Stamp duty v property tax: What NSW first home buyers should consider

Late last year, research released by the NSW Treasury found nearly two-thirds of first home buyers would opt out of stamp duty after the new scheme’s implementation. 

Domain chief of research and economics Dr Nicola Powell acknowledged the scheme could reduce the amount of time it takes for first home buyers to enter the market as it lowers the financial barriers they must overcome to secure a property. 

“One of the biggest barriers to getting into the property market is the upfront costs of stamp duty and a deposit,” Dr Powell said.

“Removing stamp duty in place of an annual property tax will allow more first home buyers to purchase sooner.”

Another upside to the scheme she highlighted is that based on cumulative property tax, most people across the eastern seaboard could live in a house for at least 15 years before reaching stamp duty costs.

However, she also pointed out that “the scheme does risk inflating property prices under $1.5 million, as those who have already factored in stamp duty costs may put this towards the purchase cost”.

Based on Domain’s estimates, it would take more than a decade for first home buyers in NSW to be better off opting for stamp duty over the state’s new property tax. 

Providing an example, Domain’s data showed that buyers paying $750,000 for their first home would need to live in it for 15 years before paying stamp duty would make better financial sense. 

The financially sensible time period estimated by Domain increases with the purchase price, with buyers who bought a property valued at $1.5 million (the FHBs scheme’s maximum purchase price) seen to be better off opting for the tax unless they intended to reside in the property for 18 years or longer.

But the possibility of the scheme being short-lived opened up recently, with the NSW opposition pledging to repeal it if the state votes red at the March election.

If elected into office, Opposition Leader Chris Minns has revealed the Labor Party’s housing plan to abolish stamp duty for homes under $800,000 and expand concessions to homes worth $1 million.

In addition to the First Home Buyer Choice scheme, the NSW government currently offers first home buyers exemptions for homes under $650,000 and concessions up to $800,000. 

Criticising the current FHB scheme, Mr Minns said that “when you levy a tax based on the asset value of a property, particularly when properties have increased by 100 per cent in the last 10 years, but you have to pay it out of your salary, I’m concerned about the ability to pay for tens of thousands of new home buyers”. 

He also expressed his strong belief that “tens of thousands of people are far better off under Labor’s proposal than a permanent land tax that will be levied against them for however long they own that property”.

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