Huge changes are upon us in the first home buyer market, with significant stamp duty concessions kicking in on July 1.
So what’s the deal for first home buyers, and how will those stamp duty savings impact the property market?
As of July 1, the Victorian Government will abolish stamp duty for first home buyers on all properties up to $600,000. With stamp duty adding around 5% to the cost of buying a home, that’s approximately a $30,000 saving on a $600,000 home purchase.
For properties worth more than $600,000 but no more than $750,000, there’s a sliding scale of concessions. For example, on a first home purchase of just under $750,000, the saving is almost nothing, while on a $675,000 home, it’s around $18,000 (according to an example provided by the State Revenue Office of Victoria)
Meanwhile, in regional areas, buyers will receive a $20,000 rebate for purchasing a brand new home up to $750,000.
And for ‘off the plan’ properties – homes or apartments that are purchased in the design phase, before they’re actually built – buyers will only pay stamp duty on the dutiable value of the property at the time they buy it.
Many first home buyers will view the stamp duty savings as an extra $30,000 in their pocket to put towards their purchase.
That could mean a jump in prices as buyers use that money to stretch their budget.
At Parley Property Advisory, we’ve already found that in some areas people have held off buying until July 1 to ensure they receive the concessions.
Under the current arrangement, because first home buyers received stamp duty savings of 50% for properties up to $600,000, buyers would attend an auction and bid up to $600,000, and then the bidding would stop as they didn’t want to trigger the next level of stamp duty.
Under the pre-July 1 system, if a buyer went beyond $600,000, they would essentially be spending another $15,000 on stamp duty.
Now they’ll be able to bid beyond $600,000 and still have significant savings, so I expect that there will be many more people bidding at that price point.
THE AREAS MOST AFFECTED
The inner and middle ring suburb apartment markets will see the most heat, with many two-bedroom and one-bedroom apartments falling within the $400,000 to $600,000 price range and attracting the full concession benefit.
Suburbs in the west such as Broadmeadows, Werribee, Hoppers Crossing are the areas where people are still able to buy a freestanding home for less than $600,000.
In the south-east, it’s suburbs like Dandenong, Endeavour Hills, Hampton Park, Cranbourne that will see increased interest.
THE TRUE COST
In the past, stamp duty concessions were used as a way of helping and encouraging first home buyers to get into the market, while stoking the market itself.
Under current conditions, however, people need little encouragement – with the market superheated and people desperate to buy a home before they’re priced out for good, everyone wants in.
Melbourne’s population is growing by around approximately 2,000 residents a week, and with limited stock for sale, any stamp duty concessions will only pour fuel on prices.
If the stamp duty savings came in an environment where stock levels were high, it would speed demand and the scenario facing buyers would be vastly different, as there wouldn’t be as much competition.
But because we find ourselves in a situation where there’s not enough stock and too much demand, buyers face a real challenge.
We expect the new stamp duty legislation to have a reverse effect on the market in the short term, until we reach an equilibrium of stock levels.
Luke Assigal, Managing Director
Parley Property Advisory