Will home buyers be better off paying stamp duty or property tax?

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Will home buyers be better off paying stamp duty or property tax?

By Kate Burke

Swapping stamp duty for property tax could save home buyers serious money in the short term, with new modelling showing it could take up to 18 years for the tax to add up to the stamp duty bill for a $1.5 million home.

Under proposed reforms set to receive funding in next week’s NSW budget, home buyers will be able to choose to pay an annual property tax rather than a stamp duty payment.

New modelling shows that it will take years for buyers to fork out property tax that would be comparable to stamp duty.

New modelling shows that it will take years for buyers to fork out property tax that would be comparable to stamp duty.Credit:Flavio Brancaleone

The changes would reduce upfront costs for buyers but add another bill to the household budget. While the lower annual tax would add up over the years, new Domain modelling shows that switching could leave some better off.

Domain chief of research and economics Dr Nicola Powell said it would take years for buyers to fork out property tax that would be comparable to stamp duty, making the tax a better option for those purchasing a home for the short to medium term.

An owner-occupier purchasing a $500,000 home would need to pay property tax for approximately 13 years before it matched the upfront cost of stamp duty, the modelling shows.

On a $1.5 million property, it could take 18 years to accrue the stamp duty equivalent in property tax if homeowners were to pay a proposed annual tax rate of $400, plus 0.3 per cent of the unimproved land value.

It would take just six years for an investor purchasing a $1.5 million property, as they face a higher proposed annual rate of $1500 plus 1.1 per cent of the unimproved land value.

Swapping stamp duty for a property tax could result in more housing turnover, Powell said, as upfront costs can deter people from moving to a home more suitable to their needs.


Once a property has converted to the property tax system, all future owners would have to pay the tax instead of stamp duty. Past buyers would not be affected by the changes.

The top 20 per cent of NSW residential property would not be eligible for buyers to opt in to property tax and would continue to attract stamp duty, as previously reported by The Sydney Morning Herald. The 80th percentile for all NSW dwellings was at $1.54 million in the March quarter, according to Domain data.

Powell said the state government should also look to adjust the stamp duty rate brackets, which were linked with movements in the consumer price index. Given property price growth had soared well above this, more NSW buyers were now paying higher rates of stamp duty.

Sydney’s median house price rose 280 per cent over the past 20 years, from about $418,000 to about $1.59 million, while the cost of stamp duty on that median-priced house jumped 406 per cent from about $14,300 to almost $72,400.


Housing policy expert Dr Chris Martin, a senior research fellow at UNSW’s City Futures Research Centre, said stamp duty could discourage people from making otherwise beneficial moves but was not as big a barrier as it was made out to be.

While stamp duty was paid by the buyer, evidence showed it comes out of the price received by the vendor, Martin said. He was concerned any savings on upfront costs would be added to a buyer’s spending budget, ultimately resulting in more money for the vendors and putting upward pressure on prices.

A property tax could bring underused land to the market and encourage homeowners to move more frequently, which he supported. However, he said he was concerned that reducing upfront costs for investors could lead to more speculation and rental market churn, and he would prefer to see the property tax limited to owner-occupiers.

“Having stamp duty puts a little grit in the wheel of transactions, which might actually be a good thing … like an anti-flipping tax,” he said.

Sydney buyer’s agent Peter Kelaher, managing director of PK Property, said stamp duty had reached outrageous levels as soaring prices pushed more properties into the top duty bracket. It weighed on buyer decisions and could influence how long home owners held a property.

Kelaher said a property tax would enable more transactions but felt that the upfront cost would still be preferable to an additional yearly expense for many buyers. He also said choosing whichever became the least popular of the two options could work against future sellers during the transition phase.

“If you’ve chosen the unpopular product in a certain suburb, your home won’t be as attractive,” Kelaher said.

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