What’s going on with stamp duty?
Stamp duty not only affects homebuyers but also influences the economy and even how our society is shaped.
Recently, the NSW Treasurer, Dominic Perrottet, put forward a proposal in which buyers would choose between paying the one-off purchase levy, or be subject to a smaller but annual land tax.
So what’s going on here, and how might it affect buyers and sellers of property?
The first issue to note is that stamp duty is expensive. Its rate depends on the value of the property that is being bought, but let’s say you’re in Sydney and you want to buy a $1m home: you’ll get slugged around $40,000.
The impact is that many owners are dissuaded from moving to another property – to upsize or downsize – because they’d rather keep the $40,000 in their pocket.
As a result, fewer homes are bought and sold in NSW than would be the case if the tax didn’t exist, or it was implemented differently.
The plan has not been approved yet so let’s see where it goes.
The real estate industry will give it, or a variation, a thumbs up. The REINSW has been calling for stamp duty reform on behalf of the industry for years. Stamp duty in NSW is among the most expensive in the country. It plays a significant role in the cost of property and places an almost unmanageable burden on first home buyers in terms of the cash they need to raise to enter the market.
But stamp duty is also a significant cash cow for the NSW government and is a major contributor to taxes. So any migration to a new system needs to be carefully modelled and managed and is likely to take up to 20 years to introduce in full.
The current plan would provide flexibility for new buyers on how they pay the levy and give them an option to either pay stamp duty up front or pay it as an annual land tax
The other beneficiary would be the state government. That’s because an increase in property sales over the medium to long-term means additional revenues even if they were split between one-off slugs of stamp duty, or the smaller, annual land tax.
If people moved towards a land tax option, that would provide an increased stability in income and reduce any pain from a market slowdown.
The question is how might it impact property prices?
This isn’t easy to establish because there are so many external factors, such as global and national economic performance, consumer confidence and immigration levels that also play a role in property prices. If the plan is introduced, there could be a small spike in property prices as the money that would have been spent on the up front tax is added to what buyers believe they can afford to pay for the property of their dreams.
But to counter that, it is likely to also encourage more people to sell, adding listings to the market, giving buyers greater choice.
So, how might this affect you and your plans to buy or sell a property?
The thing to remember is that this is still just a proposal. Nothing has actually been introduced. In such instances, it pays to keep watching, but not change any of your life plans. Make your property decisions based on what is right for you and your family right now in the current circumstances, and deal with the changes if they occur.
When it comes to money and property – and let’s face it, they’re pretty inseparable – it always pays to seek counsel from a professional financial adviser.
If we can help you with any property-related questions, or talk to you about selling your current property, please do not hesitate to call.
