Hidden Property Buying Costs Revealed For First Time Buyers
More than 50% of the people who bought homes in South Africa in June this year were first-time buyers, some of whom had to deal with the embarrassment of borrowing money from family or friends owing to last-minute, unbudgeted expenses.
This is according to figures released by mortgage originator, ooba, which show that 52% of the applications it received in June were from first-time home buyers. These buyers generally understand and budget for transfer costs, bond registration costs and deposits.
What they often forget, or don’t know about, are expenses like transfer duty, which is actually a government tax and very different from the transfer costs charged by the attorneys.
It happens time and again that people sign offers to purchase, which contain a clause in which the purchaser is liable for all costs incidental to registration, without foreseeing the additional costs - then on registration a big amount pops up - R200 000 or more - which they didn’t plan on, and so it’s not in their budget.
If you want your home purchase to be a pleasurable experience, and if you’re informed, it will be.
What you don’t want is to be short of money that could cost you your dream home, and you don’t want to be put in the invidious position of trying to borrow money from family or friends either.
People therefore have to educate themselves properly before purchasing a property.
In brief, and in addition to the purchase price of the home, the costs involved in the transaction include the deposit.
Banks rarely grant 100% loans anymore, so buyers have to come up with deposits, which average from 10% to 30%, depending on aspects such as loan to value (LTV) and your credit score, which will determine affordability and the deposit payable.
On a R1 million purchase that’s already R100 000, if you’re putting down a 10 % deposit.
Then there’s transfer duty, which on a R1 million property would work out to roughly 3% of the value, which will be about R19 000 or R20 000 - one of the largest costs involved. This is payable before the property can be transferred into your name.
Another cost is that of transfer fees, which are charged by the Conveyancing Attorneys.
Transfer fees on a R1 million home would be around R28 000. There is, however, no transfer duty payable on a property costing R750 000 or less, or when buying directly from a development in a new development.
There are also bond costs to factor in. These include deeds office registration fees, and bonds from R1 million to R2 million will incur a fee of about R900, FICA costs, postage and petties.
Not so easy to budget for is rates and taxes, which are based on the market value of the property and payable to the local authority for basic services such as refuse collection, building and maintenance of roads, storm water drainage and street lights.
Depending on whether you’re buying freehold or into a sectional title scheme, and the market value of the property you’re buying, you’ll have to pay a pro-rated amount in advance in order to obtain a rates or levy clearance certificate, which again is vital for transfer to take place.
It’s up to the buyer to find out what the local rates policies and costs area - rates and taxes are determined according to the local municipal property valuation role - and be aware that they will be liable for rates from the date of registration of the property in their name.
Generally it works out to about to three or four months' payment in advance on, but it could be as much as 12 months.
Another very important cost to consider, and one which applies to existing homeowners with bonds, is the cancellation clause.
People forget that the banks have a 90-day cancellation clause, meaning that if they don’t cancel their bonds in time, they will incur pro rata cancellation penalties when selling. And that’s an expense no one needs.
And finally, when drawing up a purchasing budget, include water and electricity deposits, moving costs, carpet cleaning, painting, and even phone and internet transfers.
Source: Property24