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First home buyers in NSW will be able to choose between an upfront payment or a smaller annual property tax from next year under First Home Buyer Choice reforms.
NSW Premier Dominic Perrottet has confirmed that the state will be giving borrowers the option of paying stamp duty or an annual property tax as part of a multibillion-dollar housing package announced in the 2022-23 NSW budget to deliver quality, accessible and affordable housing across NSW.
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The property tax option will be available for properties for up to $1.5 million.
Under the new initiative, first home buyers who opt into the property tax will pay an annual property tax of $400 plus 0.3 per cent of the land value of the property.
From 16 January 2023, eligible first home buyers who opt into the First Home Buyer Choice will not pay stamp duty on their purchase.
The property will not be locked into the scheme if it is sold. As such, if a buyer is purchasing a property from somebody who is paying the property tax, they will not be subject to the property tax (unless they are also an eligible first home buyer who chooses to pay the property tax).
First home buyers will continue to be eligible to apply for full stamp duty exemption for properties up to $650,000. Stamp duty concessions remain in place for properties between $650,000 and $800,000.
However, FHBs will not be eligible if they have received a First Home Buyer Grant or duty concessions.
All other purchasers must continue to pay stamp duty as normal.
Legislation to establish the property tax will be introduced during the second half of 2022 with eligible first home buyers able to apply to opt into the property tax from 16 January 2023.
For contracts exchanged in the period between enactment of the legislation and 15 January 2023, eligible first home buyers will be able to opt in from 16 January 2023 and receive a refund of stamp duty already paid.
The government gave the following scenario to demonstrate how the tax could work:
Aisha is buying her first home, a $750,000 apartment in Concord. The apartment has a land value of $270,000.
As an eligible first home buyer, Aisha qualifies for a concessional rate of stamp duty that in this case results in stamp duty of $20,870.
In 2022-23, the annual property tax on the apartment would be $1,210.
Aisha is hoping to upgrade to a larger home in about five years, and thinks she will end up paying less tax under the property tax option.
She chooses the property tax.
‘Deliver a brighter future for first home buyers’
Speaking ahead of the release of the state’s full budget, the Premier said he hoped the option of stamp duty or annual tax would help a broader group to become first home buyers, suggesting that stamp duty adds about two years to the time required to save the upfront costs of the median NSW dwelling (based on an NSW household with the median income saving 15 per cent of their income).
The state estimated that, together with existing first home buyer initiatives, the government will be offering support to about 97 per cent of all first home buyers, or about 55,000 people per year.
The new initiative aims to help lower the upfront costs of home purchases and “boost the rate of home ownership in NSW”, which has reportedly dropped from around 70 per cent in the 1990s to around 64 per cent today.
The decline has been attributed to rising home prices and has particularly impacted younger and lower-income groups.
“We want to lower the barriers to owning a home for first home buyers seeking a place of their own,” Mr Perrottet said.
“In the past two decades, the share of first home buyers under 35 years of age has declined from 67 per cent to 61 per cent. Lifting home ownership is part of this Government’s efforts and ambition to help families who are feeling the squeeze.
“The First Home Buyer Choice will remove one of the largest upfront costs to buying a home and help deliver a brighter future for first home buyers.”
Treasurer Matt Kean said the NSW government had allocated $728.6 million over the next four years to help first home buyers get a foot on the property ladder.
“We know that first home buyers are being forced to enter the property market later in life and this reform will make the property market more accessible for them,” Mr Kean said.
“It will mean more NSW residents will get into their first home at an earlier age and achieve the great Australian dream of home ownership.”
Minister for Planning and Minister for Homes, Anthony Roberts, said the property tax option for first home buyers will help increase home ownership across NSW.
“The NSW Government is also looking at initiatives to help boost housing supply by cutting planning assessment timeframes, co-funding enabling infrastructure and investing in new and improved social housing,” Mr Roberts said.
“This Government will use every lever at its disposal – including tax, planning, supply, or working with the Commonwealth – to give more people in NSW the opportunity to own their own home.”
More to come.
[Related: Calls rise for stamp duty overhaul ahead of NSW reform]
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