The NSW government announced the introduction of the “First Home Buyer Choice” in the 2022-2023 NSW Budget. The first of its kind, the purpose of the scheme is to enable more first home buyers to enter the market by reducing the up-front costs. With property prices significantly outpacing wages growth, it has been increasingly more difficult for first home buyers to save enough of a deposit to break into the property market. This reform could be a game changer for many NSW first home buyers and help them into their first home.
First Home Buyer Choice
The First Home Buyer Choice will allow first home buyers in NSW who purchase a property up to $1,500,000, the choice between paying stamp duty or opting for the annual property tax. This comes into effect on 16 January 2023 and buyers who sign a contract between 11 November 2022 and 15 January 2023 may be eligible to apply for a refund.
The beauty of this first home buyers’ scheme is that it provides buyers with more flexibility and options to jump onto the property ladder. It’s also important to note that the current stamp duty concessions up to $800,000 for first home buyers will continue to apply.
Eligibility Requirements
There are several eligibility requirements to access the scheme including the requirement to move into the property within 12 months of purchase and live in it continuously for at least 6 months. The applicant or their spouse must not have previously owned residential property in Australia. To view the complete list of eligibility requirements, click here.
For eligible first home buyers, when assessing the difference between the stamp duty vs the property tax, buyers will need to do their own calculations. This is because each property has its own unique land value and there are different methods of calculation between the property and stamp duty. For example, property tax is calculated based on land value and stamp duty is calculated based on the purchase price.
The NSW Treasury has analysed the expected breakeven point, i.e. how many years of paying property tax would it take to reach the equivalent of paying the up-front stamp duty. The analysis reveals:
“The breakeven period between upfront stamp duty and an annual property tax would be 36 years for an $800,000 apartment, 28 years for a $1 million townhouse, and 26 years for a $1.25 million house.
The same analysis shows that if a first home buyer purchased a $1 million house and sold it 10 years later, which is around the median holding period, the annual property payments over the 10 years would total $19,881 in present value terms compared with $40,090 in upfront stamp duty – a saving of $20,209.”
Property Tax and Stamp Duty Comparison
Further, if a first home buyer purchases a $1.5 million unit with a land value of $525,000, it would take 63 years to break even if the buyer opted for the upfront stamp duty.
As we can see in the modelling, there are varying breakeven periods depending on the type of property i.e., house/townhouse/unit and the land value associated with each property. If an eligible first home buyer is intending to sell the property before the breakeven point (within 63 years in the above example), the First Home Buyer Choice could save home buyers thousands.
As each individual property produces different results and as each buyer’s personal situation is different, buyers should consider discussing the options with their accountant and mortgage broker.
If you are buying your first home and would like to discuss the types of properties achievable under $1,500,000 in Sydney, reach out to Nick at nick@buyersdomain.com.au.
