First home buyers in Sydney were the winners in the property market this week.
The New South Wales Government has announced bold changes to stamp duty requirements for first home buyers, who from 16 January 2023, will be given the option of either paying the traditional upfront stamp duty, or choosing to pay a smaller annual cost instead.
What is Stamp Duty?
Stamp duty is a tax charged by State and Territory governments every time someone buys a property.
It was first introduced in Australia in 1865, and back then involved a physical stamping of the transfer document from one person to another, allowing the purchaser to be recognised by law as the owner of the property.
These days, there’s no physical stamp, but it is required every time you buy a property. Stamp duty accounts for at least 10 per cent of each State and Territory’s revenue each year.
How Much is it?
Most States and Territories have a scale system, where the percentage is higher as the property price increases, with the end result being that the stamp duty is equivalent to about 3 per cent to 6 per cent of the purchase price.
Most States and Territories offer stamp duty discounts to first home buyers, owner occupiers, pensioners and farmers.
The median house value in Australia today is $940,000. By way of example, here is the amount of stamp duty you would have to pay on a $940,000 property in each State and Territory:
As you can see, it differs in each State and Territory.
It’s not cheap with buyers having to pay somewhere between $28,150 (Queensland) and $51,470 (Victoria), and that’s on top of the $940,000 for the house itself.
It’s probably more accurate to break down the stamp duty amounts payable by each State and Territory at their respective median house values:
It means that, in New South Wales, a buyer must come up with $61,420 on top of the $1,403,964 it takes to buy a typical home in Sydney.
The New South Wales Government has in place a stamp duty discount for first home buyers, but it is capped at properties that cost $800,000 or less (which doesn’t go very far in Sydney).
It’s a big hurdle for first home buyers.
The New Incentive
For first home buyers in NSW who are owner occupiers and buying a home worth between $800,000 and $1.5 million (i.e., they aren’t eligible for the ‘normal’ first home buyer incentives), they will be able to choose between:
- paying the usual amount of stamp duty; or
- paying an ‘annual property tax’ based on the land value.
If they choose (b), the ‘annual property tax’ payments will be:
- $400 plus 0.3 per cent of land value for properties whose owners live in them; or
- $1,500 plus 1.1 per cent of land value for investment properties (i.e. where the owner subsequently converts the home to an investment).
If we use the Sydney median house value of $1,403,964, the land value would be roughly $1.1 million. Therefore, the annual property tax would be $3,700, being $400 plus 0.03 per cent of $1.1 million ($3,300).
It’s a no brainer when compared with the one-off stamp duty payment of $61,420.
It would be 17 years before the first home buyer ended up paying the equivalent amount of the upfront payment. By which time they would have sold, earned more income and/or seen their property grow substantially in value.
There is no requirement for the buyer to hold the property for a certain amount of time.
It’s worth noting that, should the first home buyer choose to convert their home to an investment property, they’d end up paying a much higher annual property tax ($13,600 per annum).
I think it’s an inspired solution to the affordability challenges facing first home buyers.
Hopefully more Governments follow New South Wales’ lead in years to come.
