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March 2, 2023

The NSW Government’s First Home Buyer Choice Scheme Explained

Stamp duty is one of the largest upfront costs of buying property in NSW, potentially adding tens of thousands of dollars to your final bill.

Fortunately, as a first home buyer, you don’t have to pay stamp duty for properties valued under $650,000 and get a discount for properties valued between $650,000 and $800,000:

  • For a $650k property, the stamp duty would be $0 for first home buyers and $24,340 for other buyers.
  • For a $750k property, the stamp duty would be $20,805 for first home buyers and $28,840 for other buyers.
  • But for a property valued at $1 million, the duty charge would be $40,090 for all buyers.

First Home Buyer Choice

Despite these concessions, many first home buyers still need to pay sizeable amounts of stamp duty, which can delay by months or even years the time required for you to get on the property ladder.

That’s why the NSW government recently introduced the First Home Buyer Choice scheme.

Under this scheme, first home buyers who purchase a property valued up to $1.5 million can opt out of paying stamp duty in favour of a smaller, annual property tax.

As a result, your upfront costs are reduced and you can enter the market ahead of schedule.

One-off stamp duty v annual land tax

For the 2022-23 and 2023-24 financial years, the property tax rate is $400 plus 0.3% of land value. So if you bought a $1 million house, you would have to choose between:

  • Making a one-off stamp duty payment of $40,090
  • Paying an annual property tax, starting at about $2,200 per year (this would steadily increase over the years, as property prices increased)
Under that scenario, NSW Treasury estimates your ‘breakeven point’ would be 23 years – before that point, it would be cheaper to pay the property tax, while after that point, it would be cheaper to pay stamp duty. So if you expected to sell the home within 23 years, choosing the property tax would be a no-brainer; if you expected to keep the home beyond that point, it might make sense to choose stamp duty.

The key word is ‘might’. Because if you had to save an extra $40,090 to cover stamp duty, it might take you an extra two or three years before you were able to buy your first home – by which point property prices might’ve increased by even more.

And even if you’d already saved the $40,090 and could enter the market immediately, that money might be better deployed elsewhere.

Also, a lot can change in 23 years, so even if you were certain you’d retain the home for longer than that amount of time, your life circumstances might end up dictating otherwise.

The hypothetical scenario above refers to the purchase of a $1 million house. But the calculations would be different if you bought a $1 million unit or townhouse, as they would have smaller land components than a similarly-priced house and therefore attract a lower annual property tax bill (as the tax is levied on the value of the land, not the entire property).

Under those scenarios, you’d have to choose between:
  • Making a one-off stamp duty payment of $40,090
  • Paying an annual property tax starting at about $1,900 for the townhouse and $1,450 for the unit
Your breakeven point would be 28 years for the townhouse and 43 years for the unit, according to NSW Treasury estimates.

Are you better off choosing stamp duty or the property tax?

Comparing the stamp duty and property tax options can be very confusing, so it’s understandable if you’re unsure which option is right for you.

In that case, speak to New Property Specialists.

We can give you expert guidance through a personalised first home buyer property plan. We’ll assess your unique situation to help you understand:
  • How the First Home Buyer Choice scheme would work for you
  • How much money you could borrow
  • What properties you could buy

Normally, this personalised property plan costs $990. However, we’re running a limited-time promotion in which you get a personalised property plan for just $490.

You’ll also be given a week’s free accommodation valued at up to $1,500 in destinations such as Bali, Thailand and Fiji.

Looking to get on the property ladder in NSW? At New Property Specialists, we believe success begins with a tailored plan. Schedule a free consultation or call 1300 155 661 to get started.

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