First home buyers in NSW could save more than $30,000 on a new property, thanks to changes in stamp duty concessions, leading to greater demand and the potential for increased house prices, according to new research.
The NSW government has announced that it will scrap transfer duty (stamp duty) for first home buyers purchasing newly built homes under $800,000 and increase the limit to which concessions apply.
Previously, the state government waived transfer duty for owner-occupiers buying their first home if it was under $650,000.
As of 1 August 2020, the duty-free limit will be extended to $800,000 for FHBs if they purchase newly built houses (not existing homes).
The upper limit for transfer duty concessions will also increase to cover new homes worth less than $1 million.
The stamp duty threshold on vacant land will also increase under the temporary changes, rising from $350,000 to $400,000 (with concessions phasing out at $500,000).
The change to the thresholds will only apply to newly built homes and vacant land, not to existing homes, and will last for a 12-month period, commencing on 1 August 2020.
First home buyer demand will increase
CoreLogic’s Eliza Owen believes the policy will do exactly as it is supposed to and drive up demand for first home buyers.
“Previous statistics suggests that first home buyer grants and incentives have had a ‘vacuum’ effect, where first home buyer incentives are followed by large but temporary spikes in first home buyer activity,” Ms Owen said.
“This suggests the incentives bring forward purchases that may have happened anyway. The fact that the new stamp duty discounts on offer will only be available for 12 months is likely to exacerbate this effect.”
Further, Ms Owen believes that as first home buyers enter the market, it will lead to an increase in values up to the cut-off point for stamp duty concessions, which will benefit sellers.
“This is because buyer competition could be increased in this segment while added incentives are on offer. Furthermore, the reduced transaction costs associated with stamp duty exemptions mean borrowers have higher purchasing capacity, which may just be added onto the purchase price while first home buyer demand is elevated,” Ms Owen said.
One important mitigating factor is that the demand shock created by COVID-19 may not be enough to increase first home buyer demand. However, at the very least, first home buyer participation would be higher than it otherwise would have been as a result of the stamp duty discount.