Stamp duty burden for buyers rises as property prices surge

The surge in property prices during COVID-19 has raised the stamp duty burden for homebuyers, particularly in lifestyle locations.

While rapid price growth has pushed up the amount of stamp duty paid across the board, PropTrack economist Anne Flaherty said some suburbs have recorded disproportionately large hikes.

“Because prices have appreciated so quickly, a lot of properties have moved up into higher tax brackets,” Ms Flaherty said.

“A major issue is bracket creep in those suburbs that have seen a smaller increase in property prices but an enormous increase in the stamp duty burden.”

Ms Flaherty said prices have risen faster than stamp duty thresholds have been adjusted.

“Buyers now are paying more in stamp duty as a proportion of their income than they were in the past,” she added.

Grattan Institute economic policy program director Brendan Coates said average rates of stamp duty have risen substantially in all states and territories over the past two decades, because thresholds have not kept pace with rising house prices.

“The stamp duty impost has increased as house prices have risen relative to average incomes,” Mr Coates said.

The progressive rate structure of transfer duty meant buyers paid a higher marginal rate of stamp duty on higher value homes than cheaper homes.

“Stamp duty thresholds are not indexed in a lot of cases, which means that as property prices rise, the average house has moved into higher tax brackets over time,” he said.

Many of the suburbs with the largest percentage increases in stamp duty over the past year also recorded significant price appreciation, while others experienced bracket creep.

COVID-driven lifestyle shifts and the desire for a sea or tree change contributed to soaring median prices in many regional areas, at a time of record-low interest rates.

“One of the trends we saw during COVID was that a lot of buyers looked to move into more scenic areas, particularly areas close by the water,” Ms Flaherty said.

“That means that median prices in these suburbs have risen and correspondingly stamp duty has also risen.”

Coastal and regional locations in New South Wales and Queensland feature heavily among the suburbs that have recorded the biggest percentage increases in stamp duty nationally over the past year, on the back of their strong price gains.

Bracket creep was a driver of many of the largest duty increases, with three Northern Territory suburbs topping the national list.

The Darwin suburb of Muirhead had a 416% surge in stamp duty to $27,225 on the back of a rise in the median house price from $350,000 to $550,000. Leanyer and Rosebery had more subdued price growth but also recorded huge percentage increases in stamp duty.

Ms Flaherty said that was because they crossed into a new threshold above $525,000, where the transfer duty rate was 4.95% of a property’s value.

“As soon as prices jump above that amount, the stamp duty burden is substantially higher.”

Beachside suburbs, particularly on the Sunshine Coast and Gold Coast, dominated the Queensland suburbs with the largest stamp duty rises, having also moved into higher transfer duty brackets.

“In Queensland, bracket creep has been the primary driver of the significant stamp duty jumps seen in many suburbs,” Ms Flaherty said.

“The majority of the suburbs which have seen the largest stamp duty increases in Queensland are those with medians that have hit the $1 million median over the past 12 months.”

The Sunshine Coast suburb of Warana had the sixth highest duty increase nationally. Its median house price jumped to $1.21 million from $775,000 in the past year, meaning the stamp duty was 109% higher at $43,213.

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