Property market wrap: NSW floats tax shake-up, REA at all-time highs

We look at the NSW government’s proposed property tax reforms as well as some of the potential implications of these changes.

Property market wrap: NSW property tax proposal in focus

The NSW government on Tuesday revealed a radical tax reform plan for property purchases – aimed at reducing the upfront costs for buyers and potentially ‘turbo charging’ economic growth in the state.

Under this proposal, the state government said it was looking to overhaul the current stamp duty system, in a move that would allow buyers to opt-out of paying the upfront fee and instead make annual property tax payments.

NSW’s Treasurer, Dominic Perrottet, said the stamp duty system was old and in need of an overhaul, going as far to describe it as one of the 'biggest financial barriers to home ownership.’

Beyond helping homebuyers, it has been forecast that these proposed reforms ‘may inject more than $11 billion into the NSW economy in the first four years and boost NSW Gross State Product by 1.7 per cent over the long term.'

The changes may ‘create and support thousands of jobs to boost the economy and kick-start our recovery for a prosperous, post-pandemic NSW,’ he added.

Implications of the proposal

According to the government’s consultation paper, the proposed changes to the stamp duty system would ‘place downward pressure on home prices over the longer term, making housing more affordable for all.’

Despite that, these reform may inadvertently have the opposite effect. This is because, as CoreLogic pointed out: in real terms, the house price plus stamp duty is already factored into the price a buyer/ investor is willing to/ able to pay for a property. Therefore, by replacing stamp duty and removing the upfront costs investors/ buyers incur, we have the potential to see house prices rise as a result, as that ‘stamp duty’ is simply factored back into the overall price of a property.

Despite that, previous research from CoreLogic confirms the NSW government’s point that stamp duty is a key issue in regards to property ownership, noting that ‘first home buyers perceive one of the biggest hurdles to home ownership is stamp duty, together with saving for a deposit.’

Other bits and pieces

In another interesting quirk of the NSW government’s proposal, once a property owner opts into the land tax on a purchased property, that opted-in property ‘would remain subject to the property tax for all subsequent future buyers over time.’

One Twitter user, Joe Harvey, made the interesting point that as a result of that quirk, we may see the emergence of a valuation spread between opted-in and not opted-in properties, as a result of the reduced optionality of the opted-in properties.

Property advertiser REA Group has seen its share price little changed off the back of these proposed changes, trading flatly over the last five sessions. Despite that, REA Group currently trades around all-time highs – around $140 per share – potentially highlighting the market’s confidence in the outlook for Australia’s property market as a whole.

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