» Land Tax for Stamp Duty incentive The NSW government (budget 2022) is offering first home buyers the option to choose between paying land tax at an annual levy of $400 plus a 0.3% tax on the value of their land or paying stamp duty, on properties worth up to $1.5 million.
» Real Life Examples Let’s do the number crunching for a first home buyer couple earning equal salary, with no dependants and no debt, buying a property after 16 January 2023.
Villa on William Street, Botany A 2-bedroom, 1-bathroom, 1-garage villa on William Street Botany is advertised for an asking price of $1,250,000 and its land value is approximately $415,000.
Stamp duty would be approximately $53,000 and annual land tax (in the first year) would be approximately $1,650. Net present value these payments at the 10-year interest rate swap rate of ~4.50% and the breakeven term would be ~78 years. A BIG WIN for the first home buyer.
For the loan application at 80% lend against the value of the property, allow for the $1,650 (first year) in land tax outgoings and their borrowing capacity is reduced by ~$23,000. A slight negative.
House on Bayley Road, South Penrith A 4-bedroom, 2-bathroom, 2-garage house is advertised for $1,300,000 and its land value is approximately $489,000.
Stamp duty would be approximately $56,000 and annual land tax (in the first year) would be approximately $1,900. Net present value these payments at the 10-year interest rate swap rate of ~4.50% and the breakeven term would be ~77 years. A BIG WIN for the first home buyer.
For the loan application at 80% lend against the value of the property, allow for the ~$1,900 (first year) in land tax outgoings and their borrowing capacity is reduced by ~$27,000. A slight negative.
» Other Collateral Savings Additional savings could result from a reduction in Mortgage Insurance premium (as applicable), and less borrowings due to no stamp duty payable. A small WIN.
» It’s No Brainer The First Home Buyer WINS BIG, but will it backfire on the State Government?
» Perverse Incentive What is the motive of the State Government offering such an unbelievable incentive? How long before first home buyers become flippers? How would house (higher land value) and apartment (lower land value) property prices respond to this amazing freebie? What are the undesirable results that are contrary to the intentions of the state government?
We’ll eventually find out.