No one likes a tax, but it’s fair to say that stamp duty is one of the most universally loathed. It was a tax that was essentially meant to be removed when the GST was introduced, but somehow, some 20 years later, it is still a major thorn in the side of property purchasers all over the country.
For first home buyers, it can be a barrier to entry, as it adds a significant amount to a property purchase and needs to be paid upfront. Needing this lump sum amount on top of a 20% deposit can make it impossible for many. In the wake of COVID-19, as state governments scramble to rebuild battered economies, the NSW and VIC governments are both giving serious consideration to scrapping stamp duty altogether. But what might this actually look like in practice?
It could make things easier for first home buyers…
While there have been many attempts at stamp duty relief packages for first home buyers, they haven’t always proved effective. Currently in NSW, first home buyers are exempt from stamp duty on purchases that are less than $650,000, and partially exempt up to $800,000, but there are few areas in Sydney where buyers can actually take advantage of this.
Abolishing the stamp duty could save first home buyers in Sydney an average of $49,586 on house purchases and $28,942 on units, with similar figures for those in the Melbourne market. And if you are in a popular market, you could save substantially more; an average of $93,652 for home buyers on Sydney’s Northern Beaches right up to $129,567 on the Lower North Shore.
While the idea that first home buyers could put the stamp duty amount towards their purchase seems like it would make property more affordable, it may not be the case.
If we think about the realities of the Australian property market, particularly in our major cities, first home buyers with more money to spend combined with a more attractive market for investors is likely to push values up. Instead of using the stamp duty savings to own more equity in their home or keep emergency funds to hand, we may see buyers needing to stretch their money even further to buy in their chosen market.
A win for property investors
Removing stamp duty may also encourage investors to enter or re-enter the market. COVID-19 led to reduced returns for the first time in a long time for many investors in the Australian property market, and abolishing stamp duty will certainly be welcome. Investors won’t need to factor in recouping this amount before they start to see a return, and this will likely make it a more attractive opportunity.
Land tax may change
Stamp duty brings in around $7 billion for the NSW Government alone each year, so it’s likely that states who abolish it will be looking for ways to make up the shortfall. One of the ideas that many experts are floating is a rise in land tax.
In NSW as it stands, land tax is payable on total land (not including dwellings) valued at more than $629,000. Currently in NSW, it is payable on around 4-6% of properties, meaning it isn’t an equivocal revenue generator for the NSW Government. Many are suggesting that stamp duty might be replaced with a revised land tax that is payable on all land, regardless of value.
While no one wants another tax, this may prove a more affordable alternative – paying a few thousand dollars extra at tax time each year is considerably different to finding a lump sum that could reach six figures.
It’s hard to know what is around the corner
Of course, whether you are a first home buyer, investor or downsizer, the abolition of stamp duty is going to give you more money upfront in your pocket, and that always has advantages. Whether we will see a rising property market as first home buyers have more money to spend and investors come back to the market remains to be seen, but is a very real possibility.
If you are thinking about buying your first home, downsizing or investing in property in 2020, it can be a minefield, and the potential abolition of stamp duty is just another area to consider. In such a turbulent economic period, the future can be harder to predict than ever, but having an expert team in your corner can help.
Contact Apt to find out how our team can help you plan and make informed choices when it comes to your property purchase.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.