The NSW Government has introduced the First Home Buyer Choice, aiming to make home ownership in NSW easier by providing the option between paying a smaller annual property tax, instead of the lump sum stamp duty.
If you’re an eligible first home buyer looking for a property up to $1.5 million, the First Home Buyer Choice can lower the upfront costs of the purchase and cut up to 2 years off the time needed to save for a deposit, fast tracking the way to a new home.
First home buyers already pay no stamp duty at all if they buy a new or established home costing less than $650,000, or vacant land priced below $350,000. A concessional rate of duty is paid on homes valued between $650,000 and $800,000 or vacant land valued from $350,000 to $450,000. In much of NSW and of course on the Upper North Shore, these options are extremely limited or non-existent as the Sydney-wide median values of $1.26 million for houses and $783,406 for apartments far exceed these limits.
As a guide to how big the stamp duty hurdle can be, a first home buyer looking at a property costing $1.4 million needs to budget for $61,200 in stamp duty. This, along with high property prices, has contributed to a decline in homeownership across NSW, dropping from 70% in the 1990s to 64%.
The introduction of the First Home Buyer Choice offers the option to pay an annual property tax, which is a percentage of the property’s purchase price or current market value (whichever is higher).
The property tax rates for 2022-2023 and 2023-2024 will be:
From 2024-25 the tax rate will be indexed in line with average annual incomes, though the maximum increase in any given year is capped at 4%.
For example, if a First Home Buyer who meets all the requirements, purchases a property for the Sydney-wide median house price of $1,257,625, and we assume the land is 60% of the overall value, about $754,575:
If the owner lives in that property for 10 years, they will have paid $29,989 in property tax, still $23,385 less than the one-off stamp duty payment. Even if they live there for 15 years, they’d be saving $5,231 by opting for the annual property tax instead of the lump sum stamp duty.
If properties that are subject to the property tax are sold, they will not be locked into the property tax for subsequent owners. The new owners, if they are first home buyers, can then choose whether to pay the annual land tax or stamp duty. If they’re not buying their first home, then the usual stamp duty rules apply.
Treasurer Matt Kean said “The First Home Buyer Choice will significantly reduce upfront costs, reduce the time needed to save for a deposit and will see the majority of eligible first-home buyers paying less tax overall”.
Learn more about the new initiative, eligibility and find a calculator here.
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