The NSW Government is proposing a big change to the NSW tax system which should offer home buyers the option to either pay stamp duty or pay a smaller annual property tax instead.
The NSW property tax proposal may affect many prospective homeowners who are currently priced out of the market. With recent updates from the NSW government looking more likely to happen, we look at what it is exactly, who will be impacted, and whether sticking with stamp duty or applying the proposed property tax is right for your property.
Let’s take a look at what that could mean for the market.
Currently, prospective homeowners need to pay a large stamp duty fee to purchase a home in NSW. With home prices now at an all-time high, many first-time homebuyers find themselves priced out of the market, especially in Sydney’s hot market.
The proposed property tax looks to split this high, upfront cost into an annual tax. This change would boost homeownership and make it easier for first home buyers to afford property.
There has been widespread support from property experts and analysts for the proposed NSW property tax. They say first home buyers are entering the property market later in life. In two decades, the share of first home buyers aged under 35 has declined from 69% to 55%. At the moment, full stamp duty concessions are available to first home buyers purchasing homes up to $650,000 with partial stamp duty concessions offered on homes of up to $800,000.
Improving First Home Ownership in NSW
A focus on first-time home purchasers is an important aspect of the reform. The large percentage of first-time home buyers are in their forties or fifties. The average age of a first-time home buyer rose from 33 to 35 years between 1995-96 and 2017-18. The percentage of first-time buyers under 35 has dropped from 69 percent to 55 percent in the last two decades.
The up-front costs of a home are particularly constraining for first home buyers, because it can take many years in the workforce to save the necessary amount for a deposit and stamp duty.
At present, first-time homebuyers can get full stamp duty savings on homes up to $650,000, with partial stamp duty concessions on homes up to $800,000. Due to the high cost of housing, about a third of all first-time homebuyers will have to bear the additional cost of stamp duty. The upfront expenses of a home are particularly restricting for first-time buyers, as saving the required amount can take many years.
Switching to the proposed property tax would eliminate the need for buyers to pay stamp duty and bypass this upfront cost of home ownership for all first-time home buyers, not only those who buy lower-priced properties. More importantly, the proposed tax reform is expected to improve overall home ownership across the country.
Improving Household Mobility
First home buyers interested in entering the market may want to learn more about the property tax proposal and how it may impact them. Likewise, home sellers may find that the market will move faster — and that their homes may sell for more without the stamp duty requirements.
Stamp duty has a significant impact on people’s capacity to live where and when they wish. To avoid having to pay stamp duty twice, many people put off buying a smaller first house and instead save for a larger, more expensive family home. Because of the large initial transaction costs of buying a home, including stamp duty, many people stay in properties that do not suit their family or lifestyle.
With the proposed tax changes, more people are given better choices when it comes to finding the right home for them and their families.
Boosting Economic Recovery
The proposed reforms would pour in $11 billion, boosting the NSW economy by 1.7 percent, and bringing in an additional $10 billion in annual revenue for households. This will go a long way to helping NSW in its efforts to recover from the lingering impact of COVID-19.
Under the NSW property tax proposal, buyers will still have the choice of paying stamp duty. However, once the property is subject to property tax, subsequent owners will need to pay the property tax.
It is also important to note that:
It is known that short-term, the NSW Property Tax Proposal would reduce the amount of revenue the government would bring in. But it’s designed to eventually become revenue-neutral due to the long-term annual property tax.
Homebuyers should first think about whether they want to pay for stamp duty or property tax. There’s a calculator available that can help. From there, homebuyers can take a look at the proposed reforms to see how long it would take to pay off.
For most home buyers, it’s cheaper to pay the annual tax. The amount of time someone usually keeps a home is about seven years, so it doesn’t make sense to front-load the stamp duty. Paying an annual tax for seven years will amount to far less and allow first-time homebuyers to get into the property market much faster.
A house valued at $600k in 2021 would have a stamp duty fee of around $22,335. With the proposed property tax, over 7 years, you would pay around $9,500.
* Please note, this calculation is based on the unimproved land value of $1,354 p/a.*
According to property experts, you would need to stay in your home for about 30 years to be better off paying stamp duty, depending on the stamp duty and annual property tax specifics. Because it is based on the unimproved land value, not just the house, it needs to be calculated individually.
If you’re thinking about purchasing a home soon, the NSW Property Tax proposal will likely help you. Specifically designed to make homeownership more accessible and affordable, the NSW Property Tax proposal means you’ll need to pay less upfront. But it’s still in the works — and the time to start connecting with mortgage brokers is now.
Shore Financial can help. At Shore Financial, we work hard to connect our home buyers with the home loans that are best for them and educate our home buyers on the best options. Contact us today to get started with your home buying journey.