Home buyers who are putting off purchases hoping that stamp duty will soon be phased out are playing a dicey waiting game which could see them eventually pay more money.
New stamp duty changes
In New South Wales, the government recently announced eligible first home buyers could access stamp duty exemptions on new home purchases worth up to $800,000. New home builds will also see stamp duty discounts available for purchases between $800,000 and $1 million, where the discount reduces with a higher purchasing price.
The policy is a temporary, 12-month extension of existing stamp duty concessions from the 1st of August 2020. However what buyers may not realise is that if stamp duty is scrapped entirely, the government will be looking to replace it with some other kind of tax.
Swapping one cost for another
Governments actually don’t like stamp duty either. It’s quite an inefficient tax because if there’s not a lot of transactions Government revenue goes down. However, with the economic ramifications of COVID-19, tax-wise anything is currently up for grabs, so I think they’ll be wanting to replace it with a more efficient type of tax.
Stamp duty on average represents around 20 per cent of State Government revenue across the nation. If that vanishes then what we could be talking about is an increase in land tax. That means every property owner irrespective of whether they have an investment or a family home will actually be paying more rates. And instead of just paying rates to local council, they’ll also be paying rates to their State Government as well.
It's really a case of ‘be careful what you wish for’ when it comes to removing the highly unpopular stamp duty. There are lots of reasons why this tax should probably be removed, given it’s so hefty, but as a property owner you need to brace yourself for a new ongoing bill as the trade-off.
Is it wise to put off a buying decision?
If you find the home of your dreams, and you can afford it now – even at a stretch with stamp duty included – is it worth putting off the decision? You might end up paying more money with a new tax in the long run anyway.
The other issue is that any reform is going to take time to get legislated. Buyers could be waiting a long time before anything new is set in stone and then it’s a case of everybody jumping back into the market at the same time. We saw this happen when the First Home Buyers Grant was introduced in 2003. Buyers held out for the grant and suddenly we saw prices increase almost overnight.
If every buyer was to wait until stamp duty reform is actually passed that would create more demand all at once, which would further inflate asking prices. While the market is currently low, buyers who find the right property should be striking whilst the iron is hot – and not delaying.
Veronica Morgan is a leading buyer’s agent from Good Deeds Property Buyers