The incoming NSW Labor government has announced plans to repeal the First Home Buyer Choice scheme, which came into effect on 16 January under former NSW premier Dominic Perrottet’s government. The scheme allowed first-home buyers (FHBs) purchasing owner-occupier properties valued at up to $1.5 million to opt out of stamp duty and pay an annual property tax.
What Are The Proposed Changes To The Scheme?
With its Fresh Start Plan, the new government aims to remove stamp duty outright for FHBs buying a home worth up to $800,000, while offering a concessional rate to FHBs purchasing a property worth up to $1,000,000, starting on 1 July.
Those who have already opted for the annual tax would continue to pay it.
How Will the New Scheme Benefit First-Home Buyers?
The obvious benefit is the increase in the price cap for stamp duty exemption from $650,000 to $800,000. Some FHBs might choose to wait to buy a property under the new increased price caps.
The Labor Party has stated that its plan would benefit over 46,000 potential homeowners by increasing the number of FHBs who are exempted from paying stamp duty or are eligible for discounts.
The Parliamentary Budget Office’s independent analysis shows that, under the proposed changes by Labor, an estimated 27,700 more FHBs will be exempt from paying any stamp duty in the first three years. Additionally, around 18,800 more FHBs would be eligible for a significant discount on stamp duty.
Brokers have been helping FHBs understand their options and encouraging those who may benefit to take advantage of the current policy before its expected end in 12 weeks. On the other hand, certain first-home buyers who can buy an eligible property before 1 July may discover that they need to arrange for an extra $50,000 to $75,000 to pay for stamp duty if the property tax is abolished.
Wealthful broker Chris Bates explained to The Adviser that, depending on their current savings and potential savings in the coming six to 12 months, there are two different FHB pools. Those with savings of around $100,000 to $150,000 are likely to have to reduce their purchase price dramatically if they don’t buy prior to 1 July, while those with about $150,000 to $225,000 can afford to wait until after 1 July without having to reduce their purchase price.
Michelle May, the principal of Michelle May Buyers Agents, expressed to the Sydney Morning Herald her concern that eliminating the property tax would negatively affect first-home buyers. She stated that the tax provides substantial savings for those who plan to hold onto their first home for the short or medium term. May anticipates a surge of buyers rushing to take advantage of the property tax before it is removed, which could lead to increased competition and rising prices in the affected price range in the near future.
The Real Estate Institute Of New South Wales (REINSW) has expressed its support and looks forward to participating in the conversation, providing a practical outlook on the housing crisis. The organisation states that stamp duty imposes a considerable financial load on initial homebuyers and also hinders property owners from selling and purchasing another property, leading to more extended periods of property ownership. They do acknowledge, however, that increasing the supply of houses is the ultimate solution to the housing crisis.
Home Loan Experts Senior Mortgage Broker Jonathan Preston argues, however, that, “This is a terrible idea. The problem is that the Labor Party only seems to want to help people buy apartments in faraway areas. In Sydney, you realistically cannot buy a freestanding house for under $1 million in most areas now (with the median price of a house in Sydney being $1,230,581). Even the $1.5 million cap for the property tax under Liberals was quite restrictive. Many first-home buyers are now north of 35 years old and are not looking to buy just one or two-bedroom units in far-out areas. The Labor proposal does not change enough from the current incentives, and I don’t believe they are very supportive of first-home buyers at all. These price brackets are just not viable in Sydney anymore,” Preston said.
I think that this is overall a negative factor for the market and makes the property even more unaffordable for most people.”
Will The New Scheme Affect Property Prices?
The Labor Party’s proposal states that 95% of first-home buyers in NSW would either pay a lower rate of tax or no tax at all when purchasing their first home. However, brokers have warned that policies like this can manipulate prices; for example, some properties may have sold for an overpriced $1.5 million to take advantage of the current scheme.
In contrast, Preston doesn’t think the scheme will necessarily drive up prices, rather, he says it may make properties harder to buy, due to the price caps
Currently, there is a mixed opinions regarding the repeal of the property tax option. As the NSW Labor government pushes out more information towards July, we will have a more clear picture of what to expect. In the meantime, brokers are ensuring that their clients have access to the latest information and are prepared for any changes.