The curse of land transfer duty

We are now actively looking for our next house to purchase and to live in. As we haven't been in the market for a house for a while, we are not too sure what to expect. The area that we are interested in parts of Carrum Downs and Skye because of its handy location to my office.

Our first port of call was to visit realestate.com.au as most, if not all, the real estate agents list their properties here. Most of the houses that fit our criteria are in the region of $330K. My initial reaction is that "Wow, this is a lot of money". Analysing it further, we need to add more items such as legal fees, bank fees, insurance and, the most dreaded of all, stamp duty. (btw, domain.com.au has a nice calculator to work some of these out).

Stamp duty is the old term for duty payable for the transfer of a property, and is payable to your state government, and as such, the conditions will vary from state to state. The Victorian State Revenue Office (SRO) has a good explanation of what land transfer duty is.

For the state of Victoria, its SRO has a handy calculator to work out the amount you are liable for. Bear in mind that the duty rate is depending on whether the property is a principal place of residence or an investment property.

On the $330K property,

• Residence - $13,310, or about 4.0%
• Investment - $15,460 or about 4.6%
  

The percentages are calculate based on the property value.

Apart from the actual property, the land transfer duty is one of the larger component of the total cost. With the house affordability of Australia sky rocketing, this stamp duty does not help at all.

What can you do the avoid the large stamp duty. Let's see....

1. Build the house - The duty is only payable on the transfer of property. For something to be transferred, it needs to be exist to begin with. So building a house does not attract a land transfer duty. The duty is only applicable on the land purchase.
   
2. First home purchase - If this is your first home purchases, then the state government has some concessions to help you out. Depending upon your circumstances, you may be able to get up to $12K.
3. Use the house as a residence instead of an investment - You will need to do the maths to determine if it is worthwhile as the reasons on purchasing a house for investment are totally different to a house for residence. However, as the calculation shows above, it does save you some money.
   

Until the state government abolishes stamp duty, it is an unavoidable evil. So just be sure to include it as part of your house purchasing budget.