News & Advice.

It is well recognised that stamp duty has long ranked among the greatest barriers to home ownership, even the worst of all. A $1.5 million property can attract stamp duty of well over $60,000 – a substantial burden on top of the hard-earned deposit that has been hard enough to scrape together in the first place.

But now this hurdle has been removed for thousands of first home buyers thanks to the First Home Buyer Choice policy. In operation since January 16, it gives first home buyers (FHBs) the option to choose paying stamp duty or annual property tax on purchases of new or existing homes above $650,000 and below $1.5 million.

Annual land tax payments are based on the land value of the purchased property, and this year and next, eligible FHBs will pay $400 plus 0.3 per cent of the land value per year.

The savings on paying stamp duty up front are clear – especially if a FHB does not intend remaining in the home for the long term says Maker Advisory’s head of advisory Reece Coleman. “It’s also a good opportunity for people to buy their first home in an area they may not previously have considered,” Mr Coleman says.

A purchase this month of a Maroubra unit for FHBs for $1,050,000 gave the FHBs the choice of either paying stamp duty of $42,340 or $1,163 annually in property tax (subject to indexation). Given they estimate staying in the home for about 6-years, this gave them a saving of over $35,000.

First home buyers will continue to be eligible for first home buyer stamp duty exemptions and concessions – and FHBs purchasing a property for up to $650,000 will remain exempt from stamp duty altogether.

If a FHB buys vacant land on which they intend to build their first home for a cost of up to $800,000, they too also have the choice between paying stamp duty or an annual property tax.
The issue of course is that every FHB is different, with their own individual budgets and property goals around how long they want to stay in their new home before trading up. This is where Maker Advisory’s buyer agents can help. These decisions are not ones to be made lightly or without full knowledge of the options available and possible long-term outcomes.

“These reforms are brand new so as buyer’s agents we can take all the guesswork out of the equation for the buyer,” Mr Coleman says. “We’re searching for properties day in and day out right now while helping all our first home buyers fully understand the changes and how they will benefit them.”
For instance, if a buyer were to purchase a property through the First Home Buyer Choice scheme and then intended to remain in that home for life, paying the one-off lump sum of stamp duty would be more cost-effective than opting for the annual land tax. “But if you’re young and don’t intend your purchase to be the first and last place you live then the annual land tax gives you the chance to pay less [than the total stamp duty] over the course of ownership.

It also pays to be aware, too, that the closer a FHB pays to $650,000 for a property and the longer they intend to stay in it, the less appealing the FHB Tax will be - as the FHB tax will be more over the long term in comparison to the concessional rate of up-front stamp duty.

On the other hand, the FHB tax becomes far more appealing the closer a purchaser pays to $1.5 million, especially as there is no more concessional treatment after the $800,000 limit.

“We are also advising new buyers that if they choose to pay the annual land tax they need to be cognizant of maintaining their cash flow so as to be able to comfortably pay the tax every year,” MR Coleman says. “One way of managing this is to put the money that you would have spent on stamp duty into a term deposit and draw down on this over the years. Or make sure you have an offset account.”

Maker Advisory buyer’s agents are expert on the new First Home Buyer Choice scheme. Talk to us today about how we can help you make the best possible decisions around purchasing your first home and which type of tax to pay.