First Home Buyer Choice package in NSW Budget to offer new buyers stamp duty support

First homebuyers will be given the opportunity to choose between an upfront payment or a smaller annual property tax under reforms aimed at making home ownership more affordable in NSW.

The First Home Buyer Choice scheme is part of a multi-billion dollar housing package to be unveiled in the 2022-23 NSW Budget.

Under the new initiative, first homebuyers who opt into the property tax will pay an annual property tax of $400 plus 0.3 per cent of the land value of the property.

The property tax option will be available for properties priced up to $1.5 million.

NSW Premier Dominic Perrottet said in a release announcing the measures that the state government wanted to remove some of the hurdles for new homebuyers.

“We want to lower the barriers to owning a home for first homebuyers seeking a place of their own,” Mr Perrottet said.

NSW Premier Dominic Perrottet. Picture: NCA NewsWire

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The Premier noted that the share of first homebuyers under the age of 35 had declined from 67 per cent to 61 per cent over the past two decades.

“The First Home Buyer Choice will remove one of the largest upfront costs to buying a home,” he said.

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Treasurer Matt Kean said the NSW Government had allocated $728.6 million over the next four years to help first homebuyers.

For a NSW household with the median income that saves 15 per cent of their income, stamp duty adds about two years to the time required to save the upfront costs of the median NSW dwelling, according to government estimates.

The government projected the First Home Buyer Choice support, coupled with existing first homebuyer initiatives, would assist about 55,000 people per year.

Legislation to establish the property tax will be introduced during the second half of 2022 with eligible first homebuyers able to apply to opt into the property tax from 16 January 2023.

For contracts exchanged in the period between enactment of the legislation and 15 January 2023, eligible first homebuyers will be able to opt-in from 16 January 2023 and receive a refund of stamp duty already paid.

The scheme would apply for first homebuyers with a budget under $1.5m.

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From 16 January 2023, eligible first homebuyers who opt into the First Home Buyer Choice will not pay stamp duty on their purchase. The property will not be locked into the scheme if it is sold.

First homebuyers will continue to be eligible to apply for full stamp duty exemption for properties up to $650,000. Stamp duty concessions remain in place for properties between $650,000 and $800,000.

Real Estate Institute of NSW chief executive Tim McKibbin said the proposed reform will give buyers an extra factor to consider and another calculation to make.

Mr McKibbin had long argued the existing stamp duty system was ineffective.

“Whenever a tax is a consideration of a transaction, not merely a consequence of it, then we believe it falls under the label of a ‘bad tax’,” he said.

PropTrack director of economic research Cameron Kusher said the new scheme had some limitations.

“Higher priced properties being excluded from the scheme would reduce the loss of revenue to the government and those buyers are probably more likely to choose to pay stamp duty rather than a land tax anyway,” he said.

“Property prices are already slowing in NSW and it is the higher priced properties that are seeing the greatest falls. A scheme such as this is likely to provide some more support for cheaper properties, however, the impact is likely to be fairly minimal given the stronger market forces at play and the further increases in interest rates which are expected. Hopefully this is the first step to broader stamp duty reform in NSW.”