Medium density stamp duty reform
According to BuyersBuyers, the NSW government’s plan to reform stamp duty will prompt more owners to shift towards medium-density housing. Image – Canva
  • NSW government have announced a stamp duty reform, allowing first home buyers to pay annual property tax instead
  • BuyersBuyers representatives believe the change will cause shift towards medium-density housing, as owners avoid higher taxes
  • Reform to benefit national economy, and assist in optimising dwelling stock usage

Earlier this week, the New South Wales government announced landmark reforms to stamp duty in a bid to remove financial barriers for first home buyers.

The changes will be enacted in January, providing first home buyers with the option to switch out stamp duty and pay an annual property fee instead when purchasing properties for under $1.5 million.

Property experts have since weighed in on the matter, with the national network of buyers agents BuyersBuyers predicting the change will prompt medium-density living to gain traction.

Avoidance of a higher tax may drive shift to medium-density

According to Pete Wargent, co-founder of BuyersBuyers, economists have been campaigning to abolish stamp duty in favour of an annual land tax for years.

Mr Wargent commended the NSW government on the move, labelling it a “politically tricky manoeuvre to pull off.”

Under the new plan, first home buyers are offered the alternative of an annual property tax of $400, plus 0.3% of the property’s land value.

“This will remove one of the major hurdles to home ownership and will pull forward more first home buyer activity in Sydney and regional New South Wales over the coming few years.”

Pete Wargent, BuyersBuyers co-founder

As the annual property tax will operate on a land value percentage basis, BuyersBuyers anticipates this will drive owners towards smaller land parcels in an effort to reduce their payments.

“In terms of immediate market impacts, this is likely to be supportive of unit prices in Sydney.

“A full reform of the tax legislation may require Federal support, but over time this is likely to drive more buyers towards strata and medium-density living, into properties with lower assessed land values, and away from detached housing blocks which will attract a materially higher annual land tax payment,” Mr Wargent added.

Reform to benefit economy, with other states set to follow

While only first home buyers in New South Wales may be impacted at first, the reform is set to bring about positive changes on a national scale.

BuyersBuyers CEO Doron Peleg said that the Australian economy will be boosted as a result, though the effects may take years to be fully recognised.

“Stamp duty is an expensive frictional cost in the housing market, and with it being phased out this will encourage a more flexible labour force, with the desire and ability to move to where the job opportunities are, which will deliver an employment and growth dividend for the New South Wales economy,” he said.

With the NSW government’s decision already being applauded on a nationwide stage, it’s likely that other states will follow suit if NSW can prove a successful transition.

NSW transfers & stamp duty paid

NSW stamp duty paid
Source: BuyersBuyers

Mr Peleg acknowledged that there could be some disadvantages to abolishing stamp duty, including a rise in unit prices or the reform encouraging more speculative ‘flipping’ of properties.

“But overall, this is seen to be a positive move. Stamp duty is a cyclical and lumpy tax – the average stamp and transfer duty payment in New South Wales has been above $50,000 through the 2022 fiscal year – and ultimately state governments will be able to transition to a smoother and more predictable revenue stream from land tax” Mr Peleg concluded.

Changes to help optimise dwelling stock usage

Mr Wargent said now is the most opportune time for tax reform, as the state government raked in an enormous $15 billion in the past financial year.

“If ever there was a time to move away from a cyclical transaction tax, this is it. We expect there to be more first homebuyer activity in Sydney over the coming few years, with many younger buyers tapping the so-termed ‘bank of Mum and Dad’ for assistance,” he said.

pete wargent
Pete Wargent, BuyersBuyers. Image – LinkedIn.

He added that the reform will assist in removing the stigma from unit and apartment living, and will likely steer retirees into downsizing in their retirement, freeing up housing stock for larger families.

“Ultimately, this is the main benefit of the reform, making more optimal use of the dwelling stock, and encouraging buyers to move into housing that is most appropriate for their needs, rather than worrying about large transaction costs.

“Over the medium-term, you should expect these reforms to put downward pressure on detached house values in Sydney, but this is likely to be offset by an increase in unit values as demand tilts towards medium-density living,” Mr Wargent concluded.

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