficiaries are not financially stable
Strongly consider writing a will and assign a trustee that you can trust to manage the assets for your children, which I believe will be the beneficiaries of your estate.
Keep in mind of the Seller Stamp Duty tax, which in the event that the property will be needed to be sold, will be in effect, depending on the holding period of the property. This can reduce the overall realized gains potentially by as much as 12%!
4) Testator: Currently making payments on private residential property, beneficiaries are working adults
Strongly consider writing a will to ensure that there will be little to no family disputes you’re your estate. Mortgage Reducing Term Assurance (MRTA) should be purchased to reduce the financial strain on beneficiaries.
If You Are the Beneficiary
1) Beneficiary: Inheriting a HDB flat and you are not financially stable
Hold onto the HDB flat first and consider purchasing an executive condominium (EC) when you are eligible for it. This is, however, a long-term strategy as one of the eligibility criteria is that you are unable to purchase an EC within 30 months of the sale. This means that you can consider renting while you are waiting out this (5 Year minimum occupation period (MOP), if applicable (i.e. counted from the time of the purchase, not inheritance). + 30 months wait). CPF Housing grants will be available too, so the wait might be worth it.
If you are financially stable, consider going for full private residential property after the MOP of 5 years. Having a fully paid up HDB allows you to place in a significant downpayment upon its sale.
2) Beneficiary: Currently holding onto a HDB flat and inheriting a private residential property
It depends on your citizenship; Singaporeans can hold onto both properties provided you have already fulfilled the MOP of your HDB. If you are a Singapore Permanent Resident (PR) you will have to sell off your HDB.
Upgrading Your Inheritance from a HDB flat to a Private Property
If you fall into one of these scenarios where upgrading from a HDB to a private residential property is a good choice, work towards getting private properties with the following factors.
- Non-landed areas; provide better liquidity if beneficiary unable to hold it long term
- Condominiums with low maintenance Fees; better cash flow for the beneficiary to handle
- Highly Tenantable areas; better cash flow for the beneficiary if the property still needs to be paid
- Good En-Bloc potential; unlocks more opportunities for the beneficiary who is also a skilled investor
Do take note that there are other factors to consider, and there is more information in my other articles for more points to consider. Do consider reading through them.
Leaving a legacy behind is a definite must to protect your future generations from unexpected financial crises. I strongly advise you to read through the entire article before coming to the summary as the true implications of estate planning can and should not be summarised in a single paragraph. ALWAYS consult a solicitor before proceeding with any estate planning.
However, that being said, I will do my best in summarizing.
“Inheriting a piece of real estate is a double-edged sword. It can bring immediate financial freedom and at the same time potentially cripple the financial standing of the beneficiary if not well managed.”
Leaving a private property to your beneficiaries is what we recommend to property investors PROVIDED that their beneficiaries are able to manage the payments from that property. This includes having a positive cashflow on that unit through a lease and that they already have an existing home.
If your beneficiaries are young children, place yourself in their perspective on how they will manage repayments if the property is not fully paid and purchase MRTA.
The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.