Big problem with new $25k property grant
Experts have warned the NSW government's proposed $25,000 new property tax system might drive up house prices.
Under the replacement for the stamp duty system, proposed in Tuesday's state budget, house hunters in the state would get the choice of paying a stamp duty sum upfront and land tax, or opt for an annual property tax instead.
Stamp duty is a fee the government charges every time someone buys a new property. Land tax is currently imposed on investment and commercial property, but not on owner-occupied homes.
For first-time buyers, who have so far generally benefited from an exemption from stamp duty, the government would instead sweeten the deal by offering grants of up to $25,000.
But experts have said the new system could push up prices for those first-timers, because many potential buyers would consider putting the money they normally would have spent on stamp duty toward the purchase price instead.
"If buyers are able to pay property tax rather than an upfront stamp duty, then they're going to have a potentially larger deposit to be able to bid up house prices," University of Sydney political economist Gareth Bryan said.
For example, in a bidding for an apartment valued at $700,000, a buyer who otherwise would have had to put aside an additional $28,000 for stamp duty might show up to the auction ready to add that sum onto their offer.
That would mean the $25,000 concession potentially wouldn't cover the increased price of a home for a rival bidder - and first-timers who are eligible for that grant would still be taxed on the property going forward.
Experts have also predicted a short-term dip in demand as home buyers wait and see what the new system might entail.
Those who are ready to buy right now will have to gamble on whether it's better to wait - and potentially get a cheap property tax deal - or buy now.
Rising house prices in a market currently in recovery will add another factor buyers need to grapple with.
"Potentially it might slow down buyer demand during a period of uncertainty, until the legislation is announced," realestate.com.au chief economist Nerida Conisbee said.
"On the one hand, you may save money by waiting, because you won't have to pay stamp duty.
"But on the other hand, prices may continue to increase to such a level it might make more sense to buy now."
NSW Treasurer Dominic Perrottet on Tuesday told parliament the current system was "one of the biggest financial barriers to home ownership" in NSW and that the overhaul would enable more people to be able to buy a house.
"This is the single most important economic reform we can tackle to turn the Australian dream into NSW's reality," Mr Perrottet said.
"This is a reform proposal for NSW where more people can own their home and have more freedom to choose the right property for their family at every stage of life.
"This is a vision for every person and family in NSW - from first home buyers trying to get a foot on the property ladder, to frontline workers moving to service our regional communities, and retirees who are ready to downsize."
Originally published as Big problem with new $25k property grant