Brokers prepare FHBs for end of NSW property tax

The First Home Buyer Choice enables first home buyers (FHBs) purchasing owner-occupier properties of up to $1.5 million (or vacant land of up to $800,000) to opt out of paying stamp duty and instead pay an annual property tax. It is currently available to FHBs who signed a contract of purchase on or after 11 November 2022 and who move into the property within 12 months of purchase and live in it for six continuous months.

The scheme, which comes in addition to existing stamp duty exemptions and concessions, was first announced last year as part of the Perrottet government’s move to help lower the upfront costs of home purchases and “boost the rate of home ownership in NSW”.

However, the NSW Labor Party has said it will repeal the property tax option, instead replacing it with its own housing affordability reform as part of its Fresh Start agenda.

A spokesperson for the office of NSW Premier Chris Minns has confirmed to The Adviser that the NSW Labor Party intends to repeal the Liberal Party’s property tax option for new first home buyers (FHBs) when the NSW Parliament next meets (expected to be in early May).

The spokesperson said that while FHBs who have already opted in to pay the annual tax will continue to be able to pay it, NSW Labor intends to remove the property tax option for new FHBs from the new financial year (starting 1 July).

Instead, NSW Labor will look to implement its pre-election promise of abolishing stamp duty outright for FHBs buying a home worth up to $800,000, while offering a concessional rate to FHBs purchasing a property up to $1,000,000. 

According to the party, this will help support more than 46,000 future home owners by expanding the number of FHBs paying no stamp duty or accessing the discount. For example, modelling by the Parliamentary Budget Office showed that within the first three years of Labor’s changes, an additional 27,700 FHBs will avoid paying any stamp duty whatsoever and an additional 18,800 FHBs would pay a discounted rate.

The NSW Labor party has estimated that 95 per cent of all of FHBs in NSW would therefore pay no tax or a reduced rate under Labor’s plan when they buy their first home.

The plan — which the Labor Party said would cost no more than $722 million over the forward estimates — will be paid for by abolishing Mr Perrottet’s property tax.

Brokers helping FHBs understand if they’d benefit

Given the potential changes to the property tax option, brokers have been busy supporting borrowers in understanding their options and helping those who may benefit to take advantage of the policy before its expected end in 12 weeks.

Wealthful broker Chris Bates (who recently won the Broker of the Year and Best Residential Broker awards at the Better Business Awards NSW/ACT), told The Adviser that some FHBs who have the ability to purchase a qualifying property before 1 July may find that they would need to find an additional $50,000–$75,000 for stamp duty if the property tax is removed.

He said: “The change does create an opportunity for first home buyers earning over $200,000 to look to purchase prior to 1 July.”

However, he added that — depending on their current savings and likely savings in the coming six to 12 months — there are two different FHB pools. 

Mr Bates explained: “The first bucket only has savings of around $100–$150,000 and if they don’t buy prior to 1 July, they are likely having to reduce their purchase price dramatically as they have to pay stamp duty unless they could save a lot in the next six to 12 months.

“For these buyers, we are making them aware that they are already likely paying a higher price to purchase to offset the stamp duty savings due to the competition this policy creates with a short runway and overall extremely low-quality property listings. 

“However, if they can find a quality asset, they may decide this is better than the alternative of not being in the market if it recovers or purchasing a property at a lower price point that they are not motivated to buy.” 

The second bucket of FHBs, Mr Bates continued, is buyers who have around $150–$225,000 and can “afford to wait until after 1 July without having to reduce their purchase price”.

“We are suggesting [these FHBs] be patient and persistent to still be in the market for the right property but not chase a property at all costs if it gets it to a bidding war with two of the first buyer pool. The stamp duty and LMI saving is not worth overpaying, and their chance of securing a better asset post-1 July should increase if their competition is reduced,” he said.

“Finally, we also have many clients with properties that would sell well under $1.5 million in this market for above market price and some are choosing to take a chance of trying to cash in on this market event to allow them to do other things with their equity and borrowing capacity.

“Policies like this manipulate prices, as we have already seen many properties sell for exactly $1.5 million due to this policy limit, not because that was precisely what the property was worth.

“I bet that many first home buyers looking to purchase while the stamp duty to land tax option exists will try to make it happen before 1 July. However, if they cannot, they are already building a plan to look to still purchase post [the repeal], such as by finding additional savings or help from family.

“Either way, there is demand building, and this is on a tight number of quality listings under $1.5 million.”

More borrowers likely to benefit under stamp duty waiver expansion

Regional brokers are also preparing clients for the change, noting that Labor's plan could help more FHBs in the long run.

Heath Williams, loan specialist at Loan Market Newcastle CBD (and recently-crowned Regional Broker of the Year for NSW/ACT), commented: "For us and our clients in Newcastle and regional NSW, these changes will certainly help as we are seeing more first home buyers purchasing above the current threshold for the exemption to stamp duty.

"We have had a few clients take out the land tax option however, I feel that - in our area and price brackets - the increase to the exemption threshold will be a greater benefit to first home buyers than the option for land tax," he said.

Mr Williams continued: "As it gets closer to July and we see more about this in the mainstream media, I think we will be asked the question more about the benefits of each.

"Timing a purchase and settlement right will be the key factor and having a broker there to guide them through this decision, will again reinforce the benefit of clients choosing to use a broker as these are the types of discussions we have day in day out with our clients."

While the NSW First Home Buyer Choice scheme was largely welcomed by buyers, brokers have previously flagged concerns around how the tax would impact serviceability, particularly as serviceability hurdles have been rising recently.

[Related: Mythbusting the NSW stamp duty reform]