The land transfer duty, also known as stamp duty, is a tax that is paid when you buy or acquire a property.
The amount of duty depends on the value of the property and varies depending on eligibility for exemptions or concessions and if the purchaser is a foreigner.
The duty is charged to first-time homebuyers. It is also charged to parties buying properties for the purposes of investment, business, holiday homes, or primary production land with or without water entitlements.
When acquiring a property, through a lease or trust for example, a stamp duty is payable as declaration of a change in the beneficial ownership of a property.
The Victorian Government is revamping its stamp duty policy as part of a new four-year $851 million initiative under its 2016-2017 Budget Update.
From 1 July 2017, the stamp duty will be abolished for new and existing properties under $600,000. First-time homebuyers will also receive a concessional discount on a sliding scale for properties between $600,001 and $750,000.
To qualify for exemption or concession, all purchasers and their partners must meet First Home Owners Grant (FHOG) eligibility criteria. At least one purchaser must use the home as a principal place of residence for a continuous period of 12 months, starting within 12 months of entitlement of possession of the purchased property.
A New Horizon
The new plan is expected to save 25,000 first homebuyers an extra $8,000 a year and will be complemented by changes to the existing First Home Owner Grant (FHOG), which will be increased from $10,000 to $20,000.
The Real Estate Institute of Victoria stated: “Reducing stamp duty provides a more efficient outcome for both the buyer and the state, as it reduces the number of transactions and red tape created through the application process.”
The REIV is firmly vested in the initiative for two reasons. Firstly, buyers will be less susceptible to increases in house prices if the assistance is based on a proportion of the tax paid. Secondly, the assistance is consistent for all first homebuyers.
Neville Sanders, president of The Real Estate Institute of Australia (REIA), commented that on a broader scale, shifting the composition of taxes from high economic cost State taxes to Australia-wide taxes could boost economic activity in Australia.
The positive sentiment is not unanimous however. Federal Treasurer Scott Morrison commented on the initiative: “I welcome it but after the end of the day if that just means that people just bid up more at the auction because they can borrow more because they don’t have to pay stamp duty, obviously that will just take prices in one direction.”
In addition, a 2015 Deloitte Access Economics report found the abolition of stamp duties would likely have little net effect on selling prices but the higher after-tax return for vendors would draw more investment into the sector.
Nevertheless, the Victorian Government has implemented measures to reduce the risk of inflated prices. The Victorian Government announced an increase to supply, including the rezoning of 100,000 additional lots within two years to create 17 new suburbs.
Alex Joiner, chief economist at IFM investors suggested an alternative approach to the initiative, avoiding price inflation by making first-time homebuyers pay the stamp duty upfront and then reimbursing them.
A separate change requires investors to start paying stamp duty on off-the-plan purchases that would raise $841 million – a move that could prompt investors to put their money into other asset classes, causing further supply shortages and a decline in new residential development.
What does the future hold?
The passing of the new stamp duty policy sets an optimistic outlook for a market that has seen prices almost double since the 2008 Global Financial Crisis. Ultimately, the initiative aims to drive demand by increasing cost-savings and reducing interest repayments, leveling the playing field between buyers and investors.
Nevertheless, it remains to be seen whether the government’s efforts to provide additional lots will alleviate first-time homebuyers’ purchasing power. The intended purpose of the stamp duty exemptions and concessions to drive demand can only be achieved with an efficient balance of supply from vendors and the government.
With the uncertainty surrounding the future of the real estate industry, buyers will need holistic and detailed advice.
You Come First
At Xynergy Realty we pride ourselves in exceeding our clients’ expectations. With over 25 years of industry experience, our dedicated property management team can provide you with an unparalleled depth of practical and technical knowledge of property markets and wider trends in the real estate industry.
- State Revenue Office Victoria
- Australian Financial Review