The booming NSW property market has provided a billion-dollar budget windfall for the state government, with more than $9 billion raised through stamp duty over the past year.
Delivering Tuesday’s budget, Treasurer Dominic Perrottet said the government will forge ahead with plans to phase out stamp duty and replace it with an annual land tax, even as the budget papers revealed stamp duty has now overtaken payroll tax as its largest source of taxation revenue.
“We’re fair dinkum about housing affordability. You can’t tinker around the edges, it’s a combination of tax reform and planning reform that’s going to get us there,” Mr Perrottet said.
Record low interest rates and government stimulus drove up the number of property transactions during COVID-19, earning the government $9.4 billion from stamp duty in the 2020/21 financial year, $1 billion more than expected.
“The amount of transfer duty collected is a function of both property prices and sales volumes,” the budget papers said, pointing to a more than 20% lift in house prices in Sydney since the onset of the pandemic.
But the budget papers predict price growth will start to ease towards the end of the year as more buyers are priced out of the market.
“Annual house price growth is expected to peak around late-2021,” the budget papers said.
“As higher prices encourage more owners to sell, this will work to limit house price growth over time. In addition, higher prices are expected to price out more potential buyers, weighing on demand.”
REA Group director of economic research Cameron Kusher said the removal of stimulus will also take some steam out of the market.
“Stimulus measures such as HomeBuilder have already ended and this program saw first-home buyer demand surge to its highest levels since 2009,” Mr Kusher said.
“Since HomeBuilder ended, we’ve already seen an easing in demand from the first-home buyer segment.”
Budget measures for property
With the government focusing on long-term tax and planning reforms, here is what the budget includes for real estate and property.
Plans to boost the hard-hit CBD
The rapid shift to working from home continues to devastate businesses and landlords around the city centre, even as more people return to the office.
The government hopes to lure workers back to the CBD with a $50 million expansion of its voucher scheme that people can use towards dining and entertainment in the city on a Friday.
But Mr Kusher said the dining vouchers will do little for non-hospitality businesses.
“Dining vouchers will help restaurants and cafes but they aren’t going to do anything to help non-food and beverage retailers which are also struggling due to the lack of foot traffic in the CBD,” he said.
“The best thing that can be done for CBDs is for vaccinations to be rolled out as quickly as possible, domestic borders to be kept open and international borders reopened as soon as possible.”
Before COVID-19, international visitors accounted for about half of all tourism spend in the Sydney region, and about 90% of all international tourism spending in the state.
Previously-announced accommodation vouchers aimed at encouraging NSW residents to spend a night in a city hotel will be launched in July.
Infrastructure contribution reforms
The budget also included measures to change the way developers are taxed when they sell land that has increased in value as a result of government decisions, such as new infrastructure projects or rezoning.
The so-called infrastructure contributions are paid by developers to the state government and councils to help with the cost of building infrastructure.
Mr Perrottet said the move will streamline the planning process and provide more transparency around who pays for what, unlocking housing supply faster and more efficiently.
“It provides certainty for developers to unlock housing supply, to get more homes off the ground and gives more people the opportunity to get their keys to their very first home,” Mr Perrottet said.
The Property Council’s NSW executive director Jane Fitzgerald said the legislation would provide a more consistent, fair and affordable contributions system.
“Infrastructure contributions have been a mess in NSW for way too long,” Ms Fitzgerald said.
“The legislation is an important next step in driving the reform plan developed over the past year.”
The NSW branch of the Urban Development Institute of Australia – the peak body for developers – also welcomed the reforms but said not enough was being done to boost housing supply.
“If housing supply is not substantially boosted to meet demand, UDIA believes there will be a shortfall of 75,000 new homes by 2024,” UDIA NSW chief executive Steve Mann said.
“By downplaying the importance of supply, the people of NSW will be condemned to having some of the worst housing affordability in the world and it will get worse,” he said.
Commitment to phase out stamp duty
Mr Perrottet said the government remains committed to removing stamp duty and replacing it with an annual land tax, although exactly when the reforms will be implemented remains unclear.
The budget provided few updates on the tax reforms, instead referring to a progress paper released earlier in June, which estimated the changes could increase home ownership by about 6%.
“We’re progressing our property tax proposal, because we know housing affordability is the challenge of a generation and we want young people to get a foot in the door,” Mr Perrottet said.
Under the proposal, existing stamp duty concessions for first-home buyers could be replaced with a grant of up to $25,000.
But the opposition said the budget failed to include any measures to tackle housing affordability.
“The treasurer has been taking a victory lap promising a tax reform he hasn’t delivered,” shadow treasurer Daniel Mookhey said.
“Has the treasurer actually convinced the premier to back him on this property tax reform?”
The reforms would give buyers the option to pay either the upfront cost of stamp duty, or an annual land tax. Once a property is subject to land tax, it remains the only option for that property in future sales.
Mr Kusher said removing the upfront cost of stamp duty could result in people paying more for a property.
“While the NSW government says the changes will improve affordability, I am a little less convinced,” he said.
“Stamp duty is already a cost of purchasing a home, so for those properties in which buyers still choose to pay stamp duty it is business as usual.
“For those properties opted-in to annual land tax it potentially just means that the additional borrowing that would have previously been used for stamp duty will be used to pay more for a property.”
Feedback on the reforms will close in July.
Temporary lift in stamp duty concession threshold won’t be extended
During the height of the pandemic, the NSW government temporarily increased the stamp duty concession thresholds for first-home buyers purchasing a newly-constructed home.
It meant new homes valued at $800,000 would have their stamp duty waived, up from $650,000. New homes valued up to $1 million were also eligible for concessions.
The measures will expire as planned at the end of July, with no extension announced in the budget.
Eligible new homeowners will still be able to have their stamp duty waived or reduced at the lower threshold.
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