The rivers of gold from property, which gave the NSW government massive budget surplusses, are drying up

  • Sydney’s property boom has delivered tens of billions in stamp duty revenue to the New South Wales state government in recent years.
  • Property-related revenues are now falling quickly due to lower property prices and transaction volumes.
  • The government forecast weaker property-related revenues for the current financial year, but expects that will improve in the future based off rosy economic forecasts.

Many people have benefited from Sydney’s house price boom, including the New South Wales government.

On the back of soaring prices, a record amount of new residential building and increased turnover, it’s delivered tens of billions in property-related revenues into its budget coffers. Stamp duty, in particular.

However, the rivers of gold, like Sydney’s housing market before it, are now starting to slow, and fast.

As seen in the chart below from Macquarie Bank, stamp duty revenue for the state government is not only starting to decline on lower home prices and discounts offered to first-home buyers, but also because property transactions are tanking.


Combined, residential stamp duty revenues have fallen 20% over the past year, and an even larger 30% for total land transfer revenues.

In dollar terms, total residential stamp duty revenue collected in the year to July was $6.7 billion, down a billion from a year earlier. Including non-residential property transfers, total stamp duty collected fell to $8.7 billion, $2 billion less than the prior 12 months.

The revenue taps are drying up, as the New South Wales government forecast in its 2018/19 state budget.

When released in June, New South Wales treasury predicted that residential stamp duty revenue would fall to $5.6 billion in the current financial year, driven primarily by lower turnover, rather than prices which it forecast to fall 7.5% from peak to trough.

So what if its forecasting appears to be playing out – nothing to worry about then for the government?

Perhaps, but as any forecaster knows, trying to predict the behaviour of individuals, and of a collective group, isn’t an easy task.

As the government noted in the budget,”volatility in residential transaction volumes and the timing of turning points in market sentiment are the key challenges in forecasting transfer duty”.

“Volumes are significantly more volatile than prices in part because owners tend to resist selling when prices fall in nominal terms,” it said.

So there’s uncertainty as to how prospective vendors may behave given Sydney home prices have already fallen 5.6% over the past year, according to data from CoreLogic.

The government’s forecasts for state-wide home prices and wage growth are also significantly more optimistic than most private sector economists, tipping annual growth of 3.5% and 3.25% respectively in 2019/20.

That in turn is expected to see stamp duty revenues lift again in the early 2020s, underpinned by the view that residential property transactions, after falling to 183,000 in 2018-19, will lift back long-run trend averages of around 200,000 per annum.

Some forecasters believe Sydney home prices — the largest concentration and most expensive in the state — could fall by as much as 15% from their cyclical peak.

Year-ended wage growth nationwide in the year to June was just 2.1%, a level almost identical to that seen in New South Wales over the same period.

So the government’s forecasts are clearly on the optimistic end of the spectrum, and in stark contrast to the views of many others, including New South Wales residents.

In the latest Westpac-MI consumer sentiment survey for September, views on whether now was a good time to buy a home in New South Wales slumped 12.8%, taking the decline over the past year to 40.6%.

A majority of respondents also saw prices continuing to fall over the next 12 months, suggesting that recent declines could extend for some time yet based on expectations.

Given sentiment towards housing is clearly sour at present, and the government’s optimistic views on home prices, turnover and wage growth in the budget forecast, there’s a clear risk the revenue slowdown could be far greater than what it currently expects.

And given the government is predicting revenues will continue to outpace expenditure in the coming years, seeing surpluses averaging $1.6 billion per year between 2018-19 to 2021-22, the risks to those forecasts may also be to the downside.

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