What is the Real Cost of Stamp Duty?

Yesterday, Gladys Berejiklian announced several updates to the NSW stamp duty system. On the surface, this should be great news for homebuyers and investors alike. But like all things, the devil is in the details. It is quite a niche group that will find themselves the beneficiaries of these new stamp duty thresholds. Changes to thresholds will only apply to new home builds purchased between 1 August 2020 and 31 July 2021, up to the value of $1 million ($800,000 or less will incur no stamp duty, while between $800,000 and $1 million will attract a lesser rate of stamp duty).

What does this mean for homebuyers and investors? Unless you are a first home buyer and plan on building from scratch, these new limits do not apply to you. While this seems like a step in the right direction, this update is about stimulating the building and construction sector rather than making housing more affordable.

Meanwhile, we have witnessed (up to) a 33 per cent decline in residential property transactions since the start of the COVID-19 pandemic. With one of the key deterrents being the level of stamp duty imposed. Stamp duty is a massive contributor to state-level tax revenue, particularly in New South Wales and Victoria. But with recent updates to the NSW stamp duty system and further calls for reform, is stamp duty an outdated levy that needs a major overhaul?

When stamp duty was last re-evaluated in NSW in 1986, the median housing price still sat under $100,000. In today’s market, purchasing a property at the median price of $885,000 incurs a stamp duty cost of $35,000 and $50,000 in NSW and VIC, respectively. With average housing prices soaring in major cities during that time and wage growth barely keeping pace with inflation, these taxes are quite inequitable – often imposed on those who can least afford them.

For example, a family looking to upgrade from a small apartment to a house could be out of pocket at least one year’s salary. While a retired couple downsizing the family home could lose a significant chunk of their superannuation savings.

Currently, the property turnover rate sits at around 5%. This means that effectively 5% of people who are purchasing property are covering up to 22% of state government revenues, depending on where you look. Adding insult to injury is the continuing decline in revenue generated from stamp duty in FY2018-19, with future growth in 20-21 and 21-22 not looking promising.

A quick look around the country shows each state’s most expensive stamp duty bills:

  • Bellevue Hill in NSW took the crown for highest average stamp duty charge last year, coughing up an additional $360,000 with a median house price of $6 million.

  • Victoria’s Toorak wasn’t too far behind, adding $242,000 to an already expensive price tag of $4.4 million.

  • Inner-Brisbane suburb, Teneriffe, generated an average stamp duty of $87,000 for a house just below the $2 million mark.

  • Dalkeith, one of Perth’s more affluent suburbs, will see buyers pay an additional $110,000 on a median house price of $2.3 million.

  • Tennyson in South Australia requires an extra $112,000 for buyers to secure a property at the median price of $2.1 million.

  • Waterfront properties in NT’s Bayview will incur nearly $44,000 in stamp duty at a median price of just under $880,000.

  • With the lowest relative stamp duty of the lot, Battery Point in Tasmania sees buyers pay an additional $58,000 on a $1.4 million home.

As individuals, we tend to only think about the impact stamp duty has on our desire to change homes or relocate. But the reality is there are further reaching implications for the greater economy. Property transactions are a major driver of economic activity in Australia, and globally. Stamp duty also creates a higher barrier to entry into the property market and limits the mobility of workers due to the costs of moving far outweighing the benefits.

The other often overlooked economic value of a property transaction is the trickle-down effect it has for related industries and services. Estate agents, conveyancers, tradespeople, advertisers/marketers, decorators, building and pest inspectors, removalists and photographers all benefit from greater volumes of property transactions, as each one generates revenue for their business. Plus, the 10% GST incurred on each of these. Without the initial property sale, these follow-on events cannot be triggered.

Economists and treasurers believe that removing stamp duty is one of the best levers for economic growth in a post-COVID Australia. But governments face a multitude of challenges when shifting to a more equitable and more efficient property taxation model. Namely, making it fair for those who have either paid stamp duty recently and/or are asset-rich but income poor, and maintaining revenue throughout the transition phase.

We will continue to wait with bated breath for any meaningful amendments to stamp duty across Australia.

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