Changing NSW Stamp duty regime already pushing prices higher

The New South Wales Government has implemented its new stamp duty regime, which is potentially set to save first home buyers tens of thousands of dollars but may also add upward property price pressure.

The First Home Buyer Choice regime is under way – although respective to first home buyers who transact under the $1.5 million price ceiling before 16 January 2023.

The scheme means that eligible first home buyers in New South Wales will be given the choice between paying a smaller annual property payment or upfront stamp duty on properties up to price cap.

First home buyers who transact between now and 16 January will be eligible to retrospectively opt into the annual payment and apply to opt in and have any stamp duty paid refunded, according to the State Government.

Potential cost savings

The scheme will certainly help people buy into the expensive Sydney market because the upfront stamp duty has always been a significant financial impediment for them.

Under the new system, first homebuyers can choose to pay an annual property tax instead of the lump upfront stamp duty payment.

Most people don’t live in their first homes forever, so it potentially could save them tens of thousands of dollars.

Let me explain further. I recently had two first home buyer clients with budgets of around $1.1 million. When I calculated the difference between the annual property tax and stamp duty the results made their decision a no-brainer.

That’s because for a unit in that price range the upfront stamp duty would have been $44,700 but the annual property tax was just $1,568.

Sure the annual tax is indexed to CPI, but even if they lived in the property for a decade, they would likely be about $10,000 to $20,000 better off than if they had paid the upfront stamp duty.

Unsurprisingly, not having to spend $50,000 or thereabouts on stamp duty is already starting to have an impact on property prices under that $1.5 million cap.

In fact, I have already observed multiple instances where recently sold properties have sold for the exact price of the stamp duty above the market price that I had calculated- You guessed it, to first home buyers.

Now, it doesn’t take Einstein to ascertain that if someone has saved and saved tens of thousands of dollars for an upfront stamp duty that they no longer need to pay that they would be motivated to increase their budgets for their potential property purchase.

This is already happening and is set to occur more and more frequently as first home buyers opt for the annual property tax as a more affordable option for them.

More (quality) supply needed

I support all initiatives that make is easier for young people to become homeowners because investing in real estate has a proven history of helping increase your personal wealth and overall financial position.

However, it must be recognised that high property prices in places like Sydney are generally because of a significant supply issue.

Not only do we have an undersupply of quality properties coming to market, but there is also a disconnect between where and what new supply is being constructed versus the locations that have the strongest buyer demand.

This is especially the situation in Sydney’s inner-ring suburbs where NIMBYism is alive and well.  

While our architectural aesthetic should be retained and protected, there needs to be sympathetic rezoning that allows for more terrace, duplex, or small boutique unit blocks to be constructed to house more of our population in the places where people actually want to live (as opposed to unappealing high rise towers or house & land packages 60km’s from the CBD)

Pushing new development further and further away from the city and from major infrastructure only serves to keep first home buyers stuck in their original homes forever and a day and fact horrendous commuting distances.  

Not only that, clustering new supply within set geographical regions creates a potential oversupply issue that will be drag on the capital growth performance of their investment – and no one wants that for our next generation of homeowners.


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