What’s changing to the first home buyer incentives in NSW?

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The recent change to the NSW State Government following the election on 25 March, 2023 is important news for first home buyers in NSW because Labor proposes drastic changes to the first home buyer incentives.

To rewind, the Liberal Party introduced the First Home Buyer Choice which currently allows first home buyers in NSW who purchase a property up to $1,500,000, the choice between paying stamp duty or opting for an annual property tax. The Frist Home Buyer Choice provides greater opportunity for first home buyers to jump onto the property ladder because it reduces the upfront costs of getting into the market.

The policy came into effect on 16 January 2023. Labor plans to abolish this scheme and instead, promises to remove stamp duty altogether for first homebuyers buying a home worth up to $800,000, and offer a concessional rate to first-home buyers purchasing a property up to $1,000,000. This is expected to take effect in July 2023.

There is a discussion amongst experts about the likely impacts of these policy changes on the property market. On the one hand, eligible first home buyers could bring their purchase plans forward to access the existing scheme and subsequently push property prices up under the $1.5M range as a result of the increased demand prior to the proposed changes in July 2023. Consequently, the anticipation of an influx of first home buyers purchasing up to $1.5m and accessing the scheme before its end date in July could encourage buyers who cannot access the scheme (such as upgraders, downsizers, and investors) to speculate and delay their property searches until the scheme concludes and competition subsides. The theory suggests that competition for properties in the $1m – $1.5m range could decline at the conclusion of this scheme because first home buyers will no longer be able to opt for the annual land tax instead of the up front stamp duty payment. There is also evidence suggesting that buyers can “get a lot more bang for their buck” just above the $1.5M mark where first home buyers who rely on the first home buyer scheme tap out.

However, let’s consider how much these factors should influence your buying decisions right now:

  • The Impact on Prices is Limited

Example calculations of the scheme reveals stamp duty savings up to $66,700 in favour of paying the annual land tax instead of the up front stamp duty. Theoretically, this saving could increase upfront budgets by the same value and push up property prices under the $1.5M threshold. If budgets increase by $66,700 and there is a ceiling at $1.5M, then the influence on property prices has a finite limit. Consider also that only a small fraction of first home buyers can afford anywhere close to the median property price in Sydney which sits just above $1M.

  • Hype is Unreliable  

Hype is a factor that influences property prices in the short-term. News of any new first home buyer incentive influences purchasing decisions and tempts buyers to time the market. But this should be reason to pause and reflect on your own personal circumstances and consider what factors should really influence your purchasing decisions and what your real long term needs are.  

  • Policies can Change

If a policy can change within 6 months such as this First Home Buyer Choice policy, is it a reliable predictor of the market long-term? And is it worth the risk of timing the market and missing out if policies are subject to change?

  • Danger in Relying on a Single Lever

The property market is influenced by a wide range of economic and social factors. We are all too aware of the impact of inflation, interest rates and supply constraints for example. Each of these levers have varying degrees of influence on the property market and all need to be taken into consideration. It is therefore risky to base property decisions on just one lever or one isolated economic policy.

In summary, while policy changes can influence the market in the short-term, the extent of the impact is unpredictable and negligible long term. Timing the market is a risky business. Instead of relying on speculation, it is important to assess your own goals and personal circumstances to make the right property decisions for the long term. Talk to professionals around you with financial expertise such as financial planners, accountants, and mortgage brokers. And if you decide that property is right for you, consider the value in engaging a reputable buyer’s agent to find and secure the right property for you.

If you are curious about the services of a buyer’s agent and how we can help you, reach out to Nick Viner on 0405 134 645.

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