Stamp duty reform in NSW

This month’s big news - stamp duty reform in NSW
 

For the longest time (155 years in fact) stamp duty has been payable upon purchase of a property in NSW. The experts consider it a very inefficient way of collecting tax. There are two main criticisms:

1. It fluctuates wildly based on the amount of buying and selling activity. Years like 2020 where the number of properties changing hands has slowed to a trickle means no tax revenue is being generated, leaving a budget hole, and

2. It also disincentivises people from moving house. This is particularly problematic when you have older owners/empty nesters living in huge empty family homes, creating a housing shortage.

Last week the NSW government announced reforms to the way tax is paid on property. The proposal is that we will move to land tax, where instead of paying a massive lump sum when buying ($40k on a million dollar house) home owners will pay an annual tax based on the value of the land. By doing this the government aims to create a more consistent revenue scheme and to make it cheaper and easier to move house. Makes a lot of sense, right?

It gets a bit tricky though. To soften the blow for those of us who have recently paid a king’s ransom in stamp duty they will make it an opt-in – if you’ve paid stamp duty you can choose not to pay the land tax and not be subject to double taxation. This approach is politically safe but wrought with other challenges – a potential revenue gap for years to come being the main one.

And what does it mean for property prices? In my humble opinion nothing in the short term. Those first home buyers who might now be able to access the market more readily will still have to contend with land tax reducing their loan servicing capacity so that will offset things. In the longer term it may put some downward pressure on prices - when property changes hands more frequently the whole system becomes more efficient and buyers will not have to pay desperation prices especially for big family homes.

How will the federal budget affect property and lending?

October 2020 update from Blackwattle Finance

Economic news

The federal budget is the big news this month. The government has outlined their path away from recession, with tax cuts the lead story. There are three major property related measures highlighted: extension of the first home buyers deposit scheme for new homes (10,000 new places), more low-cost financing for affordable housing through NHFIC, and additional funds for the Indigenous Home Ownership Program.

There are also big plans for credit regulations which I will touch on further down.

At Citi’s 12th annual investment conference RBA Governor Philip Lowe hinted at another interest rate cut. Lowe said that “As the economy opens up… it is reasonable to expect that further monetary easing would get more traction than was the case earlier”. He also confirmed that an increase in the cash rate is as least two or three years away – something for mortgage holders to keep in mind when making decisions on loan options.

Property news

September saw a boost in the national housing market, with prices and new listings increasing in all capital cities except for Sydney and Melbourne. Given the size of the Sydney and Melbourne markets (more than half in terms of value) the overall average value came down ever so slightly. This has meant five straight months of decline overall, however the rate of decline has decreased.

Predictions are that October will continue to improve, with Victorian lockdowns easing and the seasonal spring activity driving more activity.  Experts are highlighting "clear optimism" generally.

Lending update

As touched on earlier, there is quite big news.  As part of the federal budget announcement Treasurer Frydenberg has flagged plans to simplify the regulations around lending with the aim to free up credit.  If Parliament agrees to the proposal, we will see the changes come into play in March 2021.  Ostensibly this will make getting a loan more straightforward, with the onus for accurate application information shifting back from the lender towards the borrower. 

My two cents?  Banks will be given a huge task to update processes and policies to fit the reforms.  The size of the task will mean it will take an eon to implement fully and properly, and won’t have the economic impact hoped for.  Still, simplification will be welcomed by many who have found the process of obtaining credit bordering on ridiculous in recent times.  

About half of the 500,000 home loans under deferral of repayments have now recommenced payments.  This is a welcome development which means that the finances of Australian homes are returning to normal.  People who have been unable to refinance into the low rates now available should soon be able to demonstrate repayments and allow them to switch.  Once again, let me know if this is you.

FIRST HOME BUYERS – NOW IS YOUR TIME.  Another 10,000 spots have opened for new dwellings in the federal government’s first home loan deposit scheme.  In short, borrowers who save a 5% deposit will have their loan guaranteed by the government which means no lenders mortgage insurance (LMI) payable.  Combined with stamp duty concessions this means big savings for those of you who have been trying to break into the market.  If you want to see if you’re eligible please let me know.