The saying “success requires parental support" has become a hot topic, as many devoted parents are willing to financially assist the next generation in purchasing a home. A recent study conducted by Lingnan University delves into parents' perspectives on "intergenerational housing support."
The survey revealed that 67% of parents believe their children lack the financial means to afford a home. However, only about 26% of parents plan to provide financial assistance for their children’s home purchase. Among them, 30% are considering giving direct cash gifts, nearly half are opting for a combination of loans and gifts, while 14% are inclined toward lending money.
Buying a home is a significant milestone in life, and families have different approaches to providing support. Some parents pay the down payment while allowing their children to handle the mortgage, while others transfer the entire property ownership to their children. While these may appear to be internal family arrangements, they often involve factors such as stamp duty, mortgage approvals, and future resale considerations.
Also known as an "internal transfer," a close relative transfer refers to the transfer of property ownership between direct family members, including parents and children, spouses, siblings, and others. Even half-siblings are considered close relatives, provided a birth certificate can verify their relationship.
Close relative transfers can be carried out through either a deed of assignment or a deed of gift. But what’s the difference between the two?
A deed of assignment is a common method for transferring property ownership. This process is similar to a standard property sale, requiring the signing of both a Sale and Purchase Agreement and a Deed of Assignment to confirm the ownership transfer.
Previously, homeowners could use a deed of assignment to regain "first-time homebuyer" status and reduce stamp duty. However, this distinction between first-time and non-first-time buyers has since been removed, meaning all buyers, regardless of their status, are only required to pay ad valorem stamp duty and no longer need to pay additional "cooling-off" taxes.
A deed of gift refers to gifting a property to a close relative without any monetary transaction (i.e. a transaction price of $0). Though the property is gifted for free, stamp duty is still applicable, as the Inland Revenue Department will levy taxes based on the property’s assessed value.
It’s important to note that transferring property ownership through a deed of gift carries higher risks. If the original owner declares bankruptcy, creditors have the right to reclaim ownership of any property gifted within the last five years to prevent the transfer of assets before bankruptcy. As a result, banks generally consider gifted properties to be high-risk assets. Many banks refuse to approve mortgages for properties that were gifted within the last five years, and some banks may extend this restriction to 10 years.
The simplest way to identify a gifted property is through a land search. If the property was transferred via a deed of gift, the most recent ownership transfer will indicate "Deed of Gift," show "Nil consideration" under the consideration section, or display a dash instead of a standard transaction amount.
Due to the higher risks associated with gifted properties, many families prefer using a deed of assignment for close relative property transfers. This method is more straightforward and transparent, making it a more common choice for handling intra-family property arrangements.
