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Why a stamp duty change could unleash the REA Group share price

I think that a change to stamp duty could unleash the REA Group Limited (ASX: REA) share price.

At the moment the REA Group is suffering because the number of listings and property transactions has fallen due to the coronavirus pandemic.

Some of the activity has returned with a few social distancing restrictions lifted. Hopefully the country can get back to normal as quick as possible, including the normal property process. 

Both Victoria and New South Wales are thinking about changing stamp duty. Instead of being a large upfront cost it would probably be a yearly fee. Kind of like how council taxes/rates work. As the two biggest property markets, this would be an important change. 

Why would this make a difference to the REA Group share price?

In my opinion, changing stamp duty would motivate both buyers and sellers to transact sooner. Stamp duty can take up a lot of buyer’s cash. That means the buyer has to save for longer before they can buy. It might also then delay the upgrade to a larger house. This isn’t helpful for the REA Group share price. 

On the seller’s side of things, property owners are able to hang onto their properties for relatively little cost once the mortgage is paid off. But an introduction of an annual stamp duty tax/levy may encourage people to downsize a lot sooner if they’re being essentially being penalised for owning a house larger than they can afford. Or at least larger than their needs.

Obviously an increase in property transactions would add to REA Group’s earnings and therefore the share price. If you’re going to sell your house you want to list it on the most popular property portal so that you can reach the widest group of potential buyers.

In terms of brand power, I think REA Group is one of the best shares on the ASX. A return to somewhat normal life, a shift to more jobs working at home and a change to stamp duty could be very helpful to the REA Group share price.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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