NSW stamp duty shake-up to happen in 2023

$2.8 billion housing package includes property tax, shared equity

NSW stamp duty shake-up to happen in 2023

Stamp duty needn’t be a hurdle for first-home buyers in NSW after an option to pay an annual property tax was rubber stamped by the NSW government on Tuesday.

In what is considered one of the biggest housing reforms of recent times, the state government has released a $2.8 billion housing package as part of its 2022-23 budget.

NSW Premier Dominic Perrottet said the package aimed to “pull all available government levers” to improve housing supply, fast-track critical infrastructure and offer financial relief for first-home buyers over the next four years.

“Everyone should have the right to a home, no matter where you live or what income you earn,” Perrotet said. “This is the biggest investment in addressing home ownership in decades and it is about leveraging the different areas of government to help people own a home.”

Two policies –  First Home Buyer Choice and a shared equity scheme –  are set to help first-home buyers, older single people and single parents with children become homeowners. 

From January 16, 2023, First Home Buyer Choice will allow first home buyers purchasing a home up to the value of $1.5 million to choose between an upfront payment (stamp duty) or a smaller annual property tax.

Stamp duty has long been considered an inefficient tax and can be a barrier to entry for people wanting to own a home. 

Based on property tax rates for 2022-23, first home buyers who opt in and intend to live in the home will pay an annual property tax of $400, plus 0.3% of the land value of the property. For investment properties, the annual property tax is $1,500, plus 1.1% of the land value.

The property “will not be locked into the scheme if it is sold”, the NSW government has confirmed. This means if you are buying a property from somebody who is paying the property tax, you will not be subject to the property tax (unless you are also an eligible first home buyer and you choose to pay the property tax).

First-home buyers would continue to be eligible to apply for full stamp duty exemption for homes up to $650,000 and concessions remained in-place for properties between $650,000 and $800,000.

Read more: Stamp duty overhaul draws mixed response

The shared equity scheme will be trialled as a two-year pilot from January 2023. It’s open to first home buyers who are nurses, teachers or police, single people aged 50 plus and single parents with a child or children under the age of 18.  Under the scheme, the NSW government would contribute an equity share of up to 40% for a new home, or up to 30% for an existing home.

Read more: Industry identifies risks around Shared Equity Scheme

Home Loan Experts founder Otto Dargan (pictured above left) said  First Home Buyer Choice was a “well thought out plan” that would genuinely help first home buyers, noting that housing supply issues would still need to be addressed.

Stamp duty was calculated on property value, whereas annual land tax was based on land value, Dargan said.

As apartments have a higher portion of value attributed to the building than to the land, Dargan said the option to pay annual land tax may be more attractive to people buying units.

The length of time a buyer intends to hold onto a property may influence their decision on whether they pay stamp duty or apply for the annual property tax, he said.

“For example if someone is buying an apartment they may know that they're going to need a bigger home within 10 years to start a family. In this case a quick calculation would show that the annual land tax is cheaper for them,” Dargan said.

Three examples provided on the NSW government website show situations where buyers may choose the annual property tax.

A first example is based a couple buying a home valued at $650,000 in Mudgee.  As first home buyers, the couple is exempt from stamp duty, therefore do not choose the annual property tax.

A second example is an apartment valued at $750,000 in Concord, for which the land value is $270,000. Based on the concessional rate, the cost of stamp duty would be $20,870.  In 2022-23, the annual property tax would be $1210.  As the fictitious buyer plans to upgrade in five years, they choose the property tax option.

A third example is a townhouse valued at $1.2m in Newcastle, for which the land value is $720,000. The cost of stamp duty (no exemptions or concessions apply) is $50,875. In 2022-23, the annual property tax would be $2560. As the fictitious buyer isn’t sure how long they’ll own the home, based on the average tenure of 10 years, they choose the property tax option as it is more cost-effective.

As saving a deposit is harder than paying a mortgage, Dargan said he considered the First Home Buyer Choice scheme to be “very effective” in helping first home buyers.

“Many of them are buying properties that are too expensive to be eligible for the full stamp duty exemption and the high upfront cost of stamp duty is a major barrier to buying,” Dargan said.

Only one of the people buying a property is required to be a permanent resident or citizen, he said.

“This makes sense as this has often been a problem in the past in NSW and with other states where couples with one person as a temporary resident risk missing out on first home benefits. It can take years for someone to obtain permanent residency and this sometimes delays their home buying decision,” Dargan said.

Business NSW chief executive Daniel Hunter (pictured above centre) said the budget contained a series of initiatives to address key cost-of-living measures, as well as reforms in the areas of housing affordability, childcare accessibility and education performance.

“Central to address cost-of-living pressure is the proposed change from stamp duty to a land tax option for first home buyers,” Hunter said.

As a longstanding advocate for stamp duty reform to address housing availability and affordability, Hunter said it was pleasing to see it included within the 2021-22 budget.

 “It’s pleasing to see a government prepared to take on this issue and are willing to introduce measures despite their potential to impact the overall bottom line,” Hunter said.

“The equity housing initiative is one which, given the expected take up, should enable more people to break into the housing market without sending prices soaring.

REA Group director economic research Cameron Kusher (pictured above right) said while it was encouraging to see a shift away from stamp duty, the First Home Buyer Choice scheme only targeted the first home buyer market, which he said was “the smallest cohort” of buyers.

The scheme is only available to first-home buyers who choose it and it won’t apply to subsequent purchasers of a property.

“Looking at previous NSW government schemes, stamp-duty free purchases or reduced stamp duty had already been available to first home buyers that purchased new homes, while this new scheme is applicable to new and existing homes,” Kusher said.

Kusher said stamp duty was also a barrier to market mobility for existing homeowners.

“Given the new scheme is an option for homes up to the value of $1.5 million, there is an opportunity to extend this to subsequent purchasers and investors too,” he said. 

As properties valued at $1.5 million and over are excluded from the scheme, this would reduce loss of revenue to government Kusher said, noting buyers of higher-priced properties were more likely to choose to pay stamp duty.

“Property prices are already slowing in NSW and it is the higher-priced properties that are seeing the greatest falls. A scheme such as this is likely to provide some more support for cheaper properties, however, the impact is likely to be fairly minimal given the stronger market forces at play and the further increases in interest rates which are expected,” Kusher said.

“Hopefully this is the first step to broader stamp duty reform in NSW.”