Buying a house is one of the most important investments of most people’s lives, especially first home buyers. The housing market in Australia has been unaffordable for many people for a number of years and it is only getting worse. Some sources say that depending on your location in Australia, it can take up to eight years to save enough to be able to afford your first home. This is because when purchasing a property, there are many other costs to consider on top of the purchase price, such as the deposit, legal fees, moving in costs, Lenders Mortgage Insurance (LMI), and perhaps one of the biggest of these – the transfer duty.
Transfer duty (previously known as stamp duty) has been a big impediment in the way of first home buyer’s dream of property ownership. To make it easier for first home buyers to climb the property ladder, the NSW government has introduced an annual property tax. Eligible home buyers in NSW will be able to choose between an upfront payment of transfer duty or a smaller yearly property tax. Those who opt for the property tax will pay an annual fee of $400.00 plus 0.3% of the land value of the property for the time they occupy the property as their principal place of residence. The property will not be locked into the scheme if it is sold, which means that the property tax will stop once the property has been sold and any future purchasers of the property will have to pay transfer duty as normal unless they are also eligible first home buyers. According to the NSW government, removing the upfront cost of transfer duty will reduce up to two years of the time to save for a home required by many first home buyers.
This option will be available to eligible First Home Buyers who enter into a contract on after 16 January 2023. A requirement for this option is that the purchase price of the property must not exceed $1,500,000.00.
Those eligible first home buyers who meet the criteria and enter into contracts between the enactment of this legislation and 15 January 2023 will still have to pay transfer duty upfront, however, they will be able to opt in from 16 January 2023 and receive a refund of the duty already paid.
This option is in addition to a number of benefits and grants already available to First Home Buyers. Therefore, if you are a first home buyer, and you are purchasing a property under $650,000.00, you will still be eligible for an exemption from transfer duty, and a concessional duty if the price of the property is above $650,000.00 but below $800,000.00. If the purchase price of the property is greater than $650,000.00, you will have the option to choose between paying the concessional transfer duty upfront or paying the annual property tax.
The right option for you will depend on your individual circumstances, however, it is likely that for most first home buyers, paying the annual land tax is going to be a cheaper, more affordable option, especially for those who do not intend to stay in their first home for a very long period of time. The option of the annual property tax will assist a broader group of first home buyers with their dream of property ownership and will help them enter the housing market in suburbs which may have been unavailable previously due to the price range falling above the transfer duty exemptions and concessions threshold.
To find out more information, please do not hesitate to contact our conveyancing team.