The proposal that buyers will have the option of paying a large lump sum payment upfront, similar to stamp duty, or paying an annual property tax put forward by the NSW government recently has been met with guarded responses.

In his budget speech, NSW Treasurer Dominic Perrottet said the plan would save house hunters tens of thousands of dollars in upfront costs and lift market activity, and the state government will seek public consultation on the property tax reform.

NSW Treasury says stamp duty adds $34,000 to the upfront cost of buying the average home in NSW. It takes on average 2½ years to save to pay stamp duty compared with one year in 1990.

Under the proposal, owner-occupied homes would be liable for lower rates on the property tax than investment properties. However, protections would also be put in place so that the property tax would not result in rent increases without a tenant’s agreement.

So, what do the industry figures think?

Eliza Owen at Core Logic thought stamp duty with a land tax may not reduce the cost of housing, or increase affordability.

“As has been seen with demand-side housing incentives, any reduction in the upfront cost of a property, or grants given for property, is theoretically built back into the price, because the price with stamp duty is a reflection of what people are willing to pay,” she points out in a recent article.

Furthermore, she thought it could take up to 18 years to implement; if you have already paid stamp duty and are not moving, the new model would not apply. This means housing reform would be achieved over a much longer period, as a new model of property tax is gradually phased in.

“Based on the current 5-year average turnover rate of 5.3% in NSW, it could theoretically take over 18 years for each property to transact and be subject to reform. While it is a step in the right direction, it creates no urgent incentives for downsizing, and could thus limit greater turnover of real estate,” she says.

In a press release issued by Real Estate Institute of NSW (REINSW), CEO Tim McKibbin thought trading one punitive property tax for another is not tax reform as suggested, and pointed out the community hadn’t been given any details upon which to make decisions for the largest investment most of us will ever make.

“While removing a tax is always welcomed, can the community be confident that once land tax is established and part of our accepted taxation environment, that Government will not reintroduce stamp duty?” he queries.

Tim believes affordability is all about supply, and he thinks instead of switching between property taxes, Government has the opportunity to focus on the impediments to supply if genuine improvements in affordability are to be unlocked.

What do we think? We think, there are many possible outcomes to this announcement, and there are many possible knock-on effects. But no-one has a crystal ball, and we can’t predict the future or what the government will decide after the consultation.

Ultimately, if you want a lifestyle change or you have to move for a job or another reason, then you will need to buy and/or sell regardless of what the taxation system is.

Why don’t you get in touch, and we can give you a free, no obligation quote? Give us a call on 02 4954 8833. Or send us an email to: mail@apnewcastle.com.au – we’d love to hear from you.

And don’t forget to check out our Facebook page for handy tips on selling your property or what to look for when buying a property.