Crippling impact of governments’ property tax grab on first-home buyers revealed

An analysis has revealed the pressure placed on first-home buyers by the “burdensome” cash grab that is stamp duty and shown that governments have ignored the problem for years.

Authorities in Australia’s two biggest property markets have sat on their hands for five years when it comes to reviewing stamp duty concession thresholds, despite skyrocketing real estate markets, pushing most houses out of reach for those desperate for assistance.

The outdated thresholds in New South Wales and Victoria that determine if first-home buyers are either exempt from the despised property tax, or can take advantage of discounts, have remained unchanged since 2017.

In NSW, the stamp duty exemption kicks in for homes under $650,000, with concessions stopping at $800,000. 

Based on PropTrack research using a median Sydney price estimate of $1.06 million, only 12% of houses in Australia’s largest city are eligible for the first-home buyer stamp duty concessions offered by the State Government.

In Victoria, the stamp duty exemption applies for homes under $600,000, with concessions available up to $750,000. 

Based on a median price of $800,000, a slightly healthier but still relatively small 34% of Melbourne’s houses fall into the first-home buyer stamp duty thresholds, according to PropTrack.

First-time homebuyers relying on stamp duty concessions have fewer and fewer options. Picture: Getty

The existing concessions clearly favour apartment buyers, with 55% of Sydney units eligible, rising to 74% in Melbourne.

In Queensland, the thresholds haven’t changed since 2012 and in Western Australia they’ve stayed constant since 2014. Only Tasmania, which adjusted its thresholds in January this year, has kept pace with the property boom.

But it’s even tougher for first-home buyers in South Australia and the Northern Territory, where both state governments have scrapped stamp duty exemptions and concessions entirely.

In the ACT, meanwhile, stamp duty on a place of residence is means tested and only those on joint incomes of more than $160,000 are liable to pay it, regardless of the property’s price or whether or they’re first-home buyers.

Deep dive reveals some shocks

PropTrack economist Angus Moore recently did a deep dive into the impact of stamp duty on first-home buyers and was shocked by some of his findings.

“The thing that stood out for me was how long it has been since we reviewed stamp duty rates and concessions for first-home buyers,” Mr Moore said.

“Many states have these concessions in place because they recognise how burdensome stamp duty is, especially for first-home buyers.

“But it’s been five years since they updated them in Sydney and Melbourne. Prices have increased a lot over that time and if it was appropriate then, it’s quite inadequate now. 

“If you want to take advantage of these concessions, most homes are out of reach.”

Mr Moore also found that saving for stamp duty on top of the 20% deposit needed for most mortgages added to the heavy financial burden for first-home buyers.

According to his data, on the estimated cost of an entry level home in Sydney of $750,000, the 20% deposit of $150,000 would take buyers 7.1 years to save, with the full stamp duty of $29,100 adding another 1.4 years to the total.

In Melbourne, saving for the $122,000 deposit a $610,000 entry level home would take 6.1 years, with the $31,700 stamp duty impost adding another 1.6 years. 

For more expensive median-priced houses in both cities, the extra stamp duty savings time could be as much as two years, Mr Moore found.

“When you’re looking at an extra year of saving, that’s a substantial amount of time,” he said. “Especially when saving for a deposit is already so time-consuming.”

While state and federal governments recognise that stamp duty is a regressive and inefficient tax – and NSW is in ongoing discussions to eventually replace it with a broad-based annual land tax – there still seems to be great reluctance to abolish it.

“Stamp duty is a really important part of state government revenue,” Mr Moore said. “We had data which showed it is around 20% of total tax revenue and that’s quite substantial.

“That makes it difficult for state governments to reduce their reliance on it.”

Stamp duty is an outdated and inefficient tax grab but forms a huge part of state governments’ revenues. Picture: Getty

First-home buyer heartland

The western Sydney suburb of Emerton and the northern Melbourne suburb of Broadmeadows are ground zero when it comes to the first-time buyer market in Australia’s two biggest cities.

Both have median prices close to the stamp duty exemption threshold.

The buyers there, mainly young couples and families looking to escape the rental market, are well-educated when it comes to the stamp duty concessions available to them.

But they also know that taking advantage of discounts and exemptions means having to compromise on quality and location, as prices have moved well away from the levels at which the current thresholds were set.

When Ray White Mt Druitt agent JoJo Kendall held the first open house for a new property at 19 Popondetta Road in Emerton, 70% of those walking through the modest three-bedroom abode were eager first-home buyers.

19 Popondetta Road is a starter home that needs work. Picture:

Advertised as a “great starter”, the basic and dated home has a price point of $600,000 to $650,000, meaning no stamp duty will need to be paid if it sells at or below the highest estimate, representing a saving of up to $24,500.

“It’s very important to them,” Mr Kendall said of the stamp duty concessions sought out by first-timers.

“They won’t get the perfect home [at that price] – some will need a bit of attention. But I always try to tell them that the savings they make in not paying stamp duty can go towards a new kitchen or bathroom.

“It may not be your dream home, but it gets you into the market and by taking advantage of the concessions, that property could become your investment property later on.”

In Broadmeadows, agent Marwan Abdulwahed from C+M Residential has two properties on the market that fall into the stamp duty exemption zone.

The three-bedroom townhouse at 2/20 Graham Street. Picture:

The first is a recently updated three-bedroom house at 6 Avalon Avenue with a guide of $565,000 to $595,000.

The second is a modern and near new three-bedroom townhouse at 2/20 Graham Street with a guide of $535,000 to $565,000. 

Mr Abdulwahed brings a chart to all his open houses showing exactly what stamp duty costs his buyers are liable for, depending on the price guide.

“Our buyers are pretty informed and pretty realistic when it comes to stamp duty,” he said. “But we do have a lot of buyers who want to get in under $600,000 to avoid it.

“It’s easier to buy apartments or townhouses at that price level and some people like them because they are new and shiny.

“Others would rather have a house on a 600sqm block that needs some work because there’s more upside.”

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