The proposal for a new property tax regime in New South Wales, and what this will mean for the real estate market.
Introduction
The NSW Government wants to help people achieve the Australian dream of homeownership. To make this happen, the Government is considering a once-in-a-generation change to the current property tax regime. They are publicly consulting on the new property tax model to make home ownership more achievable and provide greater incentive for those who have a desire to relocate, upsize to make room for the growing family, or downsize their home in their later years. The proposed new tax model will give home buyers the choice to either pay stamp duty and land tax or pay a new annual property tax.
A shift in lifestyle
In the past, people used to live in one house their whole life. Today, we live in a much more mobile world. In Sydney, on average, the length people hold on to property is approximately 9 years for houses and 7.3 years for units (this data unfortunately does not distinguish between owner-occupied tenancies and investor properties).
It is said that the outdated stamp duty model simply is not sustainable or suited to Australians lifestyle and real estate objectives, deterring people from buying property or moving to a new house.
Australia’s job mobility is also a long way from the once adopted “job for life” sentiment. The national average tenure in a job is now 3.3 years. This means people are moving around more. Many people look to live close to their workplace. In Australia, the average commuting distance people travel from their place of usual residence to work is 16 kilometres. With COVID-19 forcing businesses to adopt more flexible working arrangements, people are now working from home more than ever before. This has also allowed people to relook at their living arrangements and preferences around the style of house they live in and its locality.
The new proposed property tax structure will make it more achievable for people to own their own home, move houses if they have changed jobs or want to live closer to work, or for older people who would potentially downsize, freeing up larger properties for growing families.
What we can expect from abolishing stamp duty
An analysis by NSW Treasury suggested that if stamp duty was abolished over the long-term, the shakeup would likely increase the annual volume of housing transactions by between 40-70 per cent, with a 50 per cent rise the most predictable outcome.
Since 1990, average earnings have trebled, average house prices have increased around five times and stamp duty has increased more than seven times. This has seen home ownership fall from around 70% in the 1970s to 64% today.
Stamp duty directly impacts people’s ability to live where they want to. Many people often stay in homes that don’t suit their family or personal circumstances because of the large upfront costs associated with relocating.
The current median house price in Sydney is $1.2 million with transfer duty being approximately $51,000. This means that to get into the market, a purchaser would need to have a deposit of at least $171,000 to cover the 10% deposit on the property and transfer duty. First home buyers would not be eligible for a full or part concession under the First Home Buyers Assistance Scheme as it exceeds the cap of $800,000.
For many people, any money they have managed to save for their deposit would be lucky to just cover stamp duty and other fees associated with buying a property.
By removing these upfront costs, it will make it easier to enter the market or upgrade your home.
It is believed that by swapping stamp duty to a land tax it will reduce the purchase price for home buyers and increase the sale price for vendors. In the long term, this swap would increase the rate of home ownership.
Possible Property Tax Reform Framework
The proposed property tax reform may look like this:
- The property tax will be an annual tax on the land value of the unimproved land value, much the same as the way council rates are calculated.
- People will be given a choice to either pay the property tax at the time of the purchase and replace stamp duty and land tax (where applicable).
- If you have paid stamp duty on the property, then you will not have to pay the property tax.
- Owner occupiers and primary production properties would pay lower rates than investment properties, and in turn would pay lower rates than commercial properties.
- Price thresholds would limit the number of properties that would be eligible for transition in the initial stages. This is to keep revenue and debt impacts within reasonable levels.
- There would be protections implemented so that the tax does not result in rent increased without a tenant’s agreement and would also have a hardship scheme so that if owner’s financial situations change, that properties do not have to be sold to meet their liabilities.
- In first instance it would see the NSW government’s revenue being reduced, whereas in the long term it would see NSW Revenue collecting the same amount as stamp duty and land tax.
- For first home buyers, it could see current concessions being replaced with grants of up to $25,000
How can Attwood Marshall Lawyers help?
Attwood Marshall Lawyers is an experienced electronic conveyancing firm who assists thousands of buyers and sellers achieve their property goals each year. We have offices conveniently located at Robina Town Centre, Coolangatta, Kingscliff, Brisbane, Sydney and Melbourne.
Our team can assist buyers with residential homes and investment properties and can give advice on all the legal aspects of acquiring property. Our friendly team will guide buyers through the conveyancing process to ensure settlement happens on-time without fuss.
To avoid risk or unnecessary delays, contact our Property and Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, mobile 0432 857 300 or email jkimpton@attwoodmarshall.com.au
If you or your clients require advice outside of office hours, our Robina Town Centre office is open Thursday night until 9pm and Saturday morning until 12noon, or our team can be contacted on our 24/7 phone line on 1800 621 071.
