Will You Be Better Off with the Annual Property Tax?

14 July 2022

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Should you pay your stamp (transfer) duty upfront if you’re a first home buyer, or opt for a smaller annual property tax instead? That’s the question many future first home buyers will have to grapple with from January next year if the New South Wales government’s proposed change is passed in parliament.

The transfer duty change was announced in the recent State Budget, along with the introduction of a shared equity scheme for first home buyers. Both measures are designed to make it more affordable for first home buyers to enter the property market sooner.

Crunching the property tax numbers

Let’s look at a couple of examples.

Example 1 – First home apartment buyers

Let’s assume two different couples will buy an apartment valued at $830,000 overall in January 2023, with the land component being worth $265,000.

Couple 1 will decide to pay the transfer duty upfront so that there is no ongoing property tax to pay. The upfront amount will be $32,440.

Couple 2 on the other hand will opt to pay the new annual property tax instead of paying the upfront transfer duty. Their first annual payment will be $1,195. That’s an initial saving of $31,245 that they won’t have to come up with or borrow to buy their first home.

Example 2 – First home buyers of a house

Houses in the same geographic area cost a lot more than apartments, so let’s see how the calculation works there.

Let’s assume two different couples will buy a house valued at $1.35 million overall in January 2023, with the land component being worth $810,000.

Couple 1 will decide to pay the transfer duty upfront so that there is no ongoing property tax to pay. The upfront amount will be $59,125.

Couple 2 on the other hand will opt to pay the new annual property tax instead of paying the upfront transfer duty. Their first annual payment will be $2,830. That’s an initial saving of $56,295 that they won’t have to come up with or borrow to buy their first home.

The bottom line

Couple 2’s future annual property tax payments in both examples will depend on the change in the value of their land over time (and whether the government increases the $400 flat fee and/or the percentage of land value amount used in the calculation). However, even if/when they do, it could take up to 20 years or more for Couple 2 in both examples to pay what Couple 1 in both examples has.

Of course, in the long run, the annual property tax option will be more expensive for Couple 2 in both examples because it’s ongoing.  But in the short to medium-term, Couple 2 in both examples will be much better off financially.

How we can help

If you’re looking to buy your first home in the Newcastle, Maitland and Lake Macquarie areas and you need finance, talk to us. Our licensed and experienced brokers at Wisebuy Investment Group can help you to find the right loan for your needs.

We’ll take the time to find out your individual needs before matching you with a suitable lender. We work with more than 60 lenders in the Australian market, and we can help you with your loan application. Importantly, we work for property buyers, not lenders.

Contact us today for an obligation-free chat to find out more. We’d be happy to answer any questions you have and to explore your finance options with you.