First home buyer choice adds up for majority of first-time buyers

NSW Government

First home buyers who opt in to the NSW Government’s First Home Buyer Choice could be saving money for up to 63 years when compared to paying upfront stamp duty.

Two-thirds of first home buyers purchasing a home between $800,000 and $1.5 million are expected to choose the smaller annual property fee rather than upfront stamp duty under First Home Buyer Choice, NSW Treasury analysis shows.

In a submission to a NSW parliamentary inquiry, NSW Treasury indicated half of all owner-occupiers sold their property within 10.5 years and about two-thirds of owner-occupiers sold their properties within 20 years. It’s expected first home buyers would have shorter holding periods.

Treasurer Matt Kean said about two-thirds of first home buyers in the $800,000 to $1.5 million price range are expected to choose the smaller annual fee because it would lower their overall tax payments.

Treasury’s calculations show that under reasonable assumptions, the breakeven period between upfront stamp duty and an annual property fee would be 36 years for an $800,000 apartment, 28 years for a $1 million townhouse, and 26 years for a $1.25 million house.

“This reform will not only help first home buyers get the keys to their home sooner, but will also result in many first home buyers paying less overall,” Mr Kean said.

“It is all about choice, and for many first home buyers choosing to make a smaller annual payment will save them money in the long run.

“For example, if they bought a $1 million house and sold it 10 years later, which is around the median period, the annual property payments over the 10 years would total $19,881 in present value terms compared with $40,090 in upfront stamp duty. That’s a saving of $20,209.”

Existing first home buyer stamp duty exemptions and concessions for purchases under $800,000 will continue to apply.

“Most people purchase a home more than once during their lives, so it will make sense for many first home buyers to choose a smaller annual fee for the limited time they spend in their first property, rather than a lump sum of stamp duty,” Mr Kean said.

“First Home Buyer Choice also offers the benefit of lowering the upfront cost of buying a first home, slashing the time required to save for a deposit by about two years.”

Legislation for the First Home Buyer Choice is currently before the NSW Parliament and is set to be debated by the Upper House next week.

An online calculator is available to assist first home buyers to assess their options. To view the calculator, go to https://www.service.nsw.gov.au/transaction/calculate-your-property-tax

Property tax and stamp duty comparisons

Source: NSW Treasury

Market value

Land

value

Stamp

Duty

Property tax

(Year 1)

Present value of property

tax

(10 years)

Present value of property tax

(20 years)

Breakeven years

HOUSE

TOWNHOUSE

UNIT

1,500,000

1,500,000

1,500,000

900,000

750,000

525,000

66,700

66,700

66,700

3,100

2,650

1,975

28,014

23,948

17,848

50,275

42,977

32,030

29

36

63

HOUSE

TOWNHOUSE

UNIT

1,250,000

1,250,000

1,250,000

750,000

625,000

437,500

52,950

52,950

52,950

2,650

2,275

1,713

23,948

20,559

15,476

42,977

36,895

27,773

26

32

52

HOUSE

TOWNHOUSE

UNIT

1,000,000

1,000,000

1,000,000

600,000

500,000

350,000

40,090

40,090

40,090

2,200

1,900

1,450

19,881

17,170

13,103

35,679

30,814

23,516

23

28

43

HOUSE

TOWNHOUSE

UNIT

800,000

800,000

800,000

480,000

400,000

280,000

31,090

31,090

31,090

1,840

1,600

1,240

16,628

14,459

11,206

29,841

25,948

20,110

21

25

36

  • Property tax rates will be indexed so that the average annual property tax payment grows at the same rate as Gross State Product (GSP) per capita. Over the 15 years to June 2021, GSP per capita has grown at an average annual rate of 3.2 per cent.
  • Present value calculations allow future payments to be converted into an equivalent amount in today’s money, taking account of prevailing interest rates. Over the 15 years to June 2021, the variable discounted owner-occupier mortgage rate has been on average at 5.6 per cent.
  • Present value calculations in the table assume 3.2 per cent GSP per capita growth and 5.6 per cent interest rate, and land value of the property rises at the same rate as the average property.
  • The table assumes land/market value ratio of 60 per cent for houses; 50 per cent for townhouses; and 35 per cent for units.

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