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States are gearing up for reforms to stamp duty since both the NSW and Victorian governments revealed their plans for the tax in their November budget announcements.
In NSW, the new tax model would give buyers a choice of paying either the upfront stamp duty and land tax or a smaller annual property tax.
While there has been a lot of positive reaction to the news, Sydney-based financial planner and mortgage broker Tony Bice warns that it may not translate into real savings for many.
The change to stamp duty would mean huge savings on upfront costs for first home buyers, he explains, but it wouldn’t work in the favour of upsizers who want to stay put over the long term. Modelling has shown that, after a homeowner has paid the proposed annual property tax for 10 years, the overall cost would likely start to exceed what would have been a one-off payment at the time of purchase.
Those buying their ‘forever home’ would thus stand to lose from the change, which is why the success of the new scheme will come down to having choice, says the Finance Made Easy owner.
But this is a choice that first home buyers in the Harbour City will be sure to appreciate, Bice adds.
“If we want to kick-start the economy, the choice that the majority of first home buyers are going to want is to delay the payment,” says Bice.
A Sydney buyer purchasing a two-bedroom apartment in the inner-west suburb of Ashfield would need a deposit of about $145,000 to avoid LMI, based on a median price of $712,000.
According to Your Mortgage, the stamp duty payable on a property of this size is about $27,800, meaning the buyer would need well over $172,000 to finance the deal.
While some first home buyers may be eligible for a reduction or exemption under the current scheme, many of those buying an existing property in Sydney could potentially save thousands upfront if they elected to pay an annual property tax instead.
“The implementation of a property tax will allow more people access to buying a home by easing the total amount that they have to save, as well as allowing them to borrow a higher amount,” he says. “The relief that the proposed property tax will bring can’t be under estimated – right now we need everything that we can get to assist in kick-starting the economy.”
Wollongong broker Paul Wright agrees that the proposed stamp duty reform would help first home buyers get into the Illawarra property market, adding that upgraders and downsizers could also benefit.
“With upgraders, I think sometimes there is a reluctance to sell and then buy because of the changeover cost,” he says. “When you think about it, if you’re upgrading from a $800,000 to a $1m property or even a $1.1m to $1.2m property, you’re looking at change- over costs that are somewhere in the vicinity of $60,000 to $70,000 if you factor in real estate, stamp duty and legal fees.
“People tend to gravitate towards the renovation side, so it will be interesting to see whether it changes that.”
Lloyd Edge, buyer’s agent and author of Positively Geared, says the reform could cause instability in the NSW property market over the short term until the details of the arrangement are finalised.
“Over the longer term, prices may be affected by an ongoing land tax which is levied annually,” he says. “It may mean more first home buyers will enter the market, as one of the larger restraints to entering the property market for first home buyers is often needing that upfront stamp duty on top of the deposit they have saved.”
This could result in a surge in property values within the lower-priced Sydney markets in particular, Edge says.
“Stamp duty has often caused distortions in buying and selling decisions because of these large upfront costs,” he says. “I believe this will create some great opportunities for brokers as there will be more buyers entering the markets and looking for loans.”
Victoria’s plans for stamp duty are less contentious, as the state has announced waivers of up to 50% on stamp duty for homes valued at a maximum of $1m with contracts for sale up to 30 June 2021.
To support the construction industry in Victoria, relief will be targeted at newly built or off-the-plan homes, which will receive a 50% waiver. Existing homes will be eligible for a 25% waiver.
Aussie CEO James Symond welcomed the news, saying there was a need to kick-start the economy as people “emerge from lockdown with pent-up demand and enforced savings by not travelling or going out”.
“The stamp duty relief offers first home buyers in Victoria a fighting chance at getting into the market sooner than they would otherwise and could have an immediate and positive impact on first home buyers and young families,” he said.
“It is a great time for Victorian next-home buyers and those looking to enter the property market, with the power in their hands when it comes to getting a good home loan deal amid low mortgage rates and government initiatives. We would like to see even more support measures for homebuyers continue.”