NSW to get upper hand over other states from historic stamp duty reform

Analysis by the NSW Treasury submitted to Parliament earlier this month revealed that two-thirds of first home buyers will opt against paying stamp duty, with further research indicating that up to 80 per cent of home sales could benefit from the scheme. 

While the new law is not set to come into full effect until 16 January 2023, Mr Wargent said that its slated rollout gives NSW “an advantage over other states”. 

He pointed out that with other states and territories still requiring substantial stamp duty payment by first home buyers, the new law will make NSW a more attractive option for those looking to get onto the property market ladder. 

“In time, this may even help to attract more young talent to the harbour city, in preference to Melbourne,” Mr Wargent forecast. 

To further emphasise how NSW’s new law will create a divergence in the market trends, Mr Wargent cited the latest auction data. 

Mr Wargent said the latest auction data indicated that the rebound in Sydney’s market will be powered by the lower end of the housing market. 

“This weekend, Sydney’s preliminary auction clearance rate was 69 per cent, although there were close to 100 properties withdrawn. 

“Seven out of every 10 units taken to auction this weekend in Sydney sold under the hammer, which was a stronger result than for detached homes, suggesting that the recovery is ultimately likely to be driven by the lower end of the housing market in New South Wales,” he said.

He pointed out that there were signs in the recent week that first home buyers are becoming active with their searches in the eastern suburbs, the city and inner south, and inner south-west areas of Sydney — indicating that demand may be stirring up due to the prospect of the new law. 

“Until now, a first home buyer buying a property for $1.5 million in Sydney has had to hand over $67,000 in stamp duty to the government, which is a serious disincentive not only to buying but also to subsequently selling and upgrading,” he commented. 

BuyersBuyers chief executive Doron Peleg said that upon the new law’s enactment, a first home buyer buying in NSW prospectively can now focus on saving the deposit, without needing to pay more than $40,000 on a $1 million property purchase in stamp duty.

“Our view is that the lower end of the market in New South Wales will now see significantly more activity and transactions being successfully completed,” he stated. 

While NSW is set to get a boost from doing away with hefty property purchasing costs, Mr Peleg stated that other state and territory markets do not have the same advantage over the coming year. 

“Melbourne experienced a much lower preliminary auction clearance rate of only 57 per cent this weekend, with many prospective buyers opting to sit things out until the new year, and until there is further clarity on where the terminal cash rate will land. 

The final auction clearance rate for Melbourne will likely be closer to just 50 per cent. This is a considerably softer result, of course,” he stated. 

In Brisbane, Mr Peleg reported that very few properties were reported as sold under the hammer in Brisbane, with caution abounding. 

“While the market conditions are mixed, generally speaking, higher-priced properties have been declining in price over the past six months, and in some cases, the declines have been very significant, particularly for some hinterland and lifestyle locations,” he stated. 

Mr Peleg hailed the passing of the law as a “positive move” that will increase efficiency in the economy and ultimately “help to smooth the tax take through the housing market cycle”. 

He remarked that state governments had become “somewhat addicted” to stamp and transfer duties — regulatory oversights which he referred to as “pro-cyclical and inefficient taxes” that restrain the free movement of the labour force, and making the hurdle to home ownership “increasingly too high”.

Highlighting the heavy costs that are associated with purchasing a property, Mr Peleg cited recent data showing that a total of $14.5 billion was collected from transfer duties over the 2022 financial year. The figures are four times the amount from a decade earlier.

With 6,000 first home buyers each year likely to take advantage of the new reform, Mr Wargent added that Sydney now has the capacity to attract the best and brightest talent from Australia and overseas going forward — a flow-on effect that which he referred to as “a significant boost for this sector of the market”. 

Although first home buyers will be able to take advantage of the reform immediately by applying for stamp duty refunds, Mr Wargent acknowledged that the full impact of the reform would take some time to be observed.

“We expect the lower price quartile of the Sydney market to begin its recovery in the first quarter of 2023, as more buyers take advantage of the reforms from January onwards,” he stated. 

Mr Wargent noted that the rapid tightening of Sydney’s rental market as immigration continues to rebound will be another factor that inclines the buy-versus-rent equation for first home buyers towards buying.

“That’s especially true for first home buyers who can gain assistance with saving or coming up with the deposit from the so-termed ‘bank of mum and dad’,” he commented. 

But Mr Wargent noted that investors may also now be targeting the Sydney market in the price points up to $1.5 million — a trend he stated may arbitrage away some of the benefits of the stamp duty saved by first home buyers over the next year. 

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