‘Be careful what you wish for’ goes the old adage. Nowhere is the more true than in proposed changes to Stamp Duty which may have huge impacts on the way the property market operates.
Changes proposed by NSW (and likely to be followed by other states will see stamp duty phased out and replaced by a (smaller) property tax paid every year.
According to the NSW Treasurer stamp duty adds $34,000 to the upfront cost of buying the average home in NSW. It now takes an average of two-and-a-half years to save a stamp duty payment compared to one year in 1990.
Such heavy costs are since as major barriers to people being able to get on the property or buying and selling property.
And many Australians are giving the change the thumbs up:
- 61 per cent said they would prefer the smaller annual land tax
- 39 per cent said they would prefer a one-off stamp duty payment
The state government’s plans to phase out stamp duty would save house hunters tens of thousands of dollars in upfront costs and boost market activity, but experts warn it could also put upward pressure on property prices.
The reform, which could be set in motion in the second half of 2021, could inject as much as $11 billion into the state’s economy over four years and generate 75,000 new jobs.
Bit-by-bit, the property tax will replace stamp duty.
The proposed model includes a property tax rate that would be lower for owner-occupiers, with higher rates for investors and commercial properties.
But ultimately, once in place, the changes would boost market activity and could bring forward some sales.
However, a reduction in upfront costs could prompt some to spend more on their purchase price, ultimately driving up values. And, flipping properties now becomes easier as transaction costs are reduced
Until then though, some owner occupiers may delay buying and selling until the reforms are introduced.
An independent review by Victoria University found the tax mix switch already begun in the ACT had driven a real increase in economic growth, investment, private consumption and wages.
It also found that even with another 10 years before the policy was fully in place, it had increased property sales (as people could afford to move rather than renovate another bathroom) and unimproved land values.