20 Nov 2020

This week, the NSW Treasurer handed down a bold budget. While there are several critical announcements that will play an important role in stimulating economic recovery – the one that has everyone interested, is the announcement of the planned phase out of stamp duty across the state.

The purpose of the reform is simple, to stimulate spending on property, removing what is perceived to be a significant disincentive to buy, particularly for first home buyers. The changes will also simplify the tax base for the State and guarantee tax income to the government in volatile property market ups and downs.

While the change presents an upfront budgetary cost to enable the switch, the reform will ultimately prove a game changer for both the NSW and Australian economy.

Property buyers will have the chance to opt-out of a significant upfront stamp duty payment in favour of a smaller annual property land tax. Land tax in this model will be defined as a tax on the unimproved value of the land, as determined by the Valuer-General. The changes will not retrospectively apply to properties that have already incurred stamp duty.
 
The proposed scheme will apply to residential owner occupiers, primary producers, residential investors, and commercial property owners. Essentially, owner occupiers and primary producers will pay the lowest tax rates, with commercial property owners paying the highest, as outlined below.  

Broadly, we welcome these changes and acknowledge NSW’s leadership on this reform. We have always believed that stamp duty is a major barrier to housing mobility. It is a financial barrier to people changing housing to best suit their life cycle for a whole host of reasons including; upsizing, downsizing or moving closer to their place of work. Finding ways to ease this burden will allow for more efficient use of one of Australia’s largest assets in our housing stock.

We also commend the government’s decision to enable the choice between an upfront payment with no annual instalments (similar to the current stamp duty policy) or an annual contribution. This further incentivises spending on property for different buyer demographics.

We are currently exploring the implications for Build-to-Rent (BTR) under the State’s current land use classification and the recently announced Land Tax Concessions.

We want to be certain that these policies work effectively together to unlock significant economic benefit while addressing housing supply and diversity issues, as outlined in a recent thought leadership piece we developed in collaboration with Allens – Build-to-Rent: Stimulating recovery, ensuring resilience.

The State Environmental Planning Policies are evolving, and pose an opportunity to support BTR in future. Ideally, Stamp Duty changes, Land Tax concessions and emerging planning definitions will work hand in hand to support diverse housing, including social and affordable homes, high quality student housing rentals, retirement and aged care, in addition to BTR.

With NSW looking at stamp duty reform and the ACT having already done so, the pressure will now be on other states to also look at reform measures. We support and will watch with interest the debate on the proposed changes in NSW.

For further information on what the stamp duty reform means for your project, please contact one of our city-shaping experts who specialise in the housing sector.

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