First-home buyers will now be able to choose between paying stamp duty upfront, or via an ongoing land tax, commencing January 16th of next year.
How does it work?
Currently, first-home buyers in NSW are able to purchase a property for up to $650k without being required to pay stamp duty, with a stamp duty concession calculated on a sliding scale between $650k to $800k. With the new scheme, first-home buyers can now buy for up to $1.5mil without being required to pay stamp duty upfront.
The annual land tax is $400, plus .3% of the land value. If the purchaser moves out of the property and it becomes an investment, the land tax increases to $1,500 plus 1.1% of the land value. The land value is determined by the Valuer General, and a calculator is available on their website, here – https://fhbcalculator.service.nsw.gov.au/ – You will need to know the purchase price and address of the property to get the result.
How will it benefit first-home buyers?
Let’s look at an example. Looking at a house currently for sale at 1A Costain Place, Seven Hills, the current price guide is $1.35mil. The Valuer General has determined the land value to be $564k, which means the annual land tax will be $2,092. Compare this with the upfront stamp duty of $58,450, and you’ll see that it’s almost 28 times the annual land tax figure.
One thing to keep in mind though is that as the land value increases, so too will the land tax figure. For example, if property prices were to increase by 4% per annum on average, it would be around 20 years before the total land tax paid equals and exceeds the upfront stamp duty figure. This is of course assuming the land tax percentage doesn’t change.
Which is the better option?
I think it really depends on how long you plan to keep the property. 20 years is a long time for a first home buyer to be in the same property, and we see many of our first home buyers move and upgrade well within that time frame, so if you fit this mould then you’re probably better off going down the land tax route. Gone are the days of buying the forever home as the very first property we own, given the steep rise in property prices.
The one thing to keep in mind though is that the land tax figure will be another thing to factor into your budget. Many first-home buyers use most, if not all available savings when purchasing, so ongoing land tax payments will need to be factored in.
Will it have an impact on property prices?
I believe it will. We’re in quite precarious times at the moment with property prices dropping to meet the lower borrowing capacities of buyers caused by interest rate rises. There is also nervousness amongst would-be buyers which is contributing to inaction, one of the leading causes of price falls. One thing that hasn’t changed though, is the supply issue. There is still a lot of demand pent up from years of under construction, and the recent turmoil in the construction industry hasn’t helped. Couple this with population growth due to immigration, and it puts even further pressure on prices.
As interest rate rises start to steady, buyers will once again be out looking for homes to buy, only to find that there is very little to choose from. What the stamp duty reform does is introduce even more potential buyers into the mix, as the deposit required upfront is less of a barrier. This can also push buyers into that next price bracket, where they would usually be hesitant to go due to previously not having a stamp duty concession available, not having enough of a deposit, or both.
There are also buyers who are reluctant to buy a stepping-stone property because of the massive costs to purchase. E.g. If the forever home is $1.7mil, but the buyer can only afford $1mil at that time, they may prefer to rent until they can stretch to the higher amount to avoid the stamp duty. Those buyers will now be more likely to buy and upgrade without those concerns.
If you have any questions about how this works or would like to discuss your own situation, please feel free to reach out.