FIRST-HOME buyers could buy million-dollar properties without spending a cent on stamp duty.
But most of them aren’t aware of the quirk in the rules that could save them thousands of dollars, according to industry experts.
When the State Government changed the rules for stamp duty payments for first-home buyers in July last year, a little publicised element of the changes opened the door to stamp-duty free home purchases beyond $1 million — if they buy off the plan.
Under the provisions for the stamp-duty waiver, a first-home buyer does not pay stamp duty for homes priced at $600,000 or less, and a sliding scale for a percentage of stamp duty from $600,001 up to $750,000.
Thousands of first-home buyers took advantage of the changes in the first few months.
However, an off-the-plan purchase is only assessed for stamp duty based on its dutiable value — the cost of the unimproved land.
State Revenue Office of Victoria documents show most house and land packages are assessed with 55 per cent of the total cost assigned to land, so a $1 million purchase would only be assessed at $550,000 for stamp duty purposes.
For townhouses, 40 per cent of the cost is ascribed to the land component.
For the full percentage to be deducted from the purchase price, no work can have commenced on the home site.
It also does not apply to vacant land in the absence of an off-the-plan purchase as there can be no intention to live on vacant land as a home.
Off-the-plan, a land purchase might have no stamp duty payable. However vacant land does not qualify.
RPM Real Estate Group research manager Michael Staedler said it was easier to digest with an example.
“If a first-home buyer purchases a townhouse for $750,000 the split results in a land price of $300,000 and a construction cost of $450,000,” Mr. Staedler said.
“As the land component is below $600,000 the first-home buyer does not pay any stamp duty.”
In the above example, the first-home buyer would also qualify for a $10,000 First Home Owner Grant.
“Up until July 1st 2017, the first-home buyer in this example attracted a duty of $5,685,” Mr. Staedler said.
“If we re-engineer the above method we can work out what the maximum purchase price a FHB can buy before stamp duty applies.
“If we take 40 per cent as the fixed share for the land, a sale price of $1.5 million can technically be purchased as 40 per cent of this is $600,000.”
Meanwhile, at $750,001 the stamp duty for an established property works out to more than $40,000. An off-the-plan purchase at the same price would pay no stamp duty.
Mr. Staedler said for those with a larger deposit and the income to support a more than $600,000 home, the information could impact their choice between an off-the-plan purchase and an established property.
Any existing construction on the home site will impact how dutiable value is calculated.
He added that a number of first-home buyers talking to sales teams at RPM developments had already revealed they weren’t aware of the information.
“Some of them are getting a nice surprise that they don’t have to pay stamp duty,” he said.
He said that for most the biggest issue still remained getting the deposit, but that with prices rising across Melbourne this could improve the prospects of buyers breaking into suburbs they thought they had been priced out of.
“But for people to get that 10 per cent deposit is really difficult,” he said.
“The reality is that the price point is moving up and many see themselves without enough money even six months on. But they can spend, well and truly, more for off the plan.
“I don’t know how many are fully aware of this.”
A list of quality fixtures and fittings might not affect stamp duty costs for a first-home buyer making a purchase off the plan.
Master Advocates buyer’s advocate Mark Errichiello, who has worked extensively with first-home buyers since July 1 last year, said he did not believe many first-home buyers were aware of the dutiable value clause.
“I don’t think the average first-home buyer would be aware of this,” Mr. Errichiello said.
“Most of them wouldn’t look at quantifying building planning and land components.”
However, he warned first-home buyers considering this approach to do their due diligence before buying.
“With off-the-plan you need to know who the builder is and all the risks for it — the home is not built yet,” Mr. Errichiello said.
He advised looking for trusted builders and developers with a reputation in the area you were looking to buy into, and looking for boutique sites to avoid having large numbers of similar homes that might impact resale value later in life.
Mr. Errichiello added that this might be a strategy for some first-home buyers to face less competition, as the market for properties below $600,000 had become very heated since the changes were introduced.
POSTED: January 20, 2018
AUTHOR: Nathan Mawby
@Jurds Real Estate – Cessnock and Hunter Valley Wine Country Property Experts – the place to buy, sell and lease property in Cessnock and the Hunter Region.