NSW government limits stamp duty reform to first home buyers


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First home buyers in New South Wales will soon have the choice to forgo the cost of stamp duty in favour of an annual land tax as part of the new First Home Buyer Choice scheme revealed by the state government in its 2022-23 budget on Tuesday.

From January 2023, eligible buyers will be able to opt-in to pay an owner-occupier land tax of $400 plus 0.3% of the value of their land each year on property purchases of up to $1.5 million. That's rather than the upfront cost of stamp duty which typically runs into the tens of thousands of dollars.

Those who do opt into the scheme will also be able to change the status of their property from owner-occupied to investment, though the property tax will increase to $1500 plus 1.1% of the unimproved land value if they choose to do so.

nsw first home buyer land tax versus stamp duty

The government has also confirmed that the indexation of property tax rates will be based on Gross State Product per capita, meaning that increases will remain in line with average incomes rather than land values.

Premier Dominic Perrottet said that the initiative would help lower one of major barriers currently impeding first-time buyers.

"In the past two decades, the share of first home buyers under 35 years of age has declined from 67% to 61%. Lifting home ownership is part of this Government's efforts and ambition to help families who are feeling the squeeze.

"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 reform outlined in this week's budget isn't quite as comprehensive as previous stamp duty proposals made by the government though, as Perrottet and Treasurer Matt Kean both made it clear that New South Wales would require additional financial support from the Commonwealth in order to roll out a land tax option to a broader cohort of home buyers.

Stamp duty is one of the largest revenue streams for the state, with New South Wales raking in $14.6 billion in stamp duty during the 2021-22 financial year.

However, the government expects that the new reform will reduce stamp duty revenue by $663.6 million over the next four years.

Relief for first home buyers

With an average dwelling price of $1.2 million, New South Wales is home to the most expensive property in the country, which makes the task of putting together the money needed for a home deposit and the other costs associated with the home buying process all the more difficult.

As a result, the move towards a stamp duty alternative has been welcomed by many aspiring first homeowners in the state.

Among that cohort of would-be buyers is Dom Tripolone and his wife Vanessa. The couple, who are looking to buy an apartment in Sydney's lower north shore or inner west, say that the money saved from not having to pay stamp duty could allow them to build a bigger deposit to avoid lender's mortgage insurance or fund any minor renovations needed.

"In my opinion, I think that's a much better way of doing it," Tripolone says. "I think as first-time buyers it would be a huge difference for us if it did switch to an annual land tax which we pay over time, rather than paying stamp duty upfront, because it is such a huge hurdle to save that extra money on top of what you actually need to get the loan."

"$50,000 is a lot of money in anyone's life and paying that in one hit to the government is not a small thing. That's $50,000 that could go back into our deposit."

New homebuying scheme

The First Home Buyer Choice scheme may have grabbed all the headlines, but the New South Wales government also penciled in a range of other housing-related spending as part of its budget, including $780 million for a two-year trial of the new Shared Equity Scheme.

Under the scheme, up to 6000 eligible police, nurses, teachers, older singles and single parents with a deposit of at least 2% of the property price will be able to purchase a home with help from the NSW government.

The government will put in a stake of up to 40% of the purchase price of a new home or 30% for an existing home in exchange for an equivalent equity stake, and buyers won't need to pay interest or rent on that contribution. They'll also be able to buy out the government over time by way of voluntary contributions.

"Housing security is the bedrock of financial security," says Kean. "A safe and secure home is fundamental to allow people to earn an income, care for their loved ones and pursue their own interests and aspirations."

Maximum income and property value thresholds do apply with scheme though. You can view those and all the other details involved by visiting the NSW government's dedicated Shared Equity Scheme page, or for more information on stamp duty reform take a look at the First Home Buyer Choice scheme.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.
Gary Linnegar
June 22, 2022 5.09pm

Aspiring home buyers cannot afford the entry fee, so I see no prospect of them meeting mortgage payments when rates go even 2% higher.

These schemes are an age old scheme to prop the construction industry at the cost to the taxpayers.

Homes purchased with deferred stamp duty will be orphans in any distress sale environment.

Rizwan Khan
June 25, 2022 11.02am

For how many years? do the first home buyers have to pay the land tax? is it going to be for every?

Money magazine
June 27, 2022 9.02am

Hi Rizwan,

It's an annual fee, meaning it will need to be paid every year.

- Money team

Akshu Koli
June 29, 2022 1.05pm

Hi Tom, wanted to purchase the property in couple months so for that would i be able to eligible for that scheme. (July 22 TO Aug 22)

And on website they have mentioned; ((Eligible first home buyers who sign a contract of purchase between the passage of the legislation and 15 January 2023 will be eligible to opt into the property tax.)). So what dose it meant by (passage of the legislation)?

Tom Watson
June 29, 2022 3.29pm

Hi Akshu,

Unfortunately, there doesn't seem to be a concrete date set for the First Home Buyer Choice scheme legislation to be introduced by the government beyond, "...sometime during the second half of 2022". So, while it's possible that the government might introduce it during the July - August period you mentioned, there's no guarantee. And it could turn out to be later in the year.

As for your second question, the NSW government will need to establish the new property tax as law before it can come into effect. And to do that, it needs to pass through parliament.

Hope that helps and all the best with your property search.

- Tom

Money team