While talk of state governments potentially scrapping stamp duty is positive, property experts warn that the tax won’t be scrapped without a replacement, which could possibly be more expensive over the life of your property purchase.
Veronica Morgan, real estate agent, property expert and host of Location Location Location on Foxtel warned buyers not to hold off purchasing due to the tantalising promise of lower taxes.
Why? Because the newer version of stamp duty might end up costing home buyers more in the long run.
Just as sellers are being told to get their homes to auction now, rather than waiting until spring, buyers are being warned they shouldn’t hold out for a change in the tax system.
Executive manager of economic research at realestate.com.au, Cameron Kusher, agreed. He said while talk about removing stamp duty is getting louder, there have been murmurs about scrapping stamp duty for years and so far the ACT is the only state or territory that has made the change.
“Even if stamp duty is scrapped, home owners will most likely end up paying the cost in some way, shape or form it’s just unlikely to be upfront,” Mr Kusher explained.
Is is really worth waiting for stamp duty to be removed before buying? Picture: realestate.com.au/buy
If replaced, stamp duty would most likely be swapped with another tax
Buyers may not realise that if governments abolish stamp duty, they will be looking to replace it with some other kind of tax, said Ms Morgan.
“There’s currently talk that stamp duty will be phased out once and for all and we’re all waiting for those plans to be revealed. However, even if there’s little mention or detail about a new tax, it’s more than likely that one will be imposed at some point,” she explained.
“Governments actually don’t like stamp duty either. It’s quite an inefficient tax because if there’s not a lot of transactions, government revenue goes down. With the economic ramifications of COVID-19, tax-wise, anything is currently up for grabs, so I think [governments] will be wanting to replace it with a more efficient type of tax.”
State and territory governments nationwide collected $18.8 billion in stamp duty revenue in the 2018-19 financial year. But the figure was down from $21.7 billion the previous year– the lowest it has been since 2014-15, figures from the Australian Bureau of Statistics showed.
A land tax could be more expensive in the long run
The Grattan Institute’s household finances program director, Brendan Coates, said in an interview with realestate.com.au that switching stamp duty with a broad-based property tax could effectively make the states and territories up to $17bn better off – but the money would ultimately come out of the pockets of property owners.
Stamp duty has had a long history in Australia because it’s a very easy tax to levy, according to Mr Coates, but while the heftiest stamp duty bills are levied on prestige property purchasers, relative to buyer’s incomes it’s typically the lower and middle market that feel the brunt of the tax.
Experts agree that a more efficient replacement for stamp duty will likely see the tax spread over the lifetime of property ownership in the form of a land tax, collected regularly, similar to the way council rates are collected now.
“That means every property owner irrespective of whether they have an investment or a family home will actually be paying more rates. And instead of just paying rates to the local council, they’ll also be paying rates to their state government as well,” said Ms Morgan.
While the amount of stamp duty depends on which suburb a buyer chooses to purchase in, across the states and territories more generally, the higher the value of a property, the more a buyer will pay.
Prospective buyers will need to brace themselves for a new ongoing bill as the trade-off to the removal of stamp duty, Ms Morgan explained.
Changes to tax laws typically take a long time to pass
Those looking to purchase a home, who have a deposit saved and are just waiting to find the right property should consider whether it’s practical to hold off on the slim chance stamp duty is removed in the next few months, Ms Morgan warned.
“If you find the home of your dreams, and you can afford it now – even at a stretch with stamp duty included – is it worth putting off the decision? You might end up paying more money with a new tax in the long run anyway,” she said.
“The other issue is that any tax reform is going to take time to get legislated. Buyers could be waiting a long time before anything new is set in stone.”
You could snag a bargain while others are sitting on the fence
Investment legend, Warran Buffet, once said, “Be fearful when others are greedy and greedy when others are fearful”.
In terms of the property market, Ms Morgan put it in the context of the First-Home Buyers Grant.
“When the First Home Buyers Grant was introduced in 2003, buyers had been holding out for the grant and suddenly we saw prices increase almost overnight,” she explained.
Don’t wait on the sidelines until it’s too late, says Veronica Morgan. Picture: Getty
“If every buyer was to wait until stamp duty reform is actually passed that would create more demand all at once, which would further inflate asking prices.”
Mr Kusher added that if buyers have recently paid stamp duty and the government switches to land tax, it seems extremely unlikely that as a recent payer of stamp duty you wouldn’t receive some form of compensation.
Ms Morgan said that “while the market is currently low, buyers who find the right property should be “striking whilst the iron is hot.”