NSW stamp duty changes for first home buyers

From January 16, 2023, first home buyers in NSW will be given the choice between the standard stamp duty charge OR an annual property tax of $400 and 0.3% of the property’s land value (up to $1.5 million). 

Still unsure about what this means for you and which option will save you cash in the long term? Let’s break things down to key points. 

If you’re a first home buyer who’s thinking about purchasing a home in NSW, Compare Club’s home loan experts offer information and advice on these changes and what they mean for you. You'll find our stamp duty calculator here, to get an idea of this cost.

What is stamp duty? 

New South Wales has a transfer duty (otherwise known as stamp duty) on all property transactions.

It’s basically a government tax on property exchanges and actually forms one of the largest revenue streams for the state, with NSW earning $14.6 billion in stamp duty for the 2021-22 financial year. 

The amount of stamp duty you pay depends on the purchase price of your property, as well as your circumstances, but generally speaking if your property costs $500,000, you must pay around $18,000 in stamp duty. 

This fee is usually paid as a one-off charge or capitalised onto your mortgage. 

Many Australian cities have faced a housing affordability crisis in recent years. In fact, according to the 2022 Demographia International Housing Affordability report, Sydney and Melbourne rank among the world’s worst cities when it comes to buying property. 

With this in mind, regular humans living in NSW have been increasingly shut out of a costly housing market and the state government has stepped in to correct this situation. 

What are the changes to NSW stamp duty?

In 2022, the NSW Government announced a $728.6M housing action plan, part of which was to remove what Premier Dominic Perrottet said is one of the largest upfront costs to buying a home and one of the most significant barriers for regular Aussies - stamp duty.

In fact, the government acknowledged that stamp duty adds up to two years to the time it takes the average Australian to save for a home deposit — taking the current estimated saving time to 11.4 years. 

All glad tidings so far. 

Part of the plan is to give first home buyers the option of either paying regular stamp duty on their property OR an annual property tax of $400 and 0.3% of the property’s land value (up to the value of $1.5 million). 

But what does this actually mean?

The $400 per year is straightforward enough, but the land value part begs further explanation. 

The fact that the scheme only applies to properties up to the value of $1.5M sounds like it precludes quite a few buyers, right? Not so.   

Land value is not actually the purchase price of your property. It’s the value of your land minus any additional structures or improvements made to that property, including actual buildings, sewerage lines, etc. So basically, your million dollar rebuild isn’t taken into consideration. 

In fact, the NSW Government has estimated that around 97% of new home buyers will fall under this $1.5M land value eligibility threshold. 

You can search your land value via the NSW land values and property sales map. 

Tell me how much it will cost, please:

If your land is valued at $900,000, you will pay 0.3% of this sum, which is around $2700 each year. This is in addition to the $400 fee. 

Given that stamp duty often costs homeowners tens of thousands of dollars in upfront costs, paying $2,000 to $3,000 per year is a much more manageable option for first home buyers. 

For land valued at $900,000 for example, your up front stamp duty fee would be $35,898.

Will stamp duty exemptions still apply?

First home buyers in NSW can still apply for a stamp duty exemption or concession. 

You can apply for a full exemption and pay no stamp duty if you:

• Buy a new home up to the value of $800,000

• Buy an existing home valued at less than $650,000

You can apply for a discount on your stamp duty charges if you:

• Buy a new home valued between $800,000 and $1,000,000

• Buy an existing home valued between $650,000 and $800,000

• Buy vacant land valued between $400,000 and $500,000 

If you buy vacant land valued at less than $400,000 you will not pay stamp duty as a first home buyer. 

The NSW Government First Home Buyers Assistance Calculator can be used to work out stamp duty for all purchases from July, 2017 onwards. 

NSW stamp duty FAQs:

Is stamp duty mandatory for first home buyers in NSW?

Stamp duty or transfer duty is mandatory for all property sales in NSW. First home buyers, however, can apply for exemptions and concessions based on the value of their land or home. 

What government schemes exist to support first home buyers in NSW?

The NSW Government offers first home buyers exemptions and concessions, as well as the option of paying transfer duty charges as a property tax each year (this second option only becomes available from January 2023). This is in addition to the First Home Owner Grant. 

Who is eligible for stamp duty exemptions or concessions in NSW?

To qualify for the First Home Buyer Assistance grant, a person must meet the following criteria:

• The contract date for the sale of your property must be after July, 2017. 

• You must be an individual, not a company or trust. 

• You must be over 18. 

• You, and/or your spouse or de facto partner, must never have owned or co-owned residential property in Australia before.

• You, and/or your spouse or de facto partner, must never have received an exemption or concession under the First Home Buyer Assistance scheme. 

• At least one of the first home buyers must be an Australian citizen.

Is my land then locked into this property tax forever?

No. If your property is sold, it is will not be locked into the property tax for subsequent owners.

The new owners, if they are first home buyers, can then choose whether to pay the annual land tax or stamp duty. If they're not buying their first home, the usual stamp duty rules apply.

The bottom line: Will NSW stamp duty changes put you in a better position as a first home buyer?

Changes to the NSW stamp duty policy for first home buyers will reduce the time it takes regular Aussies to save for a deposit — which is great!

On the other hand, this increased demand will likely push up house prices.

What’s more, the property tax option only applies to first home buyers, which means that everyone else will continue to pay stamp duty fees as normal.

This has discouraged many families from moving house as their situation changes for fear of having to pay a second stamp duty charge. 

The bottom line is that changes to stamp duty in NSW could help some first home buyers get into the market sooner, but it's not a magic solution.

For less expensive properties i.e., those priced under $500,000, it may work out cheaper to commit an upfront stamp duty cost of around $20,000, rather than paying $1,500-$2,000 in land tax each year for the life of your ownership of the property.

Then again, if it’s a starter home and you only intend on staying five years, land tax makes much more sense. 

It really comes down to how much your property is worth, how long you plan to stay there, and your personal financial circumstances.      

Everyone's situation is different, so it's important to do your own research and speak to a financial advisor to see if this new option will put you in a better position in the long run. 

Compare home loans or speak with a Compare Club expert today.