Sydney property in demand, stamp duty to go and FOMO returns

Thu, 17 Dec 2020

Sydney property in demand, stamp duty to go and FOMO returns    This Christmas and New Year’s is definitely a different kind of holiday period from the usual. Instead of going a bit quiet, the Sydney market is heating up with buyers competing for a supply of properties that can’t keep up with the demand. 

Leading Sydney auctioneer Tom Panos said that fear of missing out (FOMO) has returned for house hunters, with many determined to buy before the end of the year. 
“FOMO is back. There’s this fear that if you don’t buy this side of Christmas, you’ll come back after Christmas and you’ve got the good news of the vaccine, you add that to talk that there is going to be potentially negative [interest] rates and people have got a fear of missing out,” he said. 

Domain figures for October show that new house listings were 7.7 per cent down on their number in the same month of 2019. Unit listings were less reduced but still down 0.8 per cent over the same period. Meanwhile, buyer numbers were up 24 per cent for houses and 13 per cent more for units according to Domain data scientist Nicola Powell. 

“Sydney has been open for a while, so the market is getting back to near-normality,” Dr Powell said, noting that new listings had crept up compared to September. 

Through November the pattern of growth has continued. The ANZ Bank dropped its forecast for a 10 per cent drop in house prices and said a jump in demand based on stimulus measures and record-low interest rates had arrested the decline and could even result in "modest" price growth before the end of the year. 

ANZ Research senior economist Felicity Emmett said that the strength of housing sentiment in the face of the pandemic and other challenges the economy had to face was surprising: "Unemployment is nearly seven per cent. We know there is so much uncertainty next year; I have been surprised that people are so upbeat on housing," Ms Emmett told The Australian Financial Review.  

This upbeat feeling is also reflected in ME Bank’s latest Quarterly Property Sentiment Report. It found that Australians feel the property market is on the mend with 38 per cent of those surveyed saying felt “positive” about the national housing market — a result that was just 4 percentage points below the same report for October 2019. 

Andrew Bartolo, ME Bank’s head of home loans, said signs of optimism grew throughout spring: “This is really promising and indicates that despite volatility in the market, Australians have a resilient mindset when it comes to property,” he said. 

The Bank’s report also found that, when comparing sentiment between the start of the pandemic to now, fewer Australians are worried about the value of their property falling. By October, 49 per cent had concerns for their property value while in April, 64 per cent had said they were worried.  

Although the report showed that most property owners, or buyers, feel more confident about buying or selling property, there are two schools of thought forming, according to the study. A total of 57 per cent indicated they are in no rush and plan to delay any move until the COVID-19 situation “improves”, while 43 per cent indicated they are looking to buy or sell “as soon as possible”. 

Stamp duty to go 

One of the topics we’ve covered in this series of articles since 2017 is the NSW government’s shift from a stamp duty on property transfers to a broad-based tax on all residential properties. This shift has been accelerated by the impacts of Covid-19 on property sales which has cost the government billions of dollars in revenues as property sales fell sharply in the first half of 2020. 

As Robert Harley, writing in the Australian Financial Review described the situation: “Economists have long championed stamp duty reform. The Productivity Commission’s five-year review in 2017 recommended the removal of stamp duty on residential and commercial property and its replacement with a broad-based land tax based on unimproved value as a way of improving both the cities and national living standards.”  

Based on Sydney's median house price of $1,154,406 and on current rates of stamp duty applied, buyers of an average house in Sydney currently pay a bit more than $46,000 to the government. NSW earns around $9 billion from stamp duty in a year that could be considered ‘normal’. 

That’s not to say the shift from stamp duty to property tax wasn’t already on the cards. As stamp duty became such a major contributor to government revenues there was already a concern a decade ago that the state’s finances were too dependent on this one source and if something should happen – like a pandemic-induced recession, there’d be no way to replace the dollars lost to the treasury. 

So now we’re seeing a good example of just what was feared could happen. NSW treasurer Dominic Perrottet recently announced a budget with a deficit that could grow to $16 billion in the next year. For reference, the deficit was $6.9 billion in 2019-20. 

"This budget is completely appropriate for our time," Mr Perrottet said, and predicted the budget would be back in surplus by 2024.  However, the budget papers noted several risks to this including potential delays in finding a COVID-19 vaccine and further virus outbreaks. 

The budget introduced a preferred major taxation reform which would see home buyers given a choice on whether to opt-out of paying stamp duty, and instead pay an annual property tax. Once a home became subject to property tax, both present and subsequent owners would have to continue paying it. The proposed model also includes a property tax rate that would be lower for owner-occupiers, with higher rates for investors and commercial properties. 

As a sweetener the proposed reform would see existing stamp duty concessions for first home buyers replaced with a grant of up to $25,000. It’s all good news, says the NSW Treasurer: ““This is a vision for every person and family in NSW – from first home buyers trying to get a foot on the property ladder, to frontline workers moving to service our regional communities, and retirees who are ready to downsize.” 

The Government will start public consultation on the move in the near future. It says this reform would reduce the upfront cost of a home and would not affect current owners who are not buying or selling. 

Brendan Coates from the Grattan Institute told ABC News that as a whole, the community would be better off once the new tax was introduced: "The details for the individual person we just don't know yet — the Government has signalled that they're probably going to go down this path with a plan to consult through to March and then come up with announcements, presumably in next year's budget," he said. 

But as with all major reforms to taxation, there will be winners and losers from this move to a land tax. Sarah Hunter from BIS Oxford Economics said the details would be critical to deciding whether this is a good idea or a problem for everyone in the housing market: "It is hard to work out who is better or who is worse off but there will inevitably be, with this kind of change, some winners and losers when you add it up at the bottom line." 

Adherents for the shift to a property tax see it as a major improvement to government funding. Business Council of Australia chief executive Jennifer Westacott said the NSW budget was a model for other states and territories: "While some jurisdictions are talking about reform, NSW is acting. 

"NSW has taken the bold step of putting major tax reform on the agenda through a consultation process on reform of stamp duty and property tax. Stamp duty is one of the more inefficient taxes that penalises economic adjustment," she said in a statement. 

In an interview with the Sydney Morning Herald, PwC chief economist Jeremy Thorpe applauded the state government for the policy, saying such a reform which would deliver benefits to future administrations. 

He said stamp duty encouraged people to over-capitalise their existing property, to the benefit of the renovation sector: "We've probably over-capitalised houses in Sydney with people renovating their bathrooms to the ninth degree," he said. "I think this will encourage people to buy a new house rather than renovate." 

Joanne Seve, a long-time state tax consultant, has her own position on stamp duty vs property tax: “As an adviser to taxpayers, I think you should pay a certain amount [stamp duty] rather than pick up the property tax which is an unquantifiable, continuing, perpetual, annual obligation,” she says. 

“Properties that offer buyers the choice of paying stamp duty, or opting into the property tax regime, will ultimately become more valuable than those locked into the property tax.” 

And finally, Real Estate Institute of NSW (REINSW) CEO Tim McKibbin said the stamp duty changes proposed in the NSW Budget have been long overdue: “While there is no such thing as a good tax, some are better than others. When tax becomes a consideration of a transaction and not a consequence, it’s a very bad tax. 

“People in NSW have elected not to pay stamp duty by not buying property,” he continued. “On this basis, we welcome the news that stamp duty will finally be phased out in NSW.” 

First-home buyers active 

Despite prices staying at or near their pre-pandemic levels, conditions in the present market are very encouraging for first-home buyers who are entering the property market in record numbers. Low interest rates and government incentives have combined with the ability for those with just a five per cent deposit to qualify for a mortgage, making it possible for first-home buyers to compete for a home of their own. 

Even the governor of the Reserve Bank, Dr Philip Lowe, said this was a good time for first-home buyers to enter the market. Appearing before a federal parliamentary committee, Dr Lowe was asked if he was telling young Australians to take advantage of the country's historically low interest rates to purchase their first home. 

Dr Lowe replied he did not like giving financial advice to people, "but it's actually a good time, if you're a first home buyer, to buy the property you've wanted. Interest rates are low [and] they're going to stay low," Dr Lowe said. 

Australian Bureau of Statistics (ABS) data shows 13,040 first-home buyer loans were approved across the country in September. This was an increase of six per cent over the previous month and more than 45 per cent higher than for the same month in 2019. 3,593 of these loans were in NSW where combined assistance from governments can be as much as $35,000. 

Peter White, managing director of Finance Brokers Association of Australia, says mortgage brokers have been kept busy by first-home buyers attracted to the market by the wealth of incentives. "It certainly has been an unusually busy time compared to the norm," he told the Sydney Morning Herald.  

"It is a good time for those who have a job and some money in the bank to get into the market before property prices really start to go up again," White says. 

A big support for first-home buyers is the federal government's HomeBuilder scheme that provides eligible owner-occupiers (including first-home buyers) with a grant of $25,000 to either build a new home or substantially renovate an existing home. Treasury figures show that by the second week of November, 3554 HomeBuilder grants had been made to buyers from NSW, and most of these grants were for new builds rather than renovations. 

Another boost comes under the First Home Loan Deposit Scheme. Under this scheme the federal government becomes a guarantor for first-home buyer loans, which enables first-timers to enter the market with a deposit of just 5 per cent.  

There were 10,000 places made available when the scheme opened at the start of 2020. A further 10,000 places were added on July 1, and the government has since provided an additional 10,000 places reserved for first-timers who are buying new rather than purchasing existing properties. 

Loan deferrals end 

New data from the Australian Banking Association (ABA) show the total number of deferred loans has fallen by almost 70 per cent to around $86 billion in November, down from a peak of $250 billion in June. 

ABA chief Anna Bligh said it was an "encouraging sign" that the majority of customers had started making repayments but acknowledged many were still struggling. "There are still a lot of people in these numbers who are not yet back on making their payments," she said. "There is a time of reckoning ahead." 

In March, when the effects of the pandemic were as yet unquantified, banks coordinated with the government and regulators to offer Australians who were affected by Covid-19 the ability to pause loan repayments for six months. The deferral period was later extended by another four months and banks have lately been working to encourage customers to start making repayments. 

Jefferies senior banking analyst Brian Johnson told the Sydney Morning Herald that the major banks’ loan books would be tested once government support ends: "There are still risks as that government stimulus gets removed and that’s a big one," Mr Johnson said. 

However, banks have shown strong indications that they have no desire to create additional hardships for their customers. In November CBA banned forced home sales for customers affected by the pandemic and Morningstar banking analyst Nathan Zaia said it was likely other banks would follow suit. 

"The banks have done a lot to try and buy time so people can get back into work and start making repayments. The last thing they will do is repossess a bunch of properties and throw them on the market all at once," Mr Zaia said. 

Anna Bligh said the banking sector would continue to provide relief for customers facing hardship and said her industry had worked hard to meet community expectations following the banking royal commission: "Banks understand deeply that earning back trust is a marathon not a sprint, and what they do next year and the year after, will all really matter," she said. 

Where to from here 

To summarise: there has been no huge Covid-19 property price crash as had been feared, and those price falls that have happened have been relatively small and have mostly reversed by now. 

As to why the feared crash never happened, it’s important to note that, as most property purchases are made with borrowed money, the cost of borrowing money is one of the most important factors influencing property values. Over 2020, primarily in response to concerns about the impact of the pandemic, the RBA have reduced the official cash rate target by 65 basis points, to 0.1 per cent, and now to a negative interest rate for some transactions.  

For those with existing home loans, mortgage repayment deferrals have been a financial cushion that’s prevented panic selling. This has probably contributed to very low levels of stock throughout 2020, which had the effect of helping to stabilise dwelling values through what had been expected to be a financially difficult period. 

As both jobs and incomes recover, the percentage of housing loans deferred has come down from a peak of 11 per cent in May, to 7 per cent in September. Updates from lenders indicate that the number of mortgages on deferral arrangements fell sharply through October and November. 

Another important factor was the way in which employment was affected. There were severe job losses across hospitality, tourism and the arts sectors. While there’s no doubt those working in food and accommodation and arts and recreation have seen devastating job losses through the pandemic, those working in these industries are less likely to have mortgage debt. 

So, no big price falls and the property market’s been pretty much unscathed. The latest figures from the Australian Bureau of Statistics (ABS) suggest demand for property has remained strong with data showing the value of new home loans climbed to a record high of $22.7 billion in October. 

A new report by property analysts SQM Research agrees, saying that interest rate cuts, the "aggressive government stimulus" and the winding back of responsible lending laws will be the main factors driving Sydney’s price rises of between seven and eleven per cent in 2021. SQM also says that Sydney will enjoy the country’s second-largest price gains, driven by proposed changes to NSW's stamp duty and land tax laws. 

CBA head of Australian economics Gareth Aird said the latest GDP figures of 3.3 per cent growth for the September quarter would boost confidence in the Australian housing market. 

“You’ve got an improving labour market, an improving economy, a lot of fiscal support, incredibly low interest rates, and momentum now back in the housing market,” Mr Aird told Domain, adding that auction clearance rates, consumer confidence and lending data had “all started to pick up”. 

“All of that is pointing to house price rises in 2021, and they could potentially be quite brisk if the economy continues to improve at the rate it has been doing,” he said. 


‘What happened to the property price crash that was predicted but never came?,’ Jennifer Duke, Sydney Morning Herald, 7 December 2020 

'They will never let a housing crash happen', Michael Bleby, Australian Financial Review, 3 December 2020 

‘RBA governor Philip Lowe says it is a 'good time' for first home buyers’, Gareth Hutchens, ABC News online, 3 December 2020 

‘HomeBuilder extension to benefit NSW and Victoria above others,’ Nathan Mawby, Herald Sun, 1 December 2020 

‘Rush to buy a house in Sydney heats up, with few homes on the market,’ Tawar Razaghi, Domain, 16 November 2020 

‘ANZ scraps its 'too pessimistic' house price call,’ Michael Bleby, Australian Financial Review, 16 November 2020 

‘Australia’s real estate market is splitting in half,’, Kirsten Craze,, 17 November 2020 

‘NSW budget reveals new property tax on cards, $100 vouchers for adults and health, education cash splash,’ Jonathan Hair, ABC News online, 17 November 2020 

‘NSW Budget proposed property tax overhaul is huge challenge for Perrottet”, Ian Verrender, ABC News online, 18 November 2020 

‘Stamp duty vs property tax and what the proposed change could mean for you,’ Cecilia Connell, ABC News online, 18 November 2020 

‘Stamp duty may die but new tax may be worse’, National Letters, Sydney Morning Herald. 19 November 2020 

‘Perrottet calls on other states to work with him to phase out stamp duty,’ Jennifer Duke, Shane Wright and Matt Wade, Sydney Morning Herald, 17 November 2020 

‘REINSW welcomes stamp duty changes announced in NSW Budget,’ Kathy Skantos,, 19 November 2020 

‘Abolition of stamp duty in NSW is a bold and welcome policy,’ Jessica Irvine, Sydney Morning Herald, 18 November 2020 

‘NSW Budget: Stamp duty could be axed under new Government plan,’ Matt Bell,, 18 November 2020 

‘NSW property tax: what are the proposed changes to stamp duty and how would they affect you?’ Martin Farrer, The Guardian, 19 November 2020 

‘Stamp duty choice is seductively simple – or is it?,’ Robert Harley, Australian Financial Review, 27 November 2020 

‘First-timers pile in as house prices start to rise,’ , John Collett, Sydney Morning Herald, 17 November 2020 

'Time of reckoning': Loan deferrals falling but warnings worst to come’. Charlotte Grieve, Sydney Morning Herald, 18 November 2020 

‘Most common questions about the real estate market in 2020-21’, Samantha Thorne, Open Agent, 19 November 2020 

‘Why didn’t the Australian housing market crash?,’ Eliza Owen, CoreLogic, 30 November 2020 

‘Sydney auctions: Young couple nab Ashfield house for $1.46 million,’ Kate Burke, Domain, 28 November 2020 

‘House prices to surge in Australian capital cities, driven by 'aggressive' Government stimulus,’ David Chau, ABC News online, 4 December 2020 

‘Australia’s home price growth expected to be ‘brisk’ as recession ends,’ Rachel Wells, Domain, 3 December 2020 

‘Government announces plans to phase out stamp duty,’ Kate Burke, Domain,  17 November 2020 

‘How NSW's proposed property tax would work,’ Sydney Morning Herald, 17 November 2020 

‘Riverview house draws 11 bidders, sells $225,000 above reserve,’ Kate Burke, Domain, 5 December 2020