Stamp duty NSW: First home buyers cornered by tax reform

NSW’s highly touted stamp duty changes will likely severely limit the type of properties first-home buyers will want to purchase.

The new scheme giving NSW first home buyers a choice between paying stamp duty or an annual property tax is a worthy initiative, but a pale shadow of Premier Dominic Perrottet’s long espoused ambitious reform proposal.

The state budget’s stamp duty scheme will bring in a tax with a yearly cost of $400 for FHB owner occupiers, plus 0.3 per cent of the property’s unimproved land value. It will be $1500 annually, plus 1.1 per cent of land value for FHB investment properties.

The property tax option will be available for FHB purchases up to $1.5 million, which together with existing initiatives, is tipped to support about 97 per cent of all FHBs, or about 55,000 people a year.

an annual property tax is a worthy initiative, but a pale shadow of Premier Dominic Perrottet’s long espoused ambitious reform proposal. Picture: NCA NewsWire /Jeremy Piper

Properties will not be locked in to a perpetual annual property tax as initially mooted.

And there are concerns the tax should be based on the actual sale prices as the state’s land valuation has been systematically flawed.

Legislation will be introduced to parliament with the anticipated start date as 16 January next year. Contracts exchanged before the passing of the legislation will not be eligible. But for contracts signed between the legislation being passed and 15 January 2023, will see participants receive a refund of stamp duty.

Treasurer Matt Kean is correct in thinking that being able to choose property tax over stamp duty will make buying more accessible for young people as stamp duty adds at least two years to the time required to save for the upfront costs of a median property.

There are concerns any savings on the upfront stamp duty costs will be added to a buyer’s purchasing budget, ultimately becoming a windfall for the vendors and potentially putting upward pressure on prices in bullish markets.

First home buyers such as Ayesha Jabeen may prefer units over homes to limit their tax Picture: Tony Gough

The scheme will likely prompt FHBs towards apartments given they are cheaper and have less land value than houses, and will have a lower tax.

A $750,000 apartment in Concord, which has a land value of $270,000, qualifies for a concessional rate $20,870 stamp duty. Its annual tax on the apartment would be $1210.

A $1,060,000 Rosehill house, priced above the threshold for any ongoing FHB stamp duty concessions, would attract $42,790 in stamp duty or, with a land value of $500,000, a $1900 annual property tax.

While the annual tax adds up over the years, it would take well over a decade before it matched the upfront cost of stamp duty.

Most FHB owners as a matter of course will have long moved on by then, so the curtailed scheme is unlikely to achieve the objective of dramatically increasing stock turnover.

Another miss in the budget was for the non first time buyers. The state government did nothing to adjust the stamp duty rate brackets. Given soaring property price growth, buyers are now increasingly paying the highest rates of stamp duty.

The FHB scheme has a $182 million annual cost over the next four years, a drop in the ocean given the current record revenues. The current financial year, with 11 record months to date, has seen the government grossing a stunning $13.2 billion.