Earlier this week the Victorian government announced an investment of over $293 million to fund a stamp duty concession of up to 50% for home purchases up to $1 million. This of course is a positive step for our property markets, but like any government initiative there will be winners and there will be losers. Let me explain…
This new initiative has been announced in the Victorian Budget FY20/21, which invests $1.5 billion in new tax relief for Victorian businesses and families.
The new stamp duty waivers initiative forms part of something much bigger as the Victorian government’s state budget is really pushing it’s “Big Housing Build” with the introduction of several initiatives all designed to create more jobs – in light of the COVID19 pandemic – as well as to generate more affordable housing for Victorians.
The Victorian budget allocated close to $6 billion towards building more than 12,000 new social and affordable homes, while the state’s $20,000 First Home Owner Grant for people buying or building a new home in regional Victoria was extended through to 30 June 2021.
Clearly this new (reduced) stamp duty initiative is very positive for Victorian property, but like any initiative there will be winners and there will be losers.
Before sharing my views, let’s take a quick look at the qualifying criteria and how it works:
What are the price points for new and existing homes?
Newly built homes and off-the-plan homes will receive a 50% stamp duty relief, and existing homes will receive a 25% waiver – both with a maximum purchase price of $1million.
It should also be noted that first home buyers purchasing property between $600k and $750k – where scaled stamp duty concessions apply – can now combine the 25% or 50% stamp duty discount until 30 June 2021.
The discounted stamp duty applies for both owner-occupier purchases and investment purchases – as it relates to all property.
What’s the timeframe?
The stamp duty waivers apply from the 25th November 2020 and expires on 30 June 2021 – the executed contract of sale must be signed during this period to qualify.
Settlement can be after 30 June 2021, however the contract must be signed no later than 30 June 2021.
Will this initiative impact Victorian property prices?
Stamp duty is a tax on purchasing property – with the government raking in billions of dollars from it – given the large number of transactions which occur each year.
To give you an idea, stamp duty works out to ~5.5% of the purchase price. In other words, buying a $1 million property means you have to cough up ~$55k in tax just for buying the property. And of course this tax comes from your after-tax (take home) dollars if buying an owner-occupier dwelling, or forms part of the cost base if buying an investment property – which means you don’t receive an immediate tax deduction for it.
With this new initiative, assuming the same $1 million property purchase, the $55k tax is reduced by 25% to ~$41k, which works out to a ~$14k saving in stamp duty. If the property is brand new or off-the-plan, then the stamp duty saving is as much as 50% on the dutiable amount. Of course new builds and off-the-plan are taxed differently to an established property as stamp duty is calculated primarily on the land value (assuming you buy before construction commences).
Since Melbourne got it’s vibe back after beating the second wave, we’re seeing the Melbourne property market perform strongly, at least when it comes to homes with owner-occupier appeal. This goes the same for regional Victorian properties where some Melbournians have decided to pack up and make a tree change in light of COVID-19 restrictions and the ability to now work from home.
Auction reserves are being smashed across most bullet proof (blue chip) locations. At least this is the intel I’m getting from my industry colleagues who are close to the action – which is what matters most and not what you read in the headlines.
This new initiative will inevitably create more interest and a higher demand for properties, particularly for properties up to $1 million – being the upper price point for the stamp duty relief.
And with 30 June 2021 only 7 months away, I expect to see a rapid uplift in property demand – particularly as we approach 30 June 2021. This can only mean more pressure on prices which will likely increase property values.
Why may this happen you ask? It’s human nature… it’s happened each time a new initiative is announced and it will happen again. Our old friend FOMO will be back..!!
The winners here will be those vendors running aggressive marketing campaigns to create strong interest for their listed property. Ironically the losers are likely to be buyers having to bid higher to secure their property of choice.
Whilst the stamp duty concession will save buyers lots of cash in extra stamp duty, quality property that’s in strong demand will inevitably attract higher bids, which pretty much wipes out any saving from the stamp duty discounted amount. Of course this is a generic statement and won’t apply in every case, however property in strong demand is likely to fit this bill.
If it’s one thing COVID-19 has taught us all is that your home is your castle – it’s where you spend a large part of your time. For many, buying the right home for right now is of utmost importance.
Australians have a love affair with property, and governments understand too well that property makes up the majority of our wealth. It’s for this reason that our government(s) consistently throw billions of dollars at property related initiatives to ensure Australian property remains resilient and weathers any storm that comes its way.
The Information is general in nature and does not take into account your particular investment objectives or financial situation. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the information without first seeking expert financial advice. Your full financial needs and requirements would need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.