Abolishing stamp duty will allow first home buyers to own their property faster and save them tens of thousands of dollars, new analysis shows.
The New South Wales Government has proposed replacing the upfront stamp duty payment when buying a property with a small annual property tax for first-time buyers.
In a statement to a parliamentary inquiry into the reforms, the New South Wales Department of Finance revealed the changes could allow shoppers to save money up to the age of 63.
Treasury modeling suggests that two-thirds of the state’s first-home buyers buying properties between $800,000 and $1.5 million will choose land tax over stamp duty.
And the analysis shows that the cost-benefit is huge.
The break-even period between upfront stamp duty and annual land tax is 36 years for first-time buyers of $800,000, 28 years for a $1 million townhouse and 26 years for a $1.25 million house.
For more expensive homes, that breakeven period is even longer — a staggering 63 years for someone buying a $1.5 million unit.
Replacing stamp duty with a small annual land tax could deliver decades of savings. Photo: Getty
The analysis also found that half of all owner-occupiers in NSW sell their homes within 10.5 years of buying them, with two-thirds selling within 20 years.
First home buyers tend to have a shorter holding period because many upgrade to larger properties when they can afford it.
NSW Treasurer Matt Keane said the reform would help people get into their first homes faster and allow them to pay less.
“It’s all about choice, and for many first home buyers, opting for a lower annual payment will save money in the long run,” Mr Keane said.
“For example, if they bought a house worth $1 million and sold it after 10 years, which is the average period, the annual property payments would be $19,881 in present value terms, compared to $40,090 in stamp duty. That’s a savings of $20,209.”
Stamp duty is a major hurdle for many first-time home buyers. Photo: Getty
PropTrack economist Angus Moore called stamp duty a “very inefficient tax” that is a major disincentive for buyers.
“I suspect most first home buyers will find the land tax option very attractive,” Mr Moore said.
“As NSW Treasury analysis shows, if you don’t plan to stay in the home for a long time, the property tax will be cheaper.”
First home buyers struggling to save a deposit will get a reprieve thanks to the change, he added.
“The main constraint for many first-time buyers is maintaining a deposit. Stamp duties are a significant additional upfront cost.
“For a two-pet household, stamp duty adds up to an extra year and a half of time savings, even for a relatively affordable home. Not having to pay that upfront cost will help some families buy sooner.”
As well as first home buyers, Mr Moore pointed out that stamp duty affects other types of buyers – particularly those who are upsizing or downsizing.
“It prevents people from moving houses. This means that people are staying too long in homes that are too small for them, and too long in homes that are too big – and this actually worsens housing affordability.
“If people are staying put, it means we’re not making good use of the homes we already have.”
However, the changes in NSW will only apply to first home buyers and not to other types of buyers.