• Jason Kim

NSW Stamp Duty Reform 101

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Since 2001 there’s been a need for stamp duty reform, and in November 2020, the NSW government formally announced that it will be reviewing NSW stamp duty, recognising the increasingly significant hurdle that it presents to property buyers as property prices continue to rise.

The proposal involves giving property buyers a choice between paying stamp duty or paying a smaller annual property tax when they purchase a property. Once a buyer chooses to pay the annual property tax, this choice cannot be changed. Even future owners of the same property must pay the annual tax instead of stamp duty.

Be aware that it is likely that banks and lenders will include the annual property tax as part of your living expenses when assessing borrowing capacity.

The annual property tax is proposed to be calculated as follows:

*Unimproved land value is essentially the value of the land, excluding all structures (e.g. houses, sheds and fences). It is calculated based on objective factors such as location, land area, zoning, and comparable vacant land sales. Unimproved land value is already used to calculate council rates.

You can find the unimproved land value of any property by:

  1. searching the address here to find the property number

  2. searching the property number here

Other consequences of the Stamp Duty reform

Beyond the obvious saving in the upfront cost, there are other positive benefits that can flow from this proposal.

Firstly, people will have more freedom to change where they live. Due to the large cost of stamp duty, many people stay in a home that does not fit their lifestyle longer than they should to avoid having to pay stamp duty twice. They may have a family that has outgrown the size of the property or they may be looking to downsize. The annual property tax will remove this burden and allow people to move properties more freely as their circumstances change.

Secondly, the option to not pay stamp duty will cause a massive boost to household financial positions and raise living standards. The median house price in Sydney is about $1.3 million. The removal of stamp duty on such a property will be an upfront saving of approximately $55,000 in the buyer’s pockets!

However, as part of the reform, the government proposes to remove the current first home buyers stamp duty exemption scheme, which was seen as a considerable savings for those entering the market.

Impact on property prices

There have been mixed opinions on the impact of the new proposal on property prices. On the one hand, due to the reduction in the upfront costs in purchasing a property, prices might rise in the short term due to increased demand.

On the other hand, the supply of housing is expected to also increase as homeowners can more freely down-size or up-size. Plus the annual property tax is much higher for investment properties which may slow down property investors. Although it may not happen immediately, this should drive prices down in the medium to long term.

Next Steps

The government is currently taking feedback on this proposed policy, so for now, the current stamp duty system applies to property purchases in NSW.

You can calculate the amount of stamp duty payable based on the property value on Revenue NSW’s website here.

A range of exemptions and concessions apply, including for first home buyers. For more information, visit Revenue NSW.