The property market continues to boom, but buyers and sellers in the ACT are poorly served by government inaction to improve the costly system of conveyancing.
Several factors are making property buying and selling more expensive than it should be:
Stamp duty rates have not changed for more than 20 years, so bracket creep has put the average house into a stamp duty bracket that was designed only for the very wealthy.
Gazumping continues, so buyers can lose the money and time checking out a house for which they have put in a good-faith offer if the seller decides to sell it at a higher price to someone else.
Dummy bidding is rife at ACT auctions.
Sellers are still forced to get a costly energy-efficiency rating which achieves nothing.
There is no land-title searching or rates searching available over the internet as with other jurisdictions. The ACT, once ahead on electronic dealing with government, now lags behind.
Stamp duty. In theory stamp duty should have been abolished with the GST. But once the Democrats forced a GST exemption for food, some state taxes could not be abolished, stamp duty on houses among them. Stamp duty on shares was abolished, however.
Stamp duty at present levels is unjustified. A $300,000 purchase is quite common these days. The stamp duty is an astonishing $9000. This is on top of registration fees that cover the government’s administrative costs of the transaction. The sliding scale has not been changed for more than 20 years. Twenty years ago a $300,000 house was a Mugga Way mansion.
The median (middle) house price in 1991 attracted a stamp duty of $2785 (itself too high). In 2002, the median house price attracts a duty of $6565. It makes unwary buyers gulp because they have not budgeted for it. (And then silly governments hand the money back to some people in the form of a first-home-buyers grant.) The stamp duty is so high these days that it is a factor in people’s decision to move to more suitable housing – either smaller or larger.
It is an inefficient tax, but it is a politically acceptable tax because it is paid only once or twice in a lifetime. It is not a vote-changer. And it is a miltch cow. In the 1998-99 Budget, for example, the Government predicted conveyancing stamp duty would yield $41.4 million in 20001-02; in fact because of the bracket creep induced by the property boom it yielded $65.2 million.
The ACT Government acknowledges the bracket creep, but justifies the high level of stamp duty because the ACT rates is the same as NSW and the ACT does not impose a stamp duty on mortgages like other states.
A spokeswoman for Chief Minister Jon Stanhope said, “”As with all taxation measures, the Government is currently reviewing the policy on duty on conveyances as part of the current Budget process.”
You could bet your house there will be no change.
Gazumping. The ACT Law Society and the Real Estate Instituted asked the previous Government and this Government to change the rules. At present, neither the seller nor the buyer are bound until contracts are exchanged an the 10 per cent deposit paid. That is how it should be. The trouble is that while the buyer incurs legal costs over the contract, does his or her checks on title, soundness of the building and surveying the fence line, the seller can get a higher offer and accept it. The first buyer is left wearing the cost. Various schemes have been put here and elsewhere to overcome this. The Real Estate Institute wants the seller to reimburse the first buyer if the seller accepts a higher offer after a “”holding” deposit has been paid. Buyers need time to check a place out.
The legal profession wants a system whereby the seller has to give the buyer a chance to match the new buyer’s price, or failing that pay the first buyer’s costs.
The ACT Government points out that this might entrench an undesirable practice of Dutch auction. It hopes there will be more ideas about how to deal with gazumping which can be looked at while it deals with the updating the Agents Act.
Here’s one idea then. Given there is only one seller and many buyers, perhaps seller should be required to provide to all prospective buyers a title search, rates search and property survey and a building report – the last two done by a person chosen from a list of licensed professionals. If the buyer wants to get his or her own professional, they are on their own if gazumped. But those four reports should be enough to enable a contract to be signed and it would save many buyers each getting the same report done on the same house. At auction, it is inevitable that some prospective buyers will be out of pocket under the present system.
Would this be too costly. In the long run it would be less costly, because fewer searches and reports would be done (only one set per sale). And the cost could easily be provided to sellers by getting rid of the ridiculous requirement to provide an energy efficiency rating which add nothing to the conveyancing process. Buyers interested in energy efficiency can organise their own reports if they want, or they can take a compass and a torch when they look at houses to see if they face north and have insulation.
When the Government looks at the 30-year-old Agents Act, it can look at dummy bidding as well as strengthening complaints and training provisions. Victoria is to outlaw dummy bidding – that is bids by the seller or the seller’s agent. Agents in the ACT say that dummy bidding is only used to move an auction off and are never (as a matter of practice) accepted after the reserve has been reached. This is because no agent would risk a sale above the reserve by accepting a dummy bid. Maybe. If that is the case, though, the agents would not object to outlawing dummy bids – at least those over the reserve.
Outlawing dummy bids below the reserve would be hard to police and are of little moment. Besides early dummy bids well below the market value are hardly dummy. If accepted by the seller the dummy bidder would soon make it a real bid.
And while the ACT Government is looking at these things it should smarten up the way it does electronic business. It is fine for solicitors with accounts and fax arrangements, but the government should provide an internet search system for those who want to do their own conveyancing – a growing number given how little money is left in the pot after greedy governments take their unjustified stamp duty cut.