Stamp Duty or Tax? Experts weight in.
Stamp duty or tax, experts weigh in. Image: Canva.
  • The tax will likely make it easier for first home buyers
  • It may take 18 years before taxes add up to the equivalent in stamp duty
  • Experts noted the tax could inflate property values under in the sub-$1.5 million category

Swapping stamp duty for property tax could save home buyers serious money in the short term, with modelling showing it could take up to 18 years for the tax to add up to the stamp duty bill for a $1.5 million home, though the scheme does risk inflating prices for properties under $1.5 million, according to Domain.

The First Home Buyer Choice scheme, announced last year, commenced from January 16 2023.

It gives first-home buyers the choice of opting into an annual payment of $400 plus 0.3 per cent of the land’s value when they purchase a property instead of paying a lump sum as stamp duty.

Domain’s Chief of Research and Economics, Dr Nicola Powell said the scheme would reduce the amount of time it takes for first-home buyers to enter the market.

“One of the biggest barriers to getting into the property market is the upfront costs of stamp duty and a deposit,” Dr Powell said.

“Removing stamp duty in place of an annual property tax will allow more first-home buyers to purchase sooner.

“The other benefit is, based on cumulative property tax, most people across the eastern seaboard could live in a house for at least 15 years before reaching stamp duty costs.”

Long delays for payments

While the lower annual tax would add up over the years, Domain modelling shows that switching could leave some better off.

Domain’s Chief of Research and Economics, Dr Nicola Powell said it would take years for buyers to fork out property tax that would be comparable to stamp duty, making the tax a better option for those purchasing a home for the short to medium term. That time period increases with purchase price.

An owner-occupier purchasing a $500,000 home would need to pay property tax for approximately 13 years before it matched the upfront cost of stamp duty, the modelling shows.

Purchasers paying $750,000 for their first home would need to live in it for 15 years before paying stamp duty would make better financial sense, the Domain figures show.

On a $1.5 million property, it could take 18 years to accrue the stamp duty equivalent in property tax if homeowners were to pay a proposed annual tax rate of $400, plus 0.3 per cent of the unimproved land value.

A buyer paying $1.5 million (the scheme’s maximum purchase price) would be better off opting for the tax unless they intended to stay in the property for 18 years or longer.

Dr Nicola Powell said the scheme would reduce the amount of time it takes for first-home buyers to enter the market.

Dr Nicola Powell
Dr Powell said Image: Domain, Canva.

Inflation risk

Dr Powell added there was a risk the new scheme could inflate property values under the $1.5 million price point.

“The scheme does risk inflating property prices under $1.5 million, as those who have already factored in stamp duty costs may put this towards the purchase cost,” she said.

There is a chance that the scheme will be short lived, with the NSW opposition pledging to repeal it if it wins office at the March election.

Instead, Opposition Leader Chris Minns has revealed a $772 million plan to abolish stamp duty for homes under $800,000 and expand concessions to homes worth $1 million.

In addition to the First Home Buyer Choice scheme the NSW government currently offers first-home buyers exemptions for homes under $650,000 and concessions up to $800,000.

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