What is stamp duty?
Important to the process of buying a property is the consideration of the additional cost of stamp duty. Stamp duty can add tens of thousands of dollars to your costs when buying a home.
Stamp duty is a tax imposed by Australia’s state governments that relates to the transfer of land and property. It is to be paid within 30 days of settlement and is scaled to the market value or purchase price of the property, meaning the cheaper the property, the lower the stamp duty.
Each state has their own scale but there is a nationwide trend to make it easier for people to enter the property market for the first time. Traditionally, Victoria has been highlighted as having the most expensive stamp duty, while Queensland and New South Wales are the most affordable.
Nature of the cuts
In early March, the Victorian Government announced an exemption from stamp duty for first home buyers purchasing a property for less than $600,000, as well as tapered discounts for properties between $600,000 and $750,000. This will apply to all homes, new and established.
Overall, its projected that over 25,000 people will receive the cuts to stamp duty each year, averaging $8,000 per person.
In addition, Premier Daniel Andrews revealed that the First Home Owner Grant (FHOG) would be doubled to $20,000 for those buying their first home in regional Victoria. This will apply to all first-time buyers who purchase a home valued at $750,000 or less, so long as the property was not an established home prior to purchase.
The Government anticipates that this measure will support around 6,000 first home buyers. The FHOG of $10,000 will continue to apply to eligible first home buyers of new homes in metropolitan Melbourne.
What are the difficulties faced by prospective first home buyers?
According to data from CoreLogic, since January 2009, property prices have soared by 106 per cent in Sydney and 89 per cent in Melbourne. The impact had on those trying to purchase their first home is self-explanatory – it’s essentially twice as expensive as it was eight years ago.
Much of the rise is down to the boom in foreign property investment. The Foreign Investment Review Board (FIRB) found that, in the 2015-16 financial year, almost 37,000 applications to buy residential properties were made by non-citizens who were also not permanent residents. This amounted to a 60 per cent increase on the previous 12 months, driving up demand in a property market widely regarded as being bereft of supply. The effect of this: a staggering 75 per cent increase in the value of properties applied for, to a total of $60.75 billion, by these offshore investors.
Of this, 20,000 foreign investors outlaid $14.4 billion to buy newly built properties, representing an almost 50 per cent increase on the year previous. This monumental growth in investment comes at a time when house prices in Sydney and Melbourne over the last 12 months have climbed by 19 and 14 per cent, respectively.
The Andrews Government says its new policies are motivated by a desire to put first home buyers ‘on a level playing field’ with investors.
What impact will the policies have on the property market for first-home buyers?
As with most issues in politics these days, there is plenty of debate as to the merit of the policies. While there is no question that the measures are well-meaning and intend to solve Victoria’s affordability crisis for first home buyers, critics suggest cuts to stamp duty and boosts to the regional FHOG will have adverse effects on the market.
It is argued by some that the Government’s new measures will simply raise housing prices, potentially by the full amount of the regional FHOG or the scrapped stamp duty. As such, critics suggest the benefits of the policies will flow directly to developers and existing home owners. Further criticism is that the measures will simply bring forward first home ownership by a year or two for those who would have entered the property market regardless.
However, defenders of the policies contend that thousands of prospective first home buyers will benefit greatly, with the stamp duty cuts proving up to $25,000 in savings, which could then go towards a larger deposit or finance the furnishing of a house. Moreover, its thought that even if the savings do flow on to the cost of housing, first home buyers will nonetheless be comparatively advantaged against investors who still have to pay the tax on top of the price of the property. This, it could be argued, would be a significant step in levelling the property market playing field as Premier Andrews wishes.
Ultimately, though, it remains to be seen how much the Victorian Government’s measures will help prospective new buyers own their first home.
Titlexchange offers a range of packages for first home buyers, whether you’re looking at existing or off-the-plan properties. Check out our packages here or if you’d like to speak to one of our friendly team members, you can schedule a call via this link!