Australia’s New South Wales plans to drop stamp duty to help first-time home buyers
Australia’s most populous state, New South Wales, is proposing a radical overhaul of property tax that could further boost prices in one of the world’s most expensive housing markets.
NSW Premier Dominic Perrottet has introduced a scheme to abolish stamp duty, a tax which is paid by home buyers and adds a huge amount to average purchases.
Currently, buyers face a stamp duty payment of about A$45,000 (S$39,800) if buying a property at the average price in Sydney of about A$1.05 million.
But the stamp duty rate climbs as properties become more expensive; at the highest band, for homes worth more than A$3,268,000, buyers must pay A$163,940 plus 7 percent of the property value above A$3,268,000.
Critics of stamp duty say this high upfront cost makes it harder for people to buy their first home, and discourages existing owners who may want to move from selling.
Perrottet, who leads the ruling Liberal-National Coalition, wants to abolish stamp duty and allow buyers to pay a land tax over 30 years, at a rate of A$400 a year plus 0.3 percent of the land value.
Land tax is based on the unimproved value of the land, not including the value of the actual home and other structures.
He said last week that the scheme would assist those trying to achieve “the great Australian dream” of owning their own home.
“It’s a game-changer for first home buyers,” he said. “This is great legislation that makes a real difference to people’s lives.”
The proposed scheme would allow buyers to choose whether they want to pay the stamp duty or the land tax. The land tax will only be available for first-time home buyers and for properties worth up to A$1.5 million, but Perrottet may completely abolish stamp duty in the future.
The opposition Labor party has opposed the new scheme, describing it as a “forever tax” that would leave owners facing hefty taxes that could amount to much more over the 30 years than the original one-off payment.
It also says the move will further push up prices in Sydney’s overheated property market, where first-time home buyers are already struggling to afford a house.
“I’m concerned this will come out of the pockets of young home buyers, who already have massive cost of living issues,” Labor leader Chris Minns said last week.
The new scheme will not be available for foreign buyers, unless they buy the property with an Australian citizen or resident. Foreign buyers already must pay an 8 percent tax on the property price in addition to the existing stamp duty.
House prices in Sydney have almost doubled in the past decade.
Australia’s central bank raised interest rates from 0.1 percent in May to 2.6 percent earlier in October, fueling a property slump across most of the country. Sydney, the hardest-hit city, has experienced average price drops of about 10 percent, although property prices remain staggeringly high.
Some analysts believe that abolishing stamp duty would encourage older people to sell their homes and downsize, allowing their properties to be bought by younger families.
The land tax Bill will need to be approved by the NSW Parliament, where the ruling Coalition does not hold a majority. If passed, it will take effect in January.