Stamp Duty – should it stay or should it go?
Stamp Duty explained
After the deposit, stamp duty is typically the biggest up-front cost for people buying property. Also known as land transfer duty, stamp duty is an amount of money levied by the state government. The amount can be considerable.
First home buyers are exempt from paying the duty if they purchase property below $600,000, and pensioners also get off the hook, as long as the purchase is under $330,000. For everyone else, the duty payable is worked out on a sliding scale based on the property value
Here in Victoria, a property purchased for $800,000, for example, attracts a stamp duty of just over $43,000. Add in a 20% deposit, and you’ll need to have more than $200,000 before you can even think about purchasing. That’s big money, and easily explains why home ownership is out of reach for so many people.
State governments across Australia have long enjoyed this almost-passive income – the Victorian government makes 40% of its revenue from stamp duty. Their argument has often been that if they didn’t charge the duty, property prices would just increase to take account for it, and the money would end up in the hands of vendors and agents. Wouldn’t the money be better, they ask, in the government’s hands to help pay for schools, roads and hospitals?
It seemed for a long time that stamp duty was untouchable.
NSW is leading the charge
In the November 2020 NSW state budget, the government announced that they were going to offer a new option. While the details are not yet finalised, the idea is that a buyer could pay the huge one-off stamp duty or, instead, pay a much smaller land tax every year. It’s a clever idea: governments still get a regular income stream, while a major up-front impediment to property purchase is significantly reduced.
The idea has also put a match under other states – including Victoria – to also reform this duty in a similar way. Replacing the duty with a land tax is just one way to reduce the up-front burden. Offering a deferral scheme or the ability to pay stamp duty off over time are other ways to deal with the problem.
In the Victorian budget on 24 November, the government announced a different scheme, with the same intention. For new homes purchased under $1 million, there will be a 50% reduction on stamp duty. There will also be a 25% reduction in Stamp Duty for established homes for which First Home Buyers, receiving the First Home Concession, will also be eligible for. This will save many buyers up to $25,000 or so in up-front fees. It only lasts until mid-2021, though. But expect further stamp duty movement after that.
A compelling argument
Surveys of Australian first home buyers consistently show that this group – more than established owners or investors – would feel more confident and ready to enter the market sooner if the onerous stamp duty was removed or lowered significantly. NSW has been the first to more. But the pressure is on. Stand by while the Victorian government keeps one eye on the NSW experience and the on their own COVID-driven debt and deficit.
With so much movement (and potential movement) in the real estate landscape, the brokers at Mortgage Broker Melbourne are a great first step on your home ownership journey. At no cost to you, we can share market insights and tips to help you find and purchase a property sooner, whether you’re a first home buyer or an investor.
Contact us for information and help with stamp duty, deposits and all things related to property purchase.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!