How does stamp duty work?

The dreaded stamp duty… Payable to the state revenue office when property is purchased in Australia.

Stamp duty = Huge cost

I obviously hate stamp duty, because it is a huge cost incurred at the time a property is purchased, and you don’t really get anything in return for it.

The other thing about it is that it is calculated as a percentage of the purchase price of your property, meaning the more you spend on your property, the more you pay.

Different state, different rate

Stamp duty also varies from state to state. It is levied by state governments not our federal government, so depending on where you live the rate payable will be different. There are plenty of online calculators you can use to estimate how much the stamp duty will be based on the purchase price you are looking it.

In some states, concessions are available for properties purchased off the plan, so this is worth considering, and also for first home buyers. But obviously, if you are buying something off the plan, you need to be confident about the finished product and also with the asking price.

Off the plan properties also can take a lot longer than expected as many outside factors can interrupt the building process. If you’re not in a rush though, new developments are certainly worth looking at.

Calculate

Whichever way you go, the most important thing is that you do consider stamp duty as part of the total money that will be needed to buy your property. Especially if you are aiming for a 20% deposit, which I strongly encourage.

With a 20% deposit you’ll avoid paying mortgage lenders insurance, another totally wasted expense, but you could end up coming short of the 20% needed if you have forgotten to include the cost of stamp duty in your estimations.

As I mentioned, there are stacks of online calculators that can help you determine your total costs associated with buying a property, they even estimate things like your legal costs and any loan setup costs.

Be smart

Most of this stuff gets taken care of by the bank and rolled into your loan, but it’s important to understand and know everything that comes with purchasing a property.

Knowledge is power and although it’s tempting to not think about all the details because you’re so fixated on moving into your new pad, it is important to understand everything and make sure you’re making smart decisions. Especially with something that you’re going to be paying off for a good chunk of your life!

 

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