First-home buyers, experts welcome plans to phase out stamp duty

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First-home buyers, experts welcome plans to phase out stamp duty

By Tawar Razaghi

The NSW government proposal to replace stamp duty with an annual land tax has been welcomed by first-home buyers and experts who say it would make buying property easier with only a modest impact on prices.

Stamp duty, which is charged as a lump sum on a percentage of the purchase price of property, has been one of the largest barriers for buyers entering the property market who need to factor in the additional expense.

Alice Hidajat has been saving for a unit for five years.

Alice Hidajat has been saving for a unit for five years.Credit:Flavio Brancaleone

The revelation by the Herald on Monday that it could be swapped for an annual land tax was welcome news for aspiring home owner Alice Hidajat, who has spent the past five years saving for a two-bedroom unit in the eastern suburbs.

“It is easier to get in. I always have to think about that extra $10,000 or $20,000 on top of the property value. It lifts the burden of added cost,” the Potts Point renter, who is in her 30s, said.

“There’s flexibility – rather than thinking I have to create another few thousand dollars on top of the value I can afford, now you can opt for a smaller land tax. That also frees up your cash flow … I don’t need to put up a lump sum.”

She said the tax reform, expected to be announced in next week’s state budget, would be a “game changer” for Australians like her, who came to the country as an adult and have no financial help from family.

An annual land tax would make it easier for aspiring homeowners to get into the market, experts say.

An annual land tax would make it easier for aspiring homeowners to get into the market, experts say.Credit:Wolter Peeters

Getting a foot in the market has been even harder for Tasnuva Sumaiya, who has spent the past four years saving around a 20 per cent deposit for a townhouse in western Sydney priced below $650,000 because properties below this value are exempt from stamp duty.

“The market is really crazy right now – it’s really hard to find something under $650,000,” the Blacktown renter, also in her 30s, said.

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“If I didn’t need to pay the stamp duty, I could afford a little more.”

Sumaiya also preferred an annual land tax rather than stamp duty because it was “more affordable, especially for first-time buyers” like herself.

Ashraf Alam and his wife Tasnuva Sumaiya, with their six-year-old son Leroy, are aspiring first home buyers who are struggling to find a townhouse in St Mary’s and Prospect for less than $650,000 in a bid to avoid paying stamp duty.

Ashraf Alam and his wife Tasnuva Sumaiya, with their six-year-old son Leroy, are aspiring first home buyers who are struggling to find a townhouse in St Mary’s and Prospect for less than $650,000 in a bid to avoid paying stamp duty.Credit:Louie Douvis

Archer Mortgage Group head of mortgages Jasjeet Makkar said stamp duty was one of the biggest hurdles into the property market for aspiring home owners in a hot market, adding years to save up for a deposit.

“There are a lot of buyers in that boat who do not look at homes above $650,000, so they can get into the market with a small deposit,” Makkar said.

“They’re going with a 5 per cent deposit. If they had to pay stamp duty on top of that, they won’t be able to complete the purchase.”

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Grattan Institute’s economic policy program director Brendan Coates said the proposal being pushed by Premier Dominic Perrottet was a positive step towards good economic reform, helping home owners and the state government.

“Stamp duty is really costly because it deters families from moving house when it suits their needs, like when they want to take a better job.

“In contrast, land taxes paid each year do not distort people’s decisions.”

He said phasing out stamp duty would also reduce the deposit hurdle for buyers.

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“When people are having to save for a 20 per cent deposit, they’re really saving a 25 per cent deposit,” Coates said.

He said while it was possible the changes could put “modest inflationary pressure” on property prices it was unlikely in an already falling market being hit by rising interest rates.

“This will not see an explosion in house prices in the short term, and in the long term, you’d expect house prices to fall, and you’d see a better allocation of existing housing stock.”

But AMP Capital chief economist Dr Shane Oliver said while it was a “fantastic reform” of a heavily distortionary tax that was long overdue, it could have a short-term impact of pushing up prices.

“The best way to [avoid that] is to introduce this with improving housing affordability such as measures to speed up land release, reduce development times and encourage more property development.”

He said the same amount of tax was being raised in the long term and would encourage the better use of property, such as empty nesters downsizing from large family homes.

“They’re also fearful of huge stamp duty bills.”

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clarification

This article has been updated to reflect information made available after publication. 

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