Ep 26. NSW Stamp Duty Reforms with James O’Brien
Do you live in NSW and are thinking of buying a property? In this episode, Michelle is joined by James O’Brien from Shore Financial to discuss the NSW State Government's plan to scrap stamp duty.
Here’s what you’ll learn from today’s episode:
If stamp duty is scrapped, what will take its place?
How will an annual land tax work for first home buyers?
When will this be legislated?
What are some things to look out for when choosing the new land tax or stamp duty?
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
James O’Brien - Shore Financial
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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Michelle May: Hi, and welcome to another episode of the Buy Your Side podcast. The property podcast to help you make smarter property buying decisions. My name's Michelle and I am the principal of Michelle May Buyers Agents. Today, we have got the wonderful James O'Brien back from Shore Financial, Credit advisor/ mortgage broker, who walked us through all the different government housing schemes available in our last episode. And today, we want to talk about the New South Wales State Government's announcement that they want to scrap stamp duty. So, James, it's wonderful to have you back. Thank you so much for taking the time to speak with me.
James O'Brien: Thanks for having me.
Michelle May: So our last episode was super informative, we talked through all the different options that potential first home buyers have to get their foot on the ladder. The latest scheme is the help-to-buy scheme that is proposed by Labour; they are now obviously in power. We kind of left our listeners on a bit of a cliff hanger, because I asked you a question and we didn't circle back and talk about it, which is when you are part of that scheme, the government co-buys the property with you so they own either 30% or 40% share of the property. And I asked you whether there was an option to buy out the government? So now you're back, give us all the information!
James O'Brien: So the short answer is yes, you absolutely do have that option. So the minimum stake that you can buy the government out at, at any one time is a 5% share of the property. The alternative is at the time of sale you are then required to pay the investment they made initially whether it was 30% or 40% for an existing property or 40% for a new build, plus a commensurate share of the capital gain.
Michelle May: Excellent! So whatever share they own, plus any profit that's made, a percentage of that goes back to the government.
James O'Brien: Correct. Yeah, I guess during that time frame, if you had to pay the government an additional 5%, 10% into 5% increments and the government only owned 20% of your property. That's the share you'd be required to pay upon selling.
Michelle May: Again, property selection is therefore crucial. You want to make sure that you are actually picking a property that will gain above any medium price growth for that suburb. So again, make sure that you understand the difference between a good and not-so-good property when you become a part of any scheme, but also when you're obviously buying for yourself.
James O'Brien: Yeah, any transaction, whether it's an investment or whether it's the property you live in, it's still going to be a very valuable investment. When you go to sell it, so whether it's an owner-occupied property or investment property the quality of the property is key.
Michelle May: Were there some more requirements when it comes to your income? So you've got your max taxable income a year $90,000 for singles, $120,000 for couples.
James O'Brien: Yeah, so if the home buyers’ income exceeds the help to buy annual income threshold for two consecutive years, then they're actually required to repay the government's financial contribution either in part or whole, as they're able to, just depending on the circumstances of the home buyer.
Michelle May: I think that's a good thing. It keeps us honest, right?
James O'Brien: Yeah. Correct. It prevents the system from being rorted. So it kind of builds in a safety measure there. If you only had those qualifying criteria of that minimal income, then you could take a job that has a lower income or reduce the hours of the current job you've got to meet that income threshold, get the government to help you buy the property that you want to live in and then increase your income again. So, I think having that kind of measure in there, means that the people that really need to benefit from the program will. Look, if you've improved your situation and your circumstances, you've got a higher income now. Great! Then, at a suitable time frame for you, you can then repay the government for helping out in the first place. I agree. I think it's a good kind of measure.
Michelle May: Yeah. Either way, you look at it I think it's responsible. I think it's smart and given that there are only 10,000 spaces a year, that sounds like a lot, but in the scheme of how many people buy properties, if every single one is a genuine person, that actually makes a difference. So, smart thinking there. Let's get onto this proposal that the New South Wales State Government has announced quite recently, again, in an effort to lower the threshold of getting into the property market. Run us through everything, we want to hear it!
James O'Brien: At the moment, there is a first home buyer concession. If you are buying an owner-occupied property, and it's $650,000 or less in New South Wales you don't pay stamp duty. So that varies state by state but in New South Wales it's $650,000. You don't pay stamp duty. Between $650,000 and $800,000 it's a sliding scale. So $800,000 you would pay full stamp duty. That program is currently in place, and even when the current government implements this new program, that program won't change. It will still remain in place, and you'll have the option of opting for the new program, utilising the old one, if you're eligible for it, or opting to pay full stamp duty. I'll explain what they're proposing. So, the scheme is available for any property up to $1,500,000 in New South Wales. Currently, as a first home buyer, you would pay a stamp duty of approximately 4%. Which would be about $60,000 for a $1,500,000 property.
Michelle May: That's a lot of money.
James O'Brien: It's huge. It's no mean feat that being able to save that amount of money is a huge commitment and it really adds to the upfront cost of buying a property. What they're proposing is, that instead of paying that upfront stamp duty, you can opt to pay an annual land tax instead. So it's your choice as the first home buyer, if you want to pay that upfront cost so that you don't have an ongoing annual tax liability, then you can. But if you don't have that cash saved, and you want to buy the property now, and you feel you'll be very comfortable just paying a smaller annual tax, then you can choose that.
Michelle May: And what does that annual tax look like?
James O'Brien: Good question. So the new land tax model, it'll be rated with an annual levy of $400 plus 0.3% of the land value for an owner-occupied property. So for a property that you own, that you live in. An investment property, it's a bit higher as it costs more. The rate will be $1,500 per annum plus 1.1% of the land value for a property that you own, but you don't live in for an investment property.
Michelle May: That is same or will that change in time?
James O'Brien: It will be indexed. So the average property tax payment rises in line with average incomes.
Michelle May: So you've got to build that into your calculations as well because I read somewhere the anticipated cost variation between the upfront stamp duty and the yearly land tax would mean that for a million dollar purchase price, it would take 16 years of paying the yearly levy to reach the same upfront stamp duty cost. So it will expectantly lead to a better outcome for those who buy their first home and want to transact into their next home faster with more flexibility.
James O'Brien: Yeah, exactly. I've read something similar. I think the more expensive, the higher the property price the longer the time frame. So I think I've heard for a $700,000 property it's around 13 years. For a million-dollar property, more like 15 years, 16 years. But you're exactly right, for a first home buyer, that is buying into the market and they're using their first purchase to leverage their second, and they sell within five to 10 years they're definitely better off with the new system. They'd be saving money in the short and the long term.
Michelle May: And so they're thinking of legislating this when? Later this year?
James O'Brien: Good question. It's later this year, no exact date has been set for when it's going to be legislated. The scheme is scheduled to be introduced on the 16th of January, 2023. However, it hasn't been legislated yet. Once it has been legislated later this year, from that date, in between then and the 16th of January, when the program comes into place, you will be required to pay the upfront stamp duty. However, on the 16th of January, if you have paid that upfront stamp duty, but you'd rather be paying the annual land tax you'll actually get a refund on the stamp duty that you've paid.
Michelle May: Well, that's good, that's excellent!
James O'Brien: As soon as it is legislated, people will be able to choose the program they want to go for. Unfortunately, you need to pay the money up front, but you would get it refunded when the program kicks off in January of next year.
Michelle May: All right, so to recap, is it only eligible for first-home buyers?
James O'Brien: Correct.
Michelle May: The property price cannot exceed $1,500,000 and the tax rates will be indexed, but they start off with $400 plus 0.3% of the land value for owner-occupiers. $1,500 upfront plus 1.1% of the land value for investment properties.
James O'Brien: That's exactly right.
Michelle May: From where I'm sitting, anything that helps first home buyers get on the property ladder is always worth looking at. Still, very carefully, do your calculations, talk to your financial advisor, talk to your broker. Is this the right solution for you? But it is something that obviously is coming and will be introduced on the 16th of January of next year. The months are flying past so before you know it, it'll be 2023!
James O'Brien: I think it's one of the best, probably most inclusive programs for first home buyers, particularly in places like Sydney, where if you want to buy as a first home buyer. If you are buying within that 10-kilometre radius of the city, it's very hard to buy anything for less than $1,000,000, even an apartment. So this program helps those first home buyers get onto the ladder. So I've got umpteen amounts of first home buyers that have transacted over the last few years that have not been able to get any government assistance. They have just had to save the cash. The alternative is to buy something for a lesser price point further out from Sydney and commute. Or buy it as an investment property and then you miss out on some of those concessions. It has been a little bit difficult for first home buyers that want to buy in those locations and this program addresses that.
Michelle May: You know, with the property prices increasing as much as they have done over the last number of years you can't make that much money at work. You know, I play the lottery every week, James,
James O'Brien: Me too! For the longest time that was my career plan - just win the lottery and I'm good!
Michelle May: I'm locking you in. So next week your lottery ticket, if you win, we're sharing and I'll do the same. Okay. Just tell your wife that we just agreed on this.
James O'Brien: She'll be cool with it. No problem.
Michelle May: Excellent! Now, for those of you who've been listening and want to hear more and need some expert advice when it comes to getting pre-approvals and you’re ready to buy a property - James, how do people best get in touch with you?
James O'Brien: However, they see fit! Feel free to give me a call, send me a text or send me an email. My mobile's 0415 391 002. My landline is (02) 8045 2553. Or you can send me an email at jamesobrien@shorefinancial.com.au.
Michelle May: Thank you so much, James. I really appreciate your time once again. I've learnt a lot in the last two episodes with you. Now if you enjoyed our episodes, hit us up with a like on Spotify, iTunes, or wherever you have found this podcast. Follow us on Facebook and Instagram. If you've got any questions, drop me line at hello@buyyourside.com.au. Thank you so much for listening and until next time.