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How will the proposed changes to stamp duty and land tax impact the property market?

By November 26, 2020 No Comments

It’s been hot on the lips of property buyers, economists, and policy setters for years and is one of the biggest impediments to home ownership, but will the proposed changes to stamp duty and land tax benefit property buyers? Or could it become an ongoing burden to home owners?

It’s about time the State Government started looking into changing stamp duty reforms with the latest proposal allowing property buyers to get an option of either paying the stamp duty on purchase or paying a smaller annual tax on land value, and these rates will differ for owner-occupiers, investors and commercial tenants.
This proposal is designed to lessen the up-front financial burden for buyers trying to get into a home and the State Government would receive a more reliable annual revenue stream.

But is this the answer?

The biggest issue with this reform is that buyers are enticed to opt for the smaller annual tax which ends up adding up to quite a substantial amount more if you stay in your home for the long term with more of your cash ending up in the coffers of the State Government.

The winners are those who are purchasing for the short term because if you’re purchasing a home which you will be living in for 14 years or less, then you’ll probably be better off opting to pay the land tax, however if you’re buying a forever home for the long term you’ll end up paying more with this option so are better off paying the stamp duty on transfer. Canstar research has shown that households who relocate in relatively short time frames will be better off with land tax, while householders who stay in place for more than 14 years will end up paying more.

As property prices are determined by the amount that buyers are willing to pay in the market as well as the level of competition with other buyers, with stamp duty seen as another barrier to prevent first home buyers into the market, removing it will mean buyers will have more cash to spend and result in house prices increasing further particularly in areas of demand.

A potential issue is what will happen when it’s time to sell the property?
The reform proposes that if the initial buyer elects to pay an annual property tax instead of the one-off stamp duty, all the subsequent purchasers of the property will be forced to pay the annual land tax which is less attractive if you’re planning on buying the property to stay in for the long term.

This means that there will be properties listed for sale on the market with the burden of an ongoing tax whilst comparable properties will not and this could make it not only confusing for buyers, but produce a complication for sellers as this will make some properties more saleable than others.

Clearly, there is still a lot more to “nut out” with these proposed changes. With the differing rates for owner-occupiers, investors and commercial tenants which only muddies the water further and brings additional confusion as some investment properties turn owner-occupied and vice-versa so what rate will they be paying?
Another consideration is what will happen to the amount of land tax you will pay over time if the value of your land is increasing?

The best thing to come out of this proposal is that we are all talking about the issues with stamp duty and that this is the first step to replacing stamp duty which was introduced to property purchases since 1865. This reform will also help influence people to move houses, whether that be to upsize to a family home or if you’re a retiree and need to downsize. Stamp duty so far has been seen as inequitable because those who move house often, whether out of necessity or voluntarily, end up paying far more taxes than those who stay put in their homes.
This includes some retirees who are sitting in large homes that could become available for families if they choose to downsize, and paying stamp duty has been one of the biggest barriers preventing retirees to downsize.

Whether you agree or disagree with the new reform, it is clear that there is still a lot of discussion needed to determine some clarity on how it is really going to work when it is put into practice. Treasurer Dominic Perrottet has indicated that the reform could be “set in motion in the second half of 2021 after seeking community feedback over the coming months’.

If you are looking for a buyer’s agent to assist you with purchasing a home or investment property in the SydneyBrisbane and Newcastle regions, please get in touch with Lloyd Edge and his team at Aus Property Professionals here or give us a call on 1800 146 837

Lloyd Edge

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