Before signing on the dotted line, it is incredibly important for prospective homeowners to consider the additional costs involved in purchasing a property over and above the selling price.
Many buyers who are itching to enter the property market are mainly concerned with what their bond repayments will be, and fail to realize the impact these supplementary costs will have on their finances and what they may realistically be able to afford.
While the loan repayment is a very important consideration when calculating the cost of buying a house, banks typically grant bond financing that amounts to no more than 25% of the applicant’s gross monthly income. This is essentially the basic monthly expenditure a buyer will need to budget for. Another factor, of course, will be the remaining payments on current loans buyers are still repaying. It is wise to find out if there will be a penalty payable for settling the loan account prematurely, as this is a cost that can unexpectedly crop up should one not be aware of the bank’s policies.
What potential buyers often overlook when deliberating the total financial outlay, typically when purchasing their first home, are the registration and transfer costs that they will be liable for. Transfer costs include conveyance fees as well as transfer duties that are calculated on a percentage of the purchase price. It is important to note that there are no transfer duties payable on properties valued below R600,000, and for properties valued between R600,000 to R1-million a 3% fee. Property priced between R1-million and R1.5-million require 5% transfer duty, while those valued over R1.5-million top out at 8%.
The only exception to this rule is when property is purchased directly from the developer, and as such no transfer of ownership is needed as no previous owner exists. On these properties a VAT portion will generally be payable in place of transfer duties. Registration costs are incurred when the bank must register the bond. Both transfer costs and conveyance costs are entirely dependant on the value of the property or land in question.
Typically, buyers will need to submit a deposit of between 10% and 30% of the property’s purchase price, which will be stipulated in the contract This deposit can be kept in an attorney’s trust account and earn interest until such a time as the transfer is registered and finalized.
Smaller, but no less significant costs include the Deeds Office registration fee – the final step of legally registering the property in the buyer’s name – as well as the Revenue stamp – a government tax payable when a property is sold – and admin fees.
When purchasing any property, it is also sensible to consider any repairs, improvements or renovations that may be needed, as this can drastically influence the financial implications of the purchase.
Accordingly, it is vitally important for all prospective buyers to be prepared for all the costs related to the purchase of property in order to avoid nasty surprises.