John McGrath - Canberra Cruises Through COVID-19 And NSW Stamp Duty Reform
The property market in Canberra has virtually cruised through COVID-19, with latest figures showing 5% growth in home values so far this year - the highest rate of growth of all the capital cities.
As discussed in our recently released McGrath Report 2021, Canberra’s resilience is largely due to its robust economy; its unique job security being a government town; and an incredibly low rate of infection at just 0.42% of the nation’s cases by October 2020.
There is also strong demand from owner occupiers, particularly first home buyers and upgraders, with the value of home loans up 31.2% on long term averages, according to CommSec.
Right now, these buyers are focused on houses over apartments and I’ll tell you why.
Firstly, with interest rates so low, more people can afford a house. Secondly, changes to stamp duty exemptions for first home buyers have steered more of them towards houses, thereby raising demand further.
In July 2019, the stamp duty exemptions were expanded to established homes as well as new homes, with price caps removed altogether. This meant first home buyers could purchase houses in suburbs closer to the city and still receive massive stamp duty savings.
Progressively reduced stamp duty for all other buyers has also encouraged people to upgrade more freely as their lifestyle needs change, thereby raising demand specifically for houses.
On top of these demand side factors, fewer land releases for new houses has reduced supply and pushed the median house price higher. In fact, last month it reached a record high of $737,937 on the back of 5.5% growth since January 1, CoreLogic data shows. The median apartment value is now $462,367 following 3.2% growth so far in 2020.
The ACT has led all other states and territories on the reform of stamp duty, which is easily one of the most despised and nonsensical taxes in society today. In 2012, the ACT Government began a 20-year program of phasing out stamp duty in favour of higher rates and land taxes. On a $700,000 purchase today, stamp duty is $20,040 compared to $32,000 in 2012.
This month, the NSW Government finally followed the ACT’s lead with a long-awaited stamp duty reform plan of its own. The plan gives buyers the choice to pay a large upfront sum in stamp duty, as they do now, or pay an annual property tax of about a few thousand dollars instead.
The obvious benefit is removing the burden of having to find tens of thousands of dollars on top of your deposit to buy a home. Instead, you pay your stamp duty over time. The government argues this will make it easier for first home buyers to enter the market and allow other people to trade property more frequently as their lifestyle needs change.
Unlike the ACT, what the NSW proposal doesn’t do is reduce the upfront rate of stamp duty payable. Investors will also pay a higher annual property tax than owner occupiers.
Over the long term, the scheme is ‘revenue neutral’, which means the government expects to collect the same amount from property buyers every year as it does now. Current projections for FY21 put that figure at $7.9 billion. There are 190,000 properties sold in NSW per year, so that averages out to be $41,578 just for buying a home or investment.
In other news on stamp duty, Victoria announced a 50% waiver of stamp duty for newly-built or off-the-plan purchases and a 25% waiver on existing property purchases up to $1 million in its budget last week. The waivers will apply to sales between November 25, 2020 and July 1, 2021.
You can read more about the Canberra market and my suburb picks for best capital growth by downloading the McGrath Report 2021 here.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (November 30, 2020)
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