The New South Wales (NSW) government, much like the federal government, is looking for ways to keep the property market and construction ticking along. Its latest rounds of changes are designed with that in mind – but there are risks.
What are the changes?
The NSW state government announced changes to the stamp duty regime on July 271, to kick off at the beginning of this month.
Under the changes, the threshold above which stamp duty will be charged on new homes for first home buyers will increase from the current $650,000 to $800,000. The concession will reduce on higher values before phasing out at $1 million.
In addition, the stamp duty threshold on vacant land will rise from $350,000 to $400,000 and will phase out at $500,000.
The change to the thresholds will only apply to newly-built homes and vacant land, therefore excluding existing dwellings. It will last for a 12-month period, commencing on 1 August 2020.
These measures are on top of the federal government’s HomeBuilder2 package, which provides eligible owner-occupiers with a grant of $25,000 to build a new home or substantially renovate an existing home. This eligibility is inclusive of first home buyers.
The intended impacts
The NSW government is concerned that COVID-19’s sprawling impact will include weakness in construction activity. The federal government is also concerned about this. The building of new homes is one way to help offset a slump, which is what the new changes from the NSW government are designed to encourage.
In the short term, this is clearly good news for the construction industry and for tradies. It’s also good news for first home buyers, especially when you consider property prices have not totally plummeted in cities like Sydney. The NSW government estimates about 6,000 first home buyers will benefit from its changes.
However, in the longer term, these changes do run the risk of creating an oversupply. Immigration is a significant factor in the property market, and it has plummeted with the advent of international border closures3. If it doesn’t pick up at all or for a long time, there may be more properties being built for the number of people who require them. For now, that’s a problem for down the track, and we can hope the measures from the NSW government fulfil their intended impact.
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