The government of New South Wales has proposed a reform to the current land tax system along with the new budget. NSW Treasurer Dominici Perrotter announced that
“Consultation will be sought on a system for changes to stamp duty, and replacement to annual property tax”
The present announcement suggests that, aspiring homeowners would be provided an option to pay an upfront lump sum tax, or the option for annual land tax. Owner occupiers would significantly pay a lower tax amount than investors and first home buyers will be incentivised with a $25,000 grant. This could be used for offsetting tax payment or fund for renovating the property.
Q. So, how does it affect me as someone who is looking to buy a property? Annual property tax isn’t likely to make a big difference Replacement of stamp duty with land tax, may not necessarily reduce cost of housing.
Considering previous demand – side housing incentives. Reduction of upfront costs of property, bursaries or grants for properties, generally is added back into the final price. This is because stamp duty is synonymous to the price people are willing to pay. However, reduction in upfront costs will bring more first home buyers into the market.
Q. Why was it introduced then? It increases turnover and efficiency in housing stock.
Stamp duty is an age-old practise. It has only contributed to hassle in property buying and selling, as people averted from paying large, upfront duties
This has led to inefficiency within housing stock. Senior citizens resisting to downsize, purchasing larger homes than what is required and people not willing to shift homes in order to avoid an another stamp duty payment.
The replacement of an upfront, lump sum with an ongoing land tax based on the unimproved value of land could incentivise more turnover, and more efficiency in the use of housing stock.
Replacing this lump sum payment to a land tax-based system, depending upon the unimproved value of land will lead to greater turnover and efficiency of housing stock.
Q. How will property investors be affected? The proposed changes will likely make it more expensive for investors. However, owner occupiers will attract lower tax rate. This will further hit investors. ABS data points that present investor participation within the NSW mortgage market is at just 28 %.
In the fullness of time, this proposal will go through further scrutiny and is likely to be shaped to benefit both investors and first-time home buyers. The property market may impact differently than what we expect. The government of ACT and south Australia has already started to implement reforms within the property market. This move is likely to be prompted by the other major states.