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Stamp Duty

The New South Wales government has previously announced that they are introducing new legislation to increase the threshold amount for offering stamp duty exemption or reduction for first home buyers, such that purchasers of higher-priced properties may also benefit. This policy change has been enacted into law. This policy change is said to be made as a response to support the economy affected by the COVID-19 pandemic and is part of the government’s recovery plan. The state government opines that this policy will assist in supporting the demand of new construction work and in turn support the property and construction industry in New South Wales which is a major source of employment.

First Home Buyer Duty Exemption/Concession

There are existing concessions in stamp duty available for first home buyers in New South Wales. Current concessions are as follows:-

After the policy change, the concessions available will become as follows:-

It can be seen that the threshold amount for concessions has increased, such that first home buyers may still enjoy the concession even if they are purchasing a home of a higher value. This may act as an incentive for first home buyers to buy a property of a higher value and perhaps encourage more people to enter the market and support the market.

Eligibility

This new policy is currently set to operate for 12 months, and will apply to contracts where the contract date is from 1 August 2020 to 31 July 2021 (inclusive). Existing eligibility requirements for what constitutes a first home buyer continue to apply, and the purchased property must be a new property or a vacant land on which the purchaser intends to build a new home. If the purchase is for an existing property, the original concessions and related criteria will continue to apply, and there has been no changes under the new policy.

Conclusion

With the increased threshold level for stamp duty exemption and concession, first home buyers may be able to reach properties of a higher price bracket while still saving stamp duty. However, the ability of the purchaser to access mortgage loans should be taken into consideration, especially the increased scrutiny they may face in light of the instability brought by the economic recession due to COVID-19. Banks may valuate the property at a lower price in response to the economy, which may affect whether or not the purchaser has enough shortfall funds in addition to the bank loan to support their purchase. If the shortfall funds is insufficient due to the bank reducing their valuation of the property and hence the loan amount, the purchaser may open themselves to risks related to default of contract when they do not have enough funds to settle.

Reference

Revenue NSW webpage on the First Home Buyer Assistance Scheme:

https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer/assistance-scheme

Land Tax

Recent changes to the state’s taxation system also include changes to the land tax system. The New South Wales Government has declared that it is encouraging build-to-rent projects to take place in New South Wales by providing a discount on land tax for land owners/developers who will engage in build-to-rent projects.

Build-to-rent projects are residential buildings designed specifically rental accommodation purposes. The building will be owned by one owner with the management centralised and concentrated. Development projects to benefit from this scheme must have at least 50 units in metropolitan areas and a different, possibly lower threshold for development projects in regional areas.

The policy of the government in encouraging build-to-rent projects is to cut the land tax payable by the owner of such projects in half for 20 years until 2040. The taxable value of such projects would be the unimproved land value before construction started on the land. To be eligible for this scheme, the build-to-rent project must commence construction on or after 1 July 2020. The project must contain purpose-built units for rental purposes, be managed under one owner in a unified ownership and offer tenants options for longer leases. To encourage investment, there will also be exemptions granted to foreign investors on foreign investor surcharges until 2040.

The NSW government claims that the scheme will assist in improving the housing affordability problems, as such rental projects will provide more variety of housing options in terms of size and length of tenancy in response to market needs, and by extension improve the building and constructions industry that has been affected by the COVID-19 pandemic. The government would like to encourage the provision of rental properties of a higher quality by such centralised investment and management, and provide security to tenants who may wish to rent a property over a longer time period.

Please note: The content of our publication is intended for general information purposes only, and should not be construed as legal advice on any matter. Please contact our firm for discussion of your particular circumstances.