First home buyers in New South Wales will be able to save up to $66,700 in the upfront cost of buying a home after new legislation passed into law.

The NSW Government’s First Home Buyer Choice legislation has passed through the NSW Parliament and is now in force.

Under the new law, first home buyers will be able to opt out of paying a large stamp duty bill on properties worth less than $1.5 million.

Instead, such buyers may elect to pay an annual tax which will be based on the land value of the purchased property.

The tax will be applied only to those who choose it and will not apply to subsequent buyers of a property.

Its value will be indexed each year so that the payment increases in line with average incomes.

For 2022/23, the rates will be set as follows:

• $400 plus 0.3 per cent of land value for properties whose owners live in them
• $1,500 plus 1.1 per cent of land value for investment properties.

Where properties are owned for less than the full year, a pro-rata adjustment will be made based on the number of days in the year for which the property is owned.

The scheme will be limited to first home buyers and subject to thresholds of $1.5 million for the purchase of properties with dwellings on them and $800,000 for the purchase of vacant land which is intended for the construction of a first home.

There are no caps and the program is available to all first home buyers.

Existing first-home buyer stamp duty concessions for the purchase of properties worth up to $800,000 will remain.

The scheme could save on upfront costs ranging from $31,500 for properties worth $800,000 to $66,700 for properties worth up to $1.5 million.

The annual tax in the first year would range from $1,240 for a unit worth $800,000 to $3,100 in the case of a house worth $1.5 million.

Meanwhile, the payback period for the government would range from 21 years for a house worth $800,000 to 63 years in the case of a unit worth $1.5 million.

A total of $728.6 million has been allocated to the scheme over the next four years.

Premier Dominic Perrottet said the First Home Buyer Choice would be a game-changer for first home buyers, helping families get the keys to their first home sooner.

“The great Australian dream of home ownership just got much easier for a generation of young families,” Perrottet said.

“For the first time we will provide first home buyers with a choice, helping thousands of people to shave around two years off the time needed to save for a deposit.

“People can now save huge sums of money on the biggest purchase of their life.”

Property industry lobby groups welcomed the legislation’s passing

Acting NSW Executive Director Adina Cirson said that stamp duty was a volatile and inefficient tax which is detrimental to the Australian economy.

“We are pleased to see this this legislation has now passed the NSW Parliament and hope it is the first step to further reform that extends beyond first home buyers and considers genuine reform across all sectors of the market in line with our previous call for broad based tax reform,” Cirson said.

“We welcome this reform which will help Australian’s buy their first home and it is pleasing to see the genuine opt-in choice has remained.

“However, we are disappointed, there is no inbuilt review of the reform to ensure there is no increase in cost of housing development and it does not result in a disproportionate impact on other parts of the property sector as has been experienced in the ACT over the last ten years.”

“As such we will continue to monitor the first stages of this tax reform.”

Urban Taskforce Australia CEO Tom Forrest agrees that the changes are welcome.

“A broad based land tax is one of the most efficient, effective and equitable taxes available to Governments,” Forrest said.

“The fact that the Premier pushed through the politics and focused on the delivery of a policy that will boost productivity and help address housing supply is commendable.

“Urban Taskforce Australia urges the Commonwealth to consider supporting the further expansion of this scheme so we can finally rid ourselves of this highly inefficient tax which acts to penalize those who wish to change the location or size of their home as their circumstances change.”