Welcome to this fortnight’s blog.
It’s all happening this week with the State Government in VIC making some major changes to the way the state calculates its duty which I want to run through, starting with the Stamp Duty Reduction.
Stamp Duty Reduction
There’s no doubt that Australian first home owners have been affected by property price rises and a decrease in affordability especially in Melbourne and Sydney.
The VIC government has therefore come up with some sweeping changes which, while well intended, are not likely to assist them in the long term.
In the short term, first home buyers will be assisted in a number of methods with the stamp duty reduction being the most important.
The last time a stimulus for first home buyers was introduced in 2009m it resulted in45,000 new home owners entering the market. This influx in buyers drove property prices up quite significantly negating the incentive introduced by Government.
This change in stamp duty will likely do the same thing. Whilst it will help first home owners in the short term it will hinder in the medium and long term.
What changes have the VIC Government made?
- All VIC properties under $600,000 (new and existing properties) – first home owners will pay no stamp duty.
- All properties between $600,000 – $750,000 – stamp duty will be reduced on a sliding scale.
Currently, first home buyers in VIC pay $15,535 on a $600,000 property. However, from 1 July 2017, first home buyers will pay no stamp duty for the same property. The new stamp duty exemption will start on 1 July 2017 and is expected to benefit roughly 25,000 first home buyers every year, saving on average $8,000
While this comes as great news for first home owners, the change is likely to increase property prices, especially under $600,000.
First Home Owner Grant Increase
The second thing that the VIC state government is doing to assist first home owners is to increase the First Home Owner Grant in regional Victoria.
- Currently the First Home Owner Grant is $10,000 for new property and will increase to $20,000.
- Melbourne metro will not get an increase in the grant and stays at $10,000.
- Existing property does not get a First Home Owner Grant.
- Starts 1 July 2017 to 30 June 2020.
The great news is that it will drive property prices in regional areas, which although might not be great for first home owners, it certainly is for investors like us.
At Nyko this year we are focussing on a major regional centre in VIC, namely Geelong. (For Sydneysiders, Geelong is similar to your Newcastle type region) Geelong has great direct rail links to the CBD, provides a great lifestyle and has Victoria’s best beaches. This First Home Owner Grant increase in regional VIC will help assist projects in these areas as well as provide better infrastructure and new jobs.
The Removal of Stamp Duty for Property Investors
The third thing that the VIC state government is doing, probably to pay for the increase in the First Home Owner Grant and the stamp duty reduction for first home buyers, is that they are getting rid of the stamp duty reduction for new property and off the plan property purchasers in VIC.
This only applies to property investors.
If you are a first home owner or a second, third, fourth or even fifth time home buyer who will live in that property, then you are unlikely to be affected by this change in stamp duty.
However, as an investor you will face a stamp duty increase bringing it in line with every other city in Australia. This is likely to affect an investor’s borrowing capacity, meaning they will have to include the new stamp duty in their calculations. Many investors will have to look at slightly more affordable properties in order to afford to pay the full stamp duty on the property.
A $500,000 property in VIC bought as an investor will cost you $25,070 in stamp duty, whilst a $600,000 property will cost you $31,070. These same properties with the reduction currently in place would cost less than $5,000 for apartments and $10,000 if it were a town house.
If you are an investor, you need to buy sign a contract before 1 July 2017 to still receive those massive stamp duty reductions.
Best to buy in the next three months
If you’re thinking about buying in Melbourne in the next one to two years, then I would highly recommend buying in the next three months. By doing this you could save up to $20,000 in stamp duty.
NOTE: The one thing I would like to mention here is that if that $15,000-$20,000 in stamp duty is going to change your buying decision, then I would recommend not investing in property in the first place.
Get in Touch
If you have any questions regarding the new VIC State Government duty changes, feel free to contact Nyko using the form below. I’ll be back next fortnight for more important insights.
For more details on the changes and current legislation the best website to refer to is http://www.sro.vic.gov.au/first-home-owner.