How The NSW Budget Impacts Sydney’s Inner City And Inner West Property Markets

July 7th, 2022 - by Brad Gillespie

The NSW government recently handed down the state budget, and it included some big news for home buyers, property investors and the real estate market here in the inner city and inner west.

First Home Buyer Choice

One of the key announcements of the NSW Budget was the First Home Buyer Choice scheme. Stamp duty reform has been mooted for some time and, with this scheme, the state government has taken the first step.

Under the new initiative, first home buyers purchasing a home worth up to $1.5 million will have the choice to pay a new property tax instead of stamp duty. Those who opt into the tax will pay 0.3 per cent of the land value of their property plus $400 each year. The rate will increase to 1.1 per cent plus $1500 a year if the home is converted into an investment property. A deferral scheme is available for those who cannot afford the annual property tax.

Stamp duty exemptions for first home buyers purchasing a property priced up to $650,000 will remain, as will concessions for homes between $650,000 and $800,000. The government predicts the First Home Buyer Choice scheme, together with existing first home buyer support, will help around 55,000 people each year.

Eligible first home buyers can opt into the scheme from 16 January 2023. If the home is sold, future buyers will also be able to choose between property tax and stamp duty – the property is not locked into the scheme.

Shared equity scheme

The government also announced a shared equity scheme similar to the federal government’s Help to Buy scheme and others already up and running in Victoria and Western Australia. Under the new initiative, the NSW government will contribute up to 40 per cent of the purchase price of a brand new home, or up to 30 per cent for an existing property, in exchange for a corresponding ownership share of the dwelling. Participants have the option to make voluntary repayments to the government to increase their ownership of the home. Like Help To Buy, the home buyers must have saved a deposit of at least 2 per cent and have the ability to service a mortgage covering the rest of the purchase price.

The scheme is open to single parents with at least one child under 18, single people aged 50 or above, and nurses, teachers, and police who are first home buyers. There’s an annual income threshold of $90,000, or $120,000 for couples. Participants must live in the home (it can’t be used as an investment property), and they are not allowed to own another property at the time of the purchase. Properties purchased in Sydney’s inner city and inner west must be priced at $950,000 or below to qualify for the scheme.

The scheme will commence in January 2023 and initially run for two years. Three thousand applicants will be accepted in both the 2022-23 and 2023-24 financial years.

Land tax changes for property investors and foreign owners

Stamp duty isn’t the only property tax to see reform under the new budget. Land tax is changing for property investors and foreign owners.

The 1.5 per cent discount afforded to property investors who pay their land tax early will be reduced to 0.5 per cent from January 2023. Meanwhile, foreign investors who own land in NSW will see their land tax surcharge double from 2 per cent to 4 per cent.

Plans to increase housing supply

With housing supply a hot-button topic at both the federal and state levels, the NSW government has announced initiatives designed to deliver more homes across NSW and Sydney. These include plans to expedite planning assessments and rezone parts of Sydney to encourage residential development.

How will the NSW Budget reforms impact the inner city and inner west property markets?

NSW Treasury estimates that 6500 first home buyers will take up the chance to pay a property tax instead of stamp duty each year, equating to around 3.4 per cent of annual residential property sales. So, while the new initiatives are sure to make a material difference to individual home buyers, the extent of the reform across the market is likely to remain relatively narrow unless further changes to stamp duty are introduced down the track.

PwC Australia chief economist Jeremy Thorpe says, “it’s not a game-changer from changing the entire market of NSW.” Meanwhile, Cameron Kusher from PropTrack believes that “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.”

Are you thinking of buying or selling here in Sydney’s inner-city or inner west? Get in touch with our team today.