Impact of Proposed NSW stamp duty changes on buyers

16th Dec, 2020 | Investor

In this article:
The recently announced proposed Stamp duty changes by the NSW government gives buyers two options - a one time payment or a yearly tax. Here's what you need to know before you make a choice.
Staying abreast of the latest government property initiatives can contribute immensely to providing you with the much-needed financial respite while getting on to the property ladder. The recently announced proposed Stamp duty changes by the NSW government is one such step to support property buyers. Here’s a quick look at what these changes are and how they could impact you.

What are the proposed changes?

Currently, the NSW state government collects stamp duty as a percentage of the overall property cost. If the proposed changes come into effect, property buyers will have the option of paying stamp duty as a one-time cost at the time of purchase or as a yearly tax.

The reasoning behind the changes

  • Overall Property Cost: The NSW state government believes that the current form of stamp duty collection is a significant addition to the overall property cost and therefore burdens buyers and deters them from making a purchase. For instance, on a $1 million property, the stamp duty cost is of $40,0355 or a little over 4%. For a buyer that is already struggling to access funds, the additional $40,000 can become a major deterrent.
  • Downsizing or upgrading: This massive cost also becomes a huge expense when property buyers are changing residences at different stages of life. A young family looking to upgrade to a larger home in the wake of the birth of children are hit hard by this expense. Same is the case with retirees or pensioners who are looking to downsize to a smaller and more manageable home.

Novice or seasoned investor, we can help

Impact on property buyers

So, how should you go about deciding on what option works best for you? The most significant determinant is the duration for which you wish to own the property you are looking to purchase. If you are looking at property purchase from a long-term perspective, then paying one-off stamp duty cost at the time of purchase would be a lot more economical. On the other hand, if the property you are looking to buy is a short-term investment or a stepping-stone to a better residence, then an annual fee would be more affordable. Here’s how a one-time stamp duty payment compares against a yearly tax for a $1million property that has a land value of $700,000.

Property Cost Land Value One-off stamp duty Payment No. of Years the property is owned Yearly stamp duty payment Difference
$1 million $700,000 $40,335 1 $2,600 $37,735
5 $13,538 11,808
10 $28,527 $11,808
15 $ 45,157 -$4,822
20 $63,644 -$23,309
30 $107,196 -$66,861

(Source: Based on NSW stamp duty rates effective from 1 July 2020)

As you can see for any property held for over 15 years, it’s more affordable to pay a one-time stamp duty. The best approach to taking an informed decision is by relying on a mortgage broker. In addition to handling your loan paperwork, a mortgage broker can help you with identifying your goals and guiding you on the best option for your specific needs.

Reach us for the best way forward as per your circumstances.