Will anyone win with NSW’s stamp duty reform?

When the state unveiled its reforms to housing tax – an opt-in land tax alternative to stamp duty that would apply only to first home buyers purchasing under $1.5 million – the industry seemed decidedly underwhelmed due to the relatively slender percentage of buyers to which the changes would apply.

Even so, many opined that for that cohort, the impact could be significant, and the government touted a potential impact of 55,000 buyers per year.

According to those most in touch with the buyers themselves, however, it appears that the number who chose to opt into this scheme when it comes into effect in January 2023 might be a smaller portion of NSW’s prospective home owners than originally thought.

As Mark Sleiman, the licensee in charge of PRD Tamworth, explained, those able to participate in the program, at least in his area, will likely be a very small number of buyers indeed.

“Fifty per cent of the first home buyers in Tamworth don’t buy existing houses, most of them build,” he noted. 

With the average purchase price of land in Tamworth qualifying the vast majority for a stamp duty waiver, or at the very least, a concession, Mr Sleiman noted that already more than half of their first-time buyers won’t need to consider the cost of transfer tax.

Additionally, with the average median house price in the area sitting around $450,000, a lot of those buyers in the existing dwelling market will similarly qualify for an exemption (if the house price is under $650,000) or a concession (if the home goes for between $650,000 and $800,000).

“These government reforms are really there to support the first time buyers paying $1 million to $1.5 million for a property in Sydney, and that’s not our market,” Mr Sleiman opined.

“Good on them for having a crack, but regional New South Wales, we need supply, we don’t need grants.”

Nevertheless, for one agent who works largely in the market that many believe the reforms will most benefit, there are a number of complicating factors that might dissuade first home buyers from choosing to pay land tax, even when buying within that price bracket.

Frederico Fraga-Matos, an agent at Stone Newtown, works in Sydney’s inner west and has an average sale price of around $1.5 million. But for him, the sticking point with the plan is the financial standing of the buyers in question.

To qualify for a loan of that price point, Mr Fraga-Matos said, couples and individuals will already be bringing in a high wage. And for that price, they’re likely looking for something long term – meaning they’ll be carefully weighing the equation of paying a finite amount now, or an annual sum in perpetuity. 

If they can, he said, “most people will want to just pay for it upfront. Especially now, with interest rates increasing and variable costs increasing, they don’t want to have to add on an extra thing. They want to get it over and done with and move on.”

But he does acknowledge that some market subsectors might prove to be more welcoming to buyers with these changes in place, such as those homes that would qualify buyers for a land tax concession in Sydney.

“I think it’ll probably help the very entry level properties, probably smaller apartments, in Sydney – and that’s certainly a part of the market,” he acknowledged.

And it’s the buyers in that market who face the increasingly mounting “barrier to entry,” which is why, in the eyes of Norman So, principal of Belle Property Strathfield in Sydney’s west, it could shake things up in that specific sector.

“With the apartment prices around Strathfield and Homebush market stuck in a stable holding pattern for the last two years, I feel this may be the catalyst for short- medium term capital growth uplift, as first home buyers can now defer the stamp duty payment,” he said.

“Buyers that transact around $750,000 can now defer around $20,000 for a future payment. This means that the first home buyers can focus on just the required deposit required by their lender – some requiring just a 5 per cent deposit with mortgage insurance.”

Matt Lee, a mortgage broker and director of Honed Financial, echoed the sentiments that deferring the stamp duty payment would particularly help those on the cusp of entering the market but were caught “chasing their tails, as property prices increased and forced them to save additional funds to meet minimum deposit requirements to access a property”.

A savings of approximately 5 per cent in upfront costs could certainly make the difference for some between being able to enter the market or delaying purchasing to save additional funds, Mr Lee said.

“Considering that the current stamp duty waiver for FHO was only up to $650,000 and concessions given up to $800,000, most FHO that we assisted were buying above this amount and not receiving a concession, adding around 5 per cent of the purchase price to the transaction that would need to come from saved funds,” he said.

But he stressed that the equation of opting into the land tax is a delicate one and that while it might help some lower their upfront costs, it would not be the right option for those who are struggling to obtain the borrowing capacity they require.

“The new land tax option will only assist first home owners that had strong servicing capacity and were only restricted previously by the savings they had available for the purchase,” Mr Lee noted. 

“First home owners who are restricted by their servicing capacity may actually be placed in a worse position if they take up the land tax option, as this cost will be added to their ongoing living expenses and will reduce their servicing capacity.”