As of 1 July, the new NSW Labor policy for first home buyers will come into effect. This means that first home buyers looking to purchase a home will receive a full stamp duty concession on properties up to $800,000 and reduced stamp duty tax on properties up to $1 million.
This change has been welcomed by first home buyers looking to make their break into the property market and it is expected to encourage more buyers to enter the market.
Additional demand could drive prices higher
But, will this change really enable first home buyers to secure their bricks and mortar? Without addressing housing supply issues, it is likely that property prices in the lower end of the market (sub $1 million) will increase in value as the limited supply of properties is likely to struggle to meet demand.
Many home buyers are holding off until 1 July for these benefits to take effect meaning there is likely to be a sudden influx of buyers without a matched influx of supply which ultimately is the problem with these types of schemes resulting in upward pressure on property prices. Let’s dive deeper into these changes and what it means for first home buyers.
What are the changes?
The previous government provided stamp duty concessions for first home buyers purchasing existing homes, whereby first home buyers are eligible for a full exemption on stamp duty for homes valued up to $650,000 and a partial exemption for homes valued up to $800,000.
Under this new NSW Labor policy, first home buyers will receive a full concession on properties up to $800,000 and a reduction in stamp duty for properties valued up to $1 million. With the increase in these brackets, more suburbs will now be obtainable and added to first home buyer wish lists. Suburbs that were previously seen as unattainable, such as units in Stanmore, Macquarie Park and Brighton-Le-Sands, will now come onto the radar for buyers as the median unit prices now fall within these brackets.
In addition to this change, the Labor Government is abolishing the previous Liberal Government’s First Home Buyer Choice scheme with the option for first home buyers to choose either; to pay stamp duty in a lump sum or pay an annual property tax on the property.
Enabling first home buyers to reduce their entry costs into buying property gave them an advantage in the market which was achieved when the first home buyer selected the property tax option (the tax is calculated on the land value and paid each year of ownership, instead of stamp duty). This scheme will no longer stand under the current Government as of 1 July so there is a limited window that home buyers can still purchase under this scheme.
The sellers market could return sooner
The winners in this scenario are really the sellers who may gain more power in the current “buyer’s market” as the demand for the properties will increase, pushing up their property’s price. They may be able to sell their property for more than they previously thought attainable.
With increased demand, we are likely to see more properties sold by auction which also helps to drive up prices.
Forgoing the +$1.5M home?
These changes being implemented will have differing effects on first home buyers depending on their purchase price. For example, first home buyers looking to purchase a property up to $1,500,000 will no longer be able to select the ongoing property tax option so will now be at a disadvantage under the Labor government changes when the First Home Buyer Choice scheme is abolished and they will need to pay the full stamp duty. The problem with the Stamp Duty concessions is that it may fuel price increases in properties up to $1 million as the demand for these properties increases but the supply issues have not been addressed.
Without addressing the simple economics of supply and demand when policies are introduced or changed, the impact may be negligible for those first home buyers that it is designed to benefit.
The price cap increase will mainly benefit buyers in the middle and outer rings of Sydney’s CBD, but to counter the benefits, we expect to see prices drive upwards because buyers can redirect the money they saved for stamp duty towards their deposit instead. If first home buyers are looking to purchase in the $1 million to $1.5 million bracket, there remains a small window of opportunity available to utilise the First Home Buyer Choice option before it is abolished.
Property sellers may also benefit from this situation, and they will gain a little bit more power in the current market conditions, considered a “buyer’s market”.
Sellers may be at an advantage if they hold off selling until 1 July as demand may assist in gaining the highest price.
How can we help?
If you have any questions or would like further information about the 2023 Land Tax year or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.
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