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NSW budget: The Sydney regions where buyers spend most on stamp duty

ASSA | 2020-11-23 16:47:28

Scrapping stamp duty could save house hunters tens of thousands of dollars in up-front costs, with buyers in some pockets of Sydney likely to save six-figure sums if they get to opt for a new property tax.

Buyers in NSW could be given the option to opt out of stamp duty and instead choose a smaller annual property tax — a fixed amount plus a rate applied to the unimproved land value of a property — with the government beginning public consultation on property tax reform.

It would spare buyers forking out about $48,500 in stamp duty on Sydney’s median house price of $1,154,400. And about $28,300 on the $723,423 median unit price, according to data calculated by Domain based on the September quarter.

Giving buyers the option to swap stamp duty for a property tax would boost market activity when introduced, Domain senior research analyst Nicola Powell said, because it would reduce the up-front costs of moving home.

“It should help more people buy homes or reside in homes that are more suitable to their current situation,” Dr Powell said.

Buyers in NSW could be given the option of paying a property tax instead of stamp duty. Photo: Peter Rae

Based on the latest  figures from the valuer-general, from mid-2019, a buyer in inner Sydney would pay about $70,000 in stamp duty on the median sale price and an annual property tax bill, starting around $3220, on the median land value.

Dr Powell said first-home buyers, for instance, may be more inclined to purchase a smaller home – enabling them to get into the market faster – rather than over-stretching themselves to buy a family home to grow into, which some did to avoid paying stamp duty twice in the space of a few years.

But on the flip side, she noted it may do little to encourage downsizing as home-owners approaching retirement, may still reluctant to move if it meant paying an ongoing property tax.

Stamp duty paid on median house price
RegionStamp Duty CostMedian Price
Blue Mountains$26,866$700,698
Canterbury Bankstown$37,140$929,000
Central Coast$25,710$675,000
City and East$125,255$2,550,000
Inner West$75,205$1,640,000
Lower North Shore$129,655$2,630,000
North West$58,155$1,330,000
Northern Beaches$88,130$1,875,000
South West$27,285$710,000
Upper North Shore$84,005$1,800,000
Source: Domain. Median price is based on sales data for the September quarter.

Under the indicative property tax rates, the average owner-occupier in metropolitan NSW would be subject to an annual property tax of $2391 this year, with higher rates to apply for investors and commercial properties.

While the up-front costs would be significantly lower for those who opt for the property tax,  it’s unlikely to be a straightforward decision for many.

“The key factor is going to be how long you’re going to hold the asset, obviously the cumulative cost of the property tax may exceed the stamp duty you pay up-front if you hold the property for a long time, that’s going to be the key consideration both for owner occupiers and investors,” said CPA Australia senior tax policy adviser Elinor Kasapidis.

House hunters on Sydney’s lower north shore and the city and eastern suburbs fork out the most on duty, which totals $129,655 and $125,255 on each region’s respective median house price.

Those on the northern beaches, upper north shore and in the inner west also stand to save more than $75,000 upfront.

Source: Domain. Median price is based on sales data for the September quarter.
RegionStamp Duty CostMedian Price
Canterbury Bankstown$19,185$530,000
Central Coast$19,410$535,000
City and East$38,085$950,000
Inner West$30,120$773,000
Lower North Shore$38,085$950,000
North West$26,655$696,000
Northern Beaches$37,185$930,000
South West$16,710$475,000
Upper North Shore$29,029$748,750

Stamp duty for apartment buyers was also highest across these five regions, ranging from about $29,030 on the upper north shore to $38,085 on the lower north shore and in the city and east.

While the largest up-front savings would be in Sydney’s pricier regions, Dr Powell said, it remains to be seen whether expensive homes would qualify for the new tax, with the state government flagging it could initially set price thresholds at a level which would still allow more than 80 per cent of residential properties to opt in.

No specific thresholds have been set, but Domain data shows 80 per cent of homes sold in NSW last quarter were traded for below $1.18 million. In Sydney alone, 80 per cent sold for below $1,465,000.

Dr Powell said the changes could reduce demand short term – as people delayed buying to avoid stamp duty – but could put upward pressure on prices when introduced, as some may add the up-front savings onto their purchase price.

She added stamp duty equated to between 3.5 and 5 per cent of median prices across all Sydney regions. As it was greater on more expensive properties,  these could see the biggest uptick in prices if they qualified for the tax.

Ms Kasapidis noted that under the change, once a property was subject to the tax, subsequent owners won’t be able to revert back to stamp duty.

In addition to how long a buyer hopes to hold a property, Ms Kasapidis said block sizes and when a home was built could also impact the decision to opt in.

For instance, the property tax on two neighbouring blocks of the same land size – one with an old house and one with a brand new house – would be similar, but stamp duty based on the different sale price of both properties would be more varied.

“Essentially where a lot of the value is in the capital improvement, you would expect property taxes to be lower,” Ms Kasapidis said.

The deductibility of a property tax could also be a key factor for investors, Ms Kasapidis said, as they could deduct taxes annually but only claim stamp duty costs when they sell the property. As could how the different options impact financing arrangements.

Domain Saturday Auction Sydney. Story by Elizabeth Redman- Auction by Drake Real Estate of a 5 bedroom family home at 3 Wesley Street, Elanora Heights Sydney. Photo shows, Auctioneer Jake Downs during the successful auction. Generic Covid 19 Social Distancing Warning signs Photo by Peter Rae. Saturday 22 August 2020.
In metropolitan NSW the average residential land value is around $630,400, and the corresponding owner-occupied property tax would be $2,391. Photo: Peter Rae

Real Estate Institute of NSW (REINSW) chief executive Tim McKibbin said there was a risk buyers would pause their plans – until there was further clarification on the reforms – as the market was seeing a delicate rebound after a challenging year.

“ REINSW members have cited numerous examples of purchasers who, as a result of the announcement, now plan to abandon their search for a property in the immediate term,” Mr McKibbin said.

Thomas McGlynn, head of sales at inner-city agency BresicWhitney, said there had been plenty of queries from buyers and sellers on what the changes meant for them. But when they realised reforms would be months in the making, they still wanted to make their market move sooner rather than later.

“On the ground there’s been a massive amount of activity [in recent weeks] and certainly an increase in prices in some areas,” he said. “Many people feel … they’re better off paying stamp duty to get into the market in the short term.”

From Domain