Stamp Duty Alternative Introduced For First Home Buyer Under NSW Budget

22 Jun, 2022

Stamp Duty Alternative Introduced For First Home Buyer Under NSW Budget

From January 2023, First home buyers in NSW will have the option of paying a lower annual property tax instead of stamp duty, as part of the government’s reforms to make homeownership more affordable.

No more stamp duty under the new First Home Buyer Choice package

This will be known as The First Home Buyer Choice scheme, launched by NSW Premier Domenic Perrottet as part of a multi-billion dollar housing package for the 2022-23 budget.

Under the new scheme, those buying their first home will now have the option of either paying an annual property tax of $400 plus 0.3% of the property’s land value or paying the stamp duty upfront.

This property tax option will be available for both off the plan and established properties, with purchase prices of up to $1.5 million.

For example, a property for $1.12 million (the median property price in Sydney) may have a land value of $750,000, requiring the property owner to pay $2650 every year rather than $49,934 upfront.

NSW Premier Dominic Perrottet. Source: NCA NewsWire

“We want to lower the barriers to owning a home for first home buyers seeking a place of their own,” Mr Perrottet said.

“The First Home Buyer Choice will remove one of the largest upfront costs to buying a home and help deliver a brighter future for first home buyers.”

The NSW Government has set aside $728.6 million over the next four years to assist first-time homebuyers, according to Treasury Secretary Matt Kean.

The government predicted that the new First Home Buyer Choice scheme, combined with other first home buyer programmes, would help around 55,000 people buy their first home each year.

“We know that first home buyers are being forced to enter the property market later in life, and this reform will make the property market more accessible for them,” Mr Kean said.

“It will mean more NSW residents will get into their first home at an earlier age and achieve the great Australian dream of home ownership.”

Switching to property tax might be a better option

Stamp duty extends the time needed to save the upfront costs of the typical NSW property by around two years for a household earning the median salary and setting aside 15% of their income.

The new Domain modelling also shows that switching could leave some better off for first home buyers, as it will reduce upfront costs while gradually billing the household budget.

Source: Domain

Dr. Nicola Powell, Domain’s chief of research and economics, said it would take years for buyers to pay a property tax similar to stamp duty, making the tax a preferable alternative for people buying a home for the short to medium term.

According to this new research, it could take 18 years for first home buyers who are owner occupiers of a $1.5 million property to accumulate the stamp duty equivalent in property tax.

For property investors, the proposed annual rate of property tax is $1500 plus 1.1% of the land value. So to buy a $1.5 million property, it would take around 6 years for the investors to accrue the same amount of stamp duty.

Source: Domain 

Although it may seem like property investors are better off paying stamp duty upfront, this property tax will be tax deductible against their property income.

Property experts are welcoming the new plan

Archer Mortgage Group head of mortgages, Jasjeet Makkar, said stamp duty was one of the largest barriers to entry for potential home buyers, adding that saving for a deposit may take years.

“There are a lot of buyers in that boat who do not look at homes above $650,000, so they can get into the market with a small deposit,” Makkar said.

“They’re going with a 5 per cent deposit. If they had to pay stamp duty on top of that, they won’t be able to complete the purchase.”

The new scheme, according to Brendan Coates of the Grattan Institute’s economic policy programme, is a great start towards effective economic reform, benefiting both homeowners and the state government.

Additionally, phasing out stamp duty would also reduce the deposit problem for property buyers, Mr Coates said.

“When people are having to save for a 20 per cent deposit, they’re really saving a 25 per cent deposit,” Coates said.

What are the limitations of the First Home Buyer Choice Scheme?

PropTrack director of economics research Cameron Kusher said the new scheme, however, will have some limitations.

“Property prices in NSW have already slowed, with the highest-priced properties seeing the biggest drops. A scheme such as this will likely provide more support for cheaper properties.” said Cameron Kusher

“However, the impact is likely to be fairly minimal given the stronger market forces at play and expected further increases in interest rates. Hopefully, this is the first step to broader stamp duty reform in NSW.”

AMP Capital chief economist Dr Shane Oliver said while it was a “fantastic reform” of a heavily distortionary tax that was long overdue, it could have a short-term impact of pushing up prices.

Options for first home buyers

As first home buyers, you will have several options to choose from:

  • For properties up to $650,000, you will continue to be eligible for a full stamp duty exemption.
  • For properties valued between $650,000 and $800,000, stamp duty exemptions are still available.
  • Starting from January 16, 2023, for properties up to $1.5 million, if you opt-in to the First Home Buyer Choice programme, you will not have to pay stamp duty on your purchase. Instead, property tax options will be available.
Looking to buy your first home?

Call us on (02) 9099 3412 or enquire below, so our team can help you navigate your first home buying journey.


Last updated: August 2020


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