NSW housing package ‘may push up prices’

STAMP duty cuts and other measures to help first homebuyers could ultimately push up prices, experts have warned.

STAMP duty cuts and other measures to help first homebuyers in NSW could ultimately end up being “self-defeating” by increasing demand and pushing up prices, experts have warned.

Under the changes announced on Thursday, stamp duty will be abolished for first homebuyers of new and existing properties up to $650,000 from July 1, with discounts on properties up to $800,000.

The current exemption only applies for new properties valued up to $550,000. The change will provide savings of nearly $25,000 for first homebuyers, and the total package could add up to more than $34,000 of savings.

Putting the broadened scope into context, CoreLogic says over the past 12 months, 45.4 per cent of dwellings sold in NSW had a price tag of $650,000 or less, and 58 per cent had a price tag of $800,000 or less. But within the Sydney metro area, just 25.8 per cent of sales in the past year were under $650,000.

According to the ABS, first homebuyers made up just 8 per cent of owner-occupier mortgage commitments in March, slightly up from the record low of 7.5 per cent in September last year but well below the long-term average of 17 per cent.

Housing prices in Sydney are the highest among the capital cities, with the latest data from CoreLogic putting the median house price at just over $1 million and median unit price at just under $743,000.

The research firm says removing or reducing the transactional costs for first homebuyers is likely to provide both positive and negative consequences, as it is “widely accepted that policies aimed at stimulating demand tend to push prices higher”.

“Abolishing stamp duty for first home buyers is likely to create some headaches for eligible buyers who have recently entered into contracts,” said CoreLogic head of research Tim Lawless.

“Additionally we can expect first homebuyer activity to stall before surging higher on July 1 2017. The long term outcome may be self-defeating due to higher demand pushing up prices.”

Other changes announced in the package include the removal of stamp duty charged on lender’s mortgage insurance — an additional fee for buyers with smaller deposits — and a raft of new fees and taxes on foreign investors.

The Foreign Investor Surcharge Duty will be doubled from 4 per cent to 8 per cent from July 1, while the annual land tax surcharge on foreign buyers will rise from 0.75 per cent to two per cent a year. The changes are expected to raise $2 billion over four years.

Kim Wright, global head of real estate with UBS, highlighted the experience of other countries that had introduced higher stamp duty on foreign buyers. In Hong Kong, foreign buyers made up aroud 40 per cent of new developments, but that figure fell to about 5 per cent after the introduction of 30-36 per cent stamp duty.

“But then what has happened is developers provided rebates, where they would refund all or part of the stamp duty, so Chinese buying picked back up to pretty high levels,” she said. “I think [the NSW changes] will slow down some demand, then it will depend on how the developers respond.”

According to a UBS survey of more than 3000 mainland Chinese consumers of working age from higher socioeconomic cities, 10 per cent of those respondents owned property overseas, with around 25 per cent of those buying for investment purposes to leave vacant, and another 25 per cent buying for self-use but leaving empty for much of the year.

Ms Wright added that the vacant property tax announced in last month’s Federal Budget may have more serious consequences that intended. “I know the perception from Australia is that it’s probably negligible, but internationally when holding taxes have been talked about in Hong Kong or China, there was quite a bit of concern,” she said.

“Mainland Chinese aren’t used to having to pay holding tax, so that might have more of an impact than people perceive it would. We also don’t know how the rules are going to apply around temporary use, so if they’ve got a property they use four or five times a year.”

The Urban Development Institute of Australia has also warned that the increase in taxes on foreign buyers could ultimately push up prices. Developers typically rely on pre-sales, largely to foreigners, to raise sufficient capital to start construction.

UDIA NSW says the resulting drop-off in foreign buyers will lead to entire projects being cancelled, worsening Sydney’s undersupply crisis. “You can’t expect to make things cheaper by increasing the tax on it,” UDIA NSW chief executive Steve Mann said.
“Australian buyers won’t benefit from reduced competition if there’s fewer properties being built and sold. Every percentage point makes a difference in the development industry. Even though foreign buyers are only 11 per cent of the market, that could be enough to prevent thousands of new homes being built for Australians.”

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