Last week the NSW government has introduced changes on stamp duty for first home buyers.
Whenever they do these changes it muddles the house prices, the dynamics of Supply and demand is shifted, chances are you have no idea how much you will lose buying a house at this time.
So currently if you are a first home buyer and purchasing the property below $650,000 there is no stamp duty.
Similarly, if the property cost is up to $800,000 you will receive some concession.
Good news for first home buyers, the NSW government has increased the threshold for properties purchased up to $800,000 and concession rates apply for properties up to $1 Million.
The transfer (stamp) duty threshold on vacant land will also rise from $350,000 to $400,000 and will phase out at $500,000.
The new transfer (stamp) duty threshold will be in place for 12 months and will apply to contracts executed from 1 August 2020 to 31 July 2021.
The current rates are below $650,000 and concession applies for properties up to $800,000.
|Median House Price||Stamp duty concession costs||New stamp duty exemption costs||Total 20% deposit needed including stamp duty concessions||New total 20% deposit needed including stamp duty exemption||Time taken to save based on weekly deposit of $400||New time taken to save based on weekly deposit of $400||Time saved with new stamp duty exemptions|
|$650,000||$0||$0||$130,000||$130,000||5 years 11 months||5 years 11 months||/|
|$700,000||$8,204||$0||$148,204||$140,000||6 years 9 months||6 years 5 months||4 months|
|$710,000||$10,268||$0||$152,268||$142,000||6 years 11 months||6 years 6 months||5 months|
|$750,000||$18,290||$0||$168,290||$150,000||7 years 7 months||6 years 10 months||9 months|
|$775,000||$23,443||$0||$178,443||$155,000||8 years 1 month||7 years 1 month||1 year|
|$800,000||$28,594||$0||$188,594||$160,000||8 years 6 months||7 years 3 months||1 year 3 months|
According to Ratecity, an average first home buyer will save up to $ 28,594 or 1 Year and 3 months in time by this new change, based on $400 weekly deposit
To understand this lets look at,
First, Vacuum Effect.
Second, let’s have a look at how Government grants have impacted demand in the past.
Third, let’s have a look at the prices before the grant and after the grant.
To understand this we have 3 groups of first home buyers.
One group who are in the market and actively looking for a property to buy.
The second group of people has plans to buy, they can also get finance from banks but they have to save for their initial deposit.
And the Third group of people also have plans to buy and are also saving for a deposit but their savings are not enough for them to get finance at this stage.
So the vacuum effect states that when the government introduces grants for a limited time as they did now for 1 year.
People in Group2, i.e the First home buyers who have plans to BUY a property and are saving for a deposit will find it easier to achieve this.
If they purchase the property within this one year, As there is no stamp duty the amount required to save for their deposit is already met or is minimized, .
Statistics tell us that they will take this opportunity and Jump into the market for buying a house within government-stipulated time.
Even though Group 3 have plans to buy, their savings for the deposit combined with a government grant is not enough for them to secure a loan, so they are left behind and buy a house when they are ready.
Since the people who had future plans are motivated to BUY the property now.
Also people who weren’t eligible were made eligible and encouraged to BUY property now.
This will create a lesser demand or a vacuum that can only be filled with time.
So after this one year there will drop in demand and it will take some time for the demand to come back to normal.
Lets look at some historical data to validate this theory.
How has this impacted financing a home in the past?
As you can see from the chart below, In the Year 2000, the Government has announced the first home buyers grant.
It was introduced to soften the blow and the impact GST had on the economy.
This has created a spike in demand for financing new homes.
After a few months, the demand has dropped below normal levels before returning back to normal.
Again, during the Global Financial crisis, an additional grant of $7k was provided bringing the grant to $14k, to boost the economy.
This has also created a spike in demand for financing new homes.
In both the circumstances, you can see that the impact lasted for a few months, and the demand for financing new homes has returned back to where it was,before taking a dip.
So it looks like the vacuum effect is in play, where buyers have decided to bring forward their decision to buy a property, creating a dip due to reduced demand.
All the buyers who couldn’t effort to buy a property, all of a sudden can buy a property, and all the buyers who could afford and are planning to buy a property can now pay a bit more to get their dream property.
How has this impacted house price in the past?
To predict the impact of stamp duty on house prices the best way to look at it is trying to understand the impact of the current stamp duty announcement on house prices.
The two charts above compare sales data two years before the stamp duty concession announcement and two years after stamp duty announcement.
As you can see from the chart there is a significant spike for home prices between $640k to $650k in the second chart, this is due to the influx of first home buyers competing for properties till $650k.
There is no doubt that the announcement of stamp duty changes will create a vacuum effect bringing future purchases, thus increasing the demand and competition thereby increasing prices in this segment when incentives are provided.
Alos It is clearly obvious that the price will increase during the incentive time and decrease the post incentive period, especially when the grant has a very short time period like now.
Is it worth to buy house now or shall I wait?
There is no way to predict precisely what the future will be, but one thing is obvious that the effect of incentive is nullified post incentive date, i.e the money you have saved in stamp duty is wiped outpost the incentive date.
This has happened to me as well when I purchased the property in 2010, due to government grant the demand for the properties was very high, I used to find myself outbid for a property due to the demand.
There were a lot of buyers for property in the first home buyers range and agents had to do little or nothing to sell a property.
I bought my property for $380k in early 2010, in 2012 when I got the valuation done it came to $330k. If I were to wait I would have saved $43k (50k-7k) compared to just an additional $7k government grant.
Impact of COVID?
Well this time its different?
Till now when the government announced the grant, there was slowness in the economy or was aimed at supporting first home buyers or a political stunt. unemployment was hovering between 4 to 6 percent.
With current unemployment so high, companies not having revenue, businesses closing and people still in lockdown. It is hard to see a similar demand.
My anticipation is the dip will be a lot deeper and longer than the demand, so I don’t recommend jumping on this offer, again this is my opinion you need to do your own analysis.
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