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New South Wales housing changes

New South Wales housing changes

Premier Gladys Berejiklian announced the New South Wales Government will make changes to the First Home Buyers Package and Foreign Investment Duty in a bid to support first home buyers, increase housing in an undersupplied market and deliver infrastructure across the state. The new measures will be rolled out July 1st 2017.

What are the changes? 
Premier Gladys Berejiklian announced the New South Wales Government will make changes to the First Home Buyers Package and Foreign Investment Duty in a bid to support first home buyers, increase housing in an undersupplied market and deliver infrastructure across the state. The new measures will be rolled out July 1st 2017. 

Pros
Abolish stamp duty on all homes up to $650,000 and provide stamp duty discounts on homes up to $800,000 for first home buyers
Lenders Mortgage Insurance stamp duty for first home buyers will be abolished
NSW Government set to commit $3 billion in infrastructure funding

Cons
The foreign investor surcharge will be doubled from 4% to 8%
Land tax for foreign investors to be increased from 0.75% to 2%
Investors will no longer be able to receive stamp duty concessions for off the plan properties 
Investors will lose out on the $5,000 new home grant scheme

How does it all work?
With this package Ms Berejiklian is attempting to deliver on her promise to tackle housing affordability in NSW which was her number one priority in getting into office.

I have mixed feelings about the package though. The NSW government is giving with one hand and dropping the bill in someone else’s pocket with the other hand - a surcharge hike masked with tackling affordability. I’m also concerned that this new package could ultimately be self-defeating. Removing barriers to entry for first home buyers could ultimately see an increase in demand for this segment of the market which can put upwards pressure on housing affordability if the supply concerns are not met.

First home buyers are the big winners as they can potentially reduce the cost of purchasing their first home by up to $34,000 depending on the property. The savings will come in the form of stamp duty concessions and Lenders mortgage insurance stamp duty savings. Abolishing stamp duty for all homes up to $650,000 and stamp duty discounts on all homes up to $800,000 is a welcomed change from current First Home Buyers grants, which only allows stamp duty savings on new homes up to $550,000. Any Sydneysider knows that your options are extremely limited when searching for a property brand new under $550,000. 

The new package is set to cost the state an estimated $1.2 billion. But not to worry they have increased the foreign investment stamp duty surcharge from 4% to 8% and increased the land tax from 0.75% to 2% which is expected to raise $1.9 billion over four years. A foreign investor buying a new home in Sydney for $1.3Million (just above Sydney’s median house price of circa $1Million) will be slugged with $175,990 worth of duty on top of the purchase price. 10% of buyers in NSW are Foreign Investors but Treasurer Dominic Perrottet has said ‘while foreign investment brings important flow of capital into NSW, my priority is to ensure Australians have that opportunity first.’ 

Foreign investors by law can only purchase brand new or off the plan properties which in turn promotes development and infrastructure, so I don’t see a surcharge hike as a good thing for NSW. Credit to Ms Berejiklian for knowing supply is a major issue in affordability and she is going some ways to help that by committing $3 billion from government, councils and developers in infrastructure funding to accelerate delivery of new houses. This will be coincided with fast tracking of approvals for well-designed terraces, townhouses, manor homes and duel occupancy. 

It will be interesting to see how first home buyers and foreign investors respond to this announcement. Will foreign investment drop dramatically, will the percentage of first home buyers in Sydney increase from the near record low of 8% it’s currently at? Will this policy be self-defeating and unintentionally increase housing prices and further reduce affordability in NSW? Only time will tell.

All information provided is of a general nature only and does not take into account your personal financial circumstances or objectives. Before making a decision on the basis of this material, you need to consider, with or without the assistance of a financial adviser, whether the material is appropriate in light of your individual needs and circumstances. This information does not constitute a recommendation to invest in or take out any of the products or services provided by SMATS Services (Australia) Pty Ltd or Australasian Taxation Services Pty Ltd.

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