What you need to know about passing on your wealth through property

Maybe you own a condominium or an HDB flat and you want to think about how you're going to leave that property to the next generation. Will you need a will, a family trust or life estate?

Maybe you're a foreigner and you want a best plan to protect your wealth, but you're not quite sure about the laws that pertain to property here in Singapore. Maybe you're single, and you want to know if you use your property as a hedge during uncertain times, what do you need to understand about property investment, and which types of properties have held their value particularly during Covid-19?

On Money and Me, Michelle Martin speaks to Dora Chng, General Manager at GuocoLand and Jacintha Pillay, Partner at Sim Mong Teck & Partners to learn more.

Michelle Martin: Help us understand how Covid-19 has changed strategies for families who are looking to protect their wealth through property?

Dora Chng: Most Asians already regard real estate as a means for legacy planning and many Asian parents are hopeful to leave their properties to their next generation. So, for most buyers in Singapore, they are looking at a longer-term investment in properties to yield capital appreciation.

MM: Are more people looking to freehold properties in particular among the different kinds of leases?

DC: Yes. Most Singaporean buyers are very well informed and aware that regardless of freehold or leasehold, there are different kinds of returns. Some leasehold properties yield better returns compared to freehold properties. So, you have to look at the property’s location and merits.

For example, a duplex unit can be used for a variety of usage whether for own stay, for multi-generational families, home office or work from home and also for investment purposes.

MM: Are you saying that more people are looking at duplexes and they are becoming more popular right now because people want more space in their homes?

DC: Not only because they want more space, it is the flexibility of the space and how it can be used in order for easy conversion of one of the rooms, or as an expansion of the living space for instance.

MM: So, when people are looking to preserve their wealth, they're still looking at the basics of fundamentals of buying property location, looking beyond just the lease of whether it's freehold or not?

DC: Yes, basically there are few things that we noticed with purchases now - the unit’s configuration has to be quite flexible and the facilities [available].

During circuit breaker, many people realised that the facilities within their development helped, for instance the lobby lounge and the concierge are used very often as people looked for different spaces where they can ‘work from home’ outside of their home.

MM: Has Covid-19 changed buying patterns - who's buying, what's popular and which districts?

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DC: Generally, sales have been quite healthy across the board in the last two quarters. According to the numbers from URA, prices of private homes rebounded quarter on quarter and the price increase was led by non-landed core central region, which are more of the luxury developments where prices rose 2.7 per cent.

Most of these units however, were sold in the outskirts, although with encouraging numbers in the core central regions, with Singaporeans being the core purchasers.

MM: What is your outlook for the rest of 2020?

DC: If we look back at 2017/18 where the collective sales generated 18 billion of liquidity in the market, we noticed there is less than half of these being redeployed back into the market. With the travel ban, most foreigners who are interested to view the developments before they buy are unable to do so.

Therefore, we feel that once the travel bans are lifted, there may be a demand coming in. So, we think that there will be healthy sales moving forward for the rest of 2020.

MM: Property inheritance laws may vary according to whether you are a foreigner, a Singaporean, or if you are married or single. What is the most important for people to understand about inheritance law and what are some misunderstandings?

Jacintha Pillay: Intestacy laws determine how your assets are to be distributed upon your demise if you don't have a will. For a foreigner owning real estate in Singapore, without a will in place, it will become a little more complicated because essentially when a person passes on, things don't just automatically get distributed to their next of kin.

There has to be a process and that entails applying for a court order. So, if you have a will, you will be applying for a court order called the Grant of Probate and if you do not have a will then you apply for a court order called Grant of Letters of Administration. This applies for everyone across the board. This process in itself, is not entirely straightforward where a person does not have a will.

For foreigners, there is an added complexity because there are additional documents that have to be filed. Before assets can be distributed to the beneficiaries of their choice, or according to the law, there has to be this process which sometimes can stretch a couple of months depending on the complexity of the estate and assets that they own. So, it's important to plan.

MM: So if you are a foreigner it's very important to think about putting together a will?

JP: Definitely. Especially if you have assets in Singapore and you want to make sure that upon demise, all these overseas investments that you have do not get stuck.

That's where the will comes in. Foreigners aside, even for Singaporeans, it is very important to plan because ultimately the whole point of acquiring assets, wealth acquisitions, is to ensure that there's a transition to your loved ones.

ALSO READ: Writing a will: Why is it important?

MM: A lot of people think that intestacy laws will automatically happen especially if I'm Singaporean. Is that true?

JP: Intestacy laws determine how your assets are to be distributed upon demise. So you don't exactly have a choice in terms of the distribution. For instance, for a married couple with no children, upon their demise, their assets will go 50 per cent to the spouse and 50 per cent to the surviving parents in equal shares, but that may not be the ideal distribution method.

They may want to give everything to the surviving spouse or they may want to give a portion to their nieces and nephews. So that is where intestacy laws don't really apply.

Therefore, it is important for you to plan, to look into your own specific family situation and needs before you determine how you want your assets to be distributed upon demise. Intestacy laws can only do so much and it doesn't tailor to everybody’s specific family situation.

MM: What do singles need to understand about inheritance laws, intestacy laws?

JP: For singles, the distribution would be according to the intestacy laws based on next of kin. So if one is single and has no children, everything goes to their parents. If their parents are no longer around, then [the assets] go to their siblings and so on.

This is something that has to be looked into carefully. We have done wills for clients who are single and on many occasions, they have concerns of wanting to provide for specific siblings who have need(s) or are less well-off, whereas other siblings may not need the inheritance.

Or they may also want to provide for specific nephews, nieces or even charitable organisations. These are usually the thoughts of a single person who has assets would have in mind. So, intestacy laws will definitely not distribute according to your wishes which is why you would need to stipulate how you want your specific assets to be distributed.

MM: What do parents need to understand about buying a property and then putting it in a trust? What are trusts for and what are the challenges of setting these up?

JP: A lot of Singaporeans and even foreigners alike are looking at buying properties in trust for their children. That usually arises where the parents want to gift real estate to their children who are still minors, because in Singapore you need to be 21 years and above in order to own property.

So, it could be due to succession planning or that the parents want to just ensure that their children have a roof over their heads without having to contend with property prices skyrocketing by the time they turn 21.

That’s where they want to make an outright gift of a property to their child and the only way they can do that is to employ the means of the trust arrangement to hold the property as legal owner while the child is still a minor. That's basically how acquisition of property in trust takes place.

MM: Are there challenges setting these up or are they pretty straightforward?

JP: The key thing would be cash outlay. So in a trust arrangement, bank financing would unlikely be possible. Parents who wish to buy properties in trust for their children will have to finance it entirely in cash. So, committing to the cash outlay is usually a major consideration.

Now assuming that is not the consideration and they are able to do that, then the other challenge that parents often face is lack of control on how the child eventually manages the property. Because when the child turns 21, the property is transferred to the child, who then becomes the legal and beneficial owner, so they own the property.

Sometimes, parents are concerned about how their children would manage these properties that have been taken over. So, these are the things which are usually on the minds of parents who wish to set up a trust to acquire real estate for the children.

MM: Before you think of passing on your property nest egg to your younger ones, you want to think of building it up. So help us understand how property sale prices have held during Covid-19, particularly the high-end property sale prices.

DC: According to URA’s Q3 2020 numbers, prices in the core central region for non-landed properties rose 2.7 per cent in the last quarter. These properties are mainly purchased by Singaporeans who are quick to recognise that it is actually possible to ride on the wave of the market recovery.

MM: Are we seeing the same amount of foreign buyer interest prior to Covid-19 in Singapore, which is usually seen as a safe destination?

DC: Yes, we still see healthy interest from foreigners. Agents and ourselves, we are still conducting virtual property viewings for foreigners and there has also been buying just entirely through the virtual property viewings. However, there may also be others who are waiting for the travel bans to be lifted before they can visit and view the properties that they are considering before purchasing.

ALSO READ: Are luxury or mass-market condos better investments in Singapore?

MM: When we talk about luxury property in Singapore and given so much uncertainty in the economy, is it still a good hedge for wealth preservation?

DC: Properties will always be an effective hedge in the mid- to long-term period in my view. Singapore’s appeal as a business launch pad means that the Singapore dollar is very much well in demand looking at the history of our currency. We still anticipate for our buyers’ assets to appreciate in the long-term.

So, luxury properties have an edge as they are usually bought by high net worth individuals who will usually not overreact or panic sell during a market downturn. From my experience, we want our buyers to love their new homes so that they are better cared for and prices are better maintained.

Listen to the full interview here:
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This interview was broadcasted on MONEY FM 89.3 on Nov 2, 2020.

This article was first published in MONEY FM 89.3.Disclaimer: All analyses, opinions from interviews, recommendations and other information broadcasted, podcasted, published or printed herein are for general information. You should not rely solely on the said information and are advised to seek independent financial advice from your own financial or investment consultant prior to making any investment decisions. Before acting on the information you hear or read on MONEY FM 89.3, remember to consider if it is suitable for your own investment objectives and financial situation. SPH Radio does not accept any liability for any loss whatsoever arising from any use of the information broadcasted, podcasted, published or printed herein.