Stamp duty changes and investor impact

How could stamp duty changes affect you and the property market?

In a welcome boost for first home buyers in New South Wales, Premier Dominic Perrottet has announced that – commencing January 16, 2023 – first time buyers will have the choice of either making an up-front stamp duty payment or opting into an annual property tax.

The choice will be available on purchases up to $1.5 million in value, with the new tax seeing buyers paying $400 plus 0.3 per cent of the land value per year if they opt in. The property won’t be locked into the scheme upon any future sale.

This announcement will likely see other states paying increased attention to the impact on the NSW property market…and what happens to NSW’s bottom line when it comes to generating annual state revenue. More on that later. First, we’ll do a recap on stamp duty – a short name for what can be a complicated tax.

SO WHAT IS STAMP DUTY?

To start with, even the name itself changes depending on where you are in Australia. It’s known as conveyance duty if you happen to find yourself making a property purchase in the ACT, and land transfer duty across some other states.

SIDE NOTE

This is because it’s the transfer of land that triggers stamp duty to be payable.

But regardless of what it’s called (and we’ll stick with stamp duty), it’s essentially a tax imposed by the relevant state or territory government, payable to that government when a buyer purchases property (and sometimes even when the property is a gift).

The rate itself depends on the state or territory, the type of property purchased and its value – and it's a lucrative annual income earner for government! The more a buyer pays for their home or investment, the higher the stamp duty will be. It forms a large part of each state’s annual revenue.

INVESTOR SIDE NOTE

This means that it’s in the best interest of government for property prices to generally increase over time.

WHY DO WE NEED TO PAY STAMP DUTY?

At this point, it’s worth noting where this revenue goes (or where it is intended to go) – towards improving various state services, including planning and infrastructure (ideally close to your latest investment property).

INVESTOR SIDE NOTE

This is why it pays to be all over the infrastructure plans for any area in which you’re considering investing

SO IF IT’S FOR THE GREATER GOOD, WHY IS IT SO CONTROVERSIAL?

Given that your hard earned money is going towards the greater good, why is stamp duty so controversial? Well, here are just a handful of issues associated with the cost:

  • It can discourage people from moving or downsizing due to cost barriers
  • Not only that, the additional charge can prevent people from purchasing at all, thereby exacerbating the pressure on rental markets
  • It's criticised for being complicated and inefficient (and worse, archaic and antiquated)
  • It adds a layer of unpredictability to state budgets
  • And last but not least, stamp duty has also been accused of exacerbating the housing affordability crisis - a very hot topic in the recent election and always a newsworthy headline in the media

INVESTOR SIDE NOTE

We all remember when the Federal Labor party proposed making changes to negative gearing…after two election losses they finally took the proposal off the table...the rest is now history.

You guessed it, experts say there’s another reform that could help mitigate property affordability while helping to grow the economy – ditching stamp duty. Neatly bringing us back to the change announced in NSW.

Ideally Premier Perrottet wanted all buyers to be eligible, regardless of whether or not they were purchasing their first home. However such a huge reform couldn't be achieved without Commonwealth assistance due to the loss of state revenue – estimated at around $2.5 billion per year. As it stands, the Perrottet government has allocated $728 million in the state budget over the next four years to cover the revenue shortfall. We’re not talking small change here.

INVESTOR SIDE NOTE

The introduction of the GST “way back when” was earmarked to replace stamp duty...creating quite the conundrum for new property purchases…so much for Commonwealth assistance.

So, given it’s a topic of interest to the more than 60 per cent of Australians who own their home, 100 per cent of property investors, every level of government and its impact on the economy, you can see why stamp duty reform is a contentious issue, with each state and territory handling it differently. And as the name of the tax varies depending on what state or territory you’re in, so do the details!

COMPARING STAMP DUTY BY STATE AND TERRITORY

Take a look at the table below, where you’ll see how the amount of stamp duty payable can vary from state to state, and where you can find further information.

  • Keep in mind that this tool should serve as a guide only and is accurate at time of publishing (June 2022).
  • The comparative costs are based on an Australian citizen purchasing an existing home to reside in, valued at $600,000, with a contract date of 1 July 2022.

STATE

NAME OF TAX

ESTIMATED DUTY

WEBSITE FOR FURTHER INFORMATION

New South Wales

Transfer duty

$22,090

Link to NSW website

Victoria

Stamp duty

$31,070

Link to VIC website

Queensland

Transfer duty

$12,850

Link to QLD website

Western Australia

Transfer duty

$22,515

Link to WA website

Tasmania

Transfer duty

$22,497

Link to TAS website

South Australia

Stamp duty

$26,830

Link to SA website

Northern Territory

Transfer stamp duty

$29,700

Link to NT website

Australian Capital Territory

Conveyance duty

$15,720

Link to ACT website

CAN STAMP DUTY BE REDUCED OR AVOIDED ALTOGETHER?

The key buyers state governments aim to support are owner occupiers (and particularly first home buyers), but on a state by state basis, and on a case by case basis, there may be other concessions available…if you know where to look!

For example, in some locations – such as regional areas or specific postcodes – you may receive a concession, which operates as an incentive to encourage people to move to particular areas to stimulate the local economy.

In addition, you’ll also find incentives for property under certain price points, typically around $550,000 to $600,000 in most states. Why? Because the view is that if you can afford that much for a property, then you can afford the stamp duty!

There may also be concession rates available for owner occupiers, pensioners, carers, farmers and those purchasing off-the-plan.

Likewise, when a property is transferred between family members due to divorce or death, the new owner doesn’t need to pay stamp duty.

When it comes to investing in property, it’s worth knowing that sometimes you can source stamp duty savings offered by developers, especially on off-the-plan purchases. There’s a variety of reasons for developers to incentivise sales in this way – and it’s not always about the money, it’s often about getting the result. For example, coming up to end of financial year developers may need to boost sales to meet targets, or appease investors, or once they hit a certain number of sales in one project then they may be able to fund another project. In this way, reducing some (or all) of the stamp duty for buyers can create a win-win for the developer and the end purchaser.

But you need to know where to find those deals, who to speak to, how often they come up and when. For example, EOFY, end of quarter, start of year or when sales are slow (such as when COVID-19 disrupted markets in early 2020).

At the end of the day, there’s literally no general rule you can rely on, other than keeping an eye on each area you’re considering and getting the right advice!

WHERE CAN I FIND HELP?

Pulling together the complete financial picture, and aligning that with the potential investment returns on different properties in different states, let alone different suburbs and streets, isn’t an easy task.

And that’s why, for specific information on how stamp duty applies in the state in which you intend to purchase, it’s crucial to seek professional help. You’ll need to speak to your mortgage broker, who will discuss your borrowing capacity, deposit, loan servicing and stamp duty. Regarding the contract, whether subject to finance or off the plan, you’ll need to speak to your conveyancer or solicitor, who will confirm the exact amount of your settlement figures.

At the end of the day, while paying a lower stamp duty rate means you may have additional finance to put into the property, if that property isn’t going to provide you with the best return in the long term, then how important is it? In the words of Luke Harris, founder and CEO of The Property Mentors:

Stamp duty is simply a cost of doing business. If there there are opportunities to save on stamp duty then explore those options, but consider the investment and the underlying asset first. Because if you’re purchasing the right asset and you’re holding it for the right amount of time, then the stamp duty cost will wash away over time…because you’ve made more money on the property than the stamp duty has cost you in the first place!

Luke Harris, founder and CEO of The Property Mentors

Any changes surrounding stamp duty will be incremental – they won’t happen overnight. If you sit on the sidelines waiting for reform you could easily cost yourself quite a bit of money while property prices continue to rise. If you’d like to get started sooner rather than later, book in a discovery call with one of our property experts today.

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