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The NSW government will be giving first home buyers the option to opt out of paying stamp duty in favour of an ongoing property tax as of 16 January 2023 after passing the First Home Buyer Choice (FHBC) policy in November.
Eligible first home buyers are offered the opportunity to pay a smaller annual property fee or a large upfront stamp duty on their first property up to $1.5 million.
However, according to CoreLogic’s head of research Eliza Owen, the policy is missing “key efficiencies” associated with abolishing stamp duty and establishing an ongoing broad-based property tax.
Although the policy will act as an incentive for first home buyers, it may lead to upwards pressure on housing demand “in an otherwise soft market”.
Ms Owen stated that sellers may benefit more from the policy than first home buyers and that removing stamp duty could push up home values overall, despite saving first home buyers on upfront costs of buying a home.
“This is because stamp duty is a part of what buyers are willing to pay for their home. Removing stamp duty payments means the buyer has more money to put toward the purchase price,” she said.
Additionally, the “breakeven” point for expenditure on stamp duty and the property tax in the price range varies between purchase price and dwelling type, according to Ms Owen.
“It is estimated to be between 36–63 years for units and 21–29 years for houses,” Ms Owen said.
“But any savings on property tax may be put towards the purchase price, ultimately benefitting the seller of the property.”
However, one of the benefits to come out of the FHBC policy is that it makes housing more efficient.
“By taxing households on land on an ongoing basis, and removing the transaction barrier of stamp duty, it is thought that people will be more incentivised to buy the housing that is right for them in their current stage of life,” Ms Owen stated.
Chief executive of Shore Financial, Theo Chambers, while welcoming the new scheme, stated that land tax must be factored into a client’s serviceability or it could “affect borrowing power”.
“Some first home buyers are limited on their maximum purchase price based on their savings and deposit, whilst others are limited by income and serviceability,” Mr Chambers said.
“While this significantly assists those restricted by their savings or overall deposit, it will not be helpful for those restricted by income as this annual tax will further reduce their borrowing power.”
[RELATED: NSW land tax could lower serviceability, broker warns]
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