Stamp duty reform could eliminate major cost barrier for NSW home buyers


Saving up the money to purchase a home is no easy task, especially in New South Wales where the average price of a property is over $1.2 million - the most expensive in Australia.

Based on that average, a buyer would need to pull together $240,000 for a typical 20% deposit. The costs don't stop there though, because there are also upfront mortgage fees, legal and conveyancing fees, inspection fees, insurance premiums and, of course, stamp duty.

For aspiring first home buyer Dom Tripolone who is looking to purchase an apartment in Sydney's lower north shore or inner west with his wife Vanessa, saving up a deposit and other upfront buying costs has been a mission.

stamp duty reform nsw land tax

"We've been saving for years to get a deposit because you need so much these days," he says.

Part of that cost burden could soon be lifted if NSW replaces stamp duty with an annual land tax.

Premier Dominic Perrottet last week described stamp duty as the "worst tax any government can have" and "the biggest impediment for young people getting their keys to their very first home".

This is not the first time Perrottet has expressed his support for stamp duty, having also called for it to be phased out during his time as Treasurer.

One less hurdle    

While some first home buyers are eligible for a stamp duty concession, its removal would save many potential buyers tens of thousands of dollars.

"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," Tripolone says.

"$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."

Arjun Paliwal, founder and head of research at InvestorKit, believes that a move away from stamp duty would not only make it easier for some prospective buyers who are locked out of the market to purchase a home, it would provide greater mobility for existing owners.

"Stamp duty is a real barrier to entry, and it just means that many people are actually adding years to their savings journey when it comes to trying to get into the property market," he says.

"Even those who are trying to upsize - say, going from a $1 million property to a $2 million property - are affected, as stamp duty can easily start to reach six figures which is no small cost.

"As a result, I think it's definitely going to be well regarded from the public who will see the barriers to entry be eased or removed, and that should also see many more homebuyers who have been on the fence actually able to get into the market."

A capital example

While New South Wales appears to be on track to be the first state to implement a shift from stamp duty to a land tax, it's following in the footsteps of the Australian Capital Territory which began a 20-year transition away from stamp duty back in 2012.

Paliwal says that it will be interesting to see whether the experience in the ACT will be replicated in New South Wales - particularly on the investor front - if the state does go down a similar path.

"The ACT is one of those markets which hasn't undergone a full structural change just yet, but their stamp duty is far lower than most states, however, their land taxes are higher.

"In my experience many investors actually won't consider the ACT as part of their journey because they're wary of those longer-term costs. So, I feel that it's clear from the ACT's example that long-term investors may not feel as comfortable entering a market because of the thought of having to hold those higher cost each year."

Exactly how much an annual land tax would cost homeowners in New South Wales would is not yet known, though that could be revealed as part of the NSW Budget next Tuesday.

The NSW Government has made it clear that it will need financial support to make the transition possible, with Premier Perrottet stating that, "We cannot abolish stamp duty in New South Wales without support from the Federal Government."

In the 2020-21 financial year New South Wales raked in $9.379 billion in stamp duty, but the government has indicated that the implementation of a land tax would see it lose out on $2.5 billion in revenue.

Get stories like this in our newsletters.

Related Stories

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 16, 2022 8.15am

The tax will continue past the repayment of the stamp duty, and will likely spill over to all properties as soon as acceptable by the electorate.

Good deal for treasury, bad for consumers in the long term.

Adding people is the cause, a pause is the (longer term) solution.

Les P
June 17, 2022 4.43pm

One of the many problems of stamp duty is government greed. The 4% rate at one time was for ultra high end property. Price creep has pushed everyone's property into this bracket and governments were overjoyed at the cash cow that was created.

Land tax is like paying rent - it wont end when you stop working.

Retirees are being encouraged to downsize their homes but their reward may endless land tax.

You cite the ACT as an example of land tax. Having lived and worked there, you pay stamp duty when you buy and land tax if you rent the property out.

Stamp duty in ACT on $1.0M home is about $36K if land value is $500K and I rent it out I will pay about $5K per year land tax. Comparing this to other states, I don't see any bargains being offered by ACT Revenue Office.

Paying a land tax in lieu of stamp duty will cost the owner more in the long run and may put upward pressure on rental prices as owners try to cover the cost.

Its simple arithmetic, will ten years of land tax be less than the stamp duty?

Be careful what you wish for.