Costs to Consider When Budgeting for a Property – Part 1

When buying a home, especially as a first-time buyer, it is crucial to understand the various costs beyond just the purchase price, to ensure you are budgeting realistically. In this article we will breakdown all the once-off costs you need to consider when thinking of buying a home to make sure there are no unexpected surprises. In next week’s article we will look at some of the ongoing costs associated with buying a home that you need to budget for. Being aware of these costs will ensure that you are better able to make an informed decision about what property will add to your lifestyle rather than add financial stress and strain.

Transfer duty

Transfer duty is generally one of the largest expenses you will encounter beyond the property’s purchase price. This tax is payable to SARS within six months after the property is transferred. Transfer duty is calculated based on a sliding scale, meaning that the higher the price of the property the higher the tax payable. If the seller is VAT-registered, you will be responsible for paying VAT instead of transfer duty, which is often the case when buying from a new development.

Bond initiation fee

The bond initiation fee is what your bank charges for the administration involved in initiating and opening your bond. The fee is capped at R6,037 and can be added to your bond amount if needed. However, paying it upfront will save you money on interest charges.

Legal fees

Buying a home generally involves the services of three types of conveyancing attorneys: bond attorneys, cancellation attorneys, and transfer attorneys. Each of these professionals charges a fee for their services.The bond attorney is responsible for registering your bond and preparing the related documents. Their fee is calculated based on the amount of the bond to be registered, as well as the type of property. Sectional title properties may attract additional costs. While there might be a small range in which to negotiate, you can budget to pay around R15,000 excluding VAT for a R500,000 bond, and R55,000 excluding VAT for a R5 million bond.A bond cancellation attorney is required to cancel an existing bond on a property, for example, if you have a bond on another property you’ve sold in order to buy your new home. You will also require the services of a cancellation attorney when your bond is paid up. This fee is independent of the required “90-day” penalty interest a bondholder is entitled to charge when the bond is under cancellation. Fees will be according to the Law Society of South Africa’s conveyancing fees guidelines, with the average bond cancellation fee for one mortgage bond ranging between R4,800 and R5,200. An additional fee will apply for an extra bond that needs to be cancelled.The transfer attorney, appointed by the seller, but paid by the buyer, registers the ownership of the property in the buyer’s name with the Deeds Office. Their fee is based on the property’s value and follows the guidelines issued by the Law Society of South Africa. An amount for items like postage and FICA will be added to the cost.

Deeds office fee

The Deeds Office charges a fee for registering your bond over the title deed. This fee may be paid by your transferring attorney, who will then bill you for it. The cost typically ranges from around R755 for properties valued at R500,000 to R2,350 and up for properties worth R5 million.

Moving costs

Moving costs can vary significantly depending on whether you use a minivan or a moving company; how much goods you must have moved; and how far you need to move it. You could be charged anywhere from R1,500 to R25,0000 for a move, but keep in mind that it is cheaper to move mid-month, so if your circumstances allow you, try to arrange your move for then.

Costs involved in selling your property

If you are selling a property to buy a new property there may be a few additional costs you need to consider. As already mentioned, there may be a bond cancellation fee payable to the attorney responsible for the administration of this task. In addition, the homeowner needs to obtain a compliance certificate for gas and electricity to confirm that everything is in working order. This compliance certificate will be issued by a qualified and registered professional. You will need to budget between R400 and R1000 per certificate and should the inspection reveal any faults you will have to pay extra to have it fixed.If you sold the property with the help of an estate agent, you would have to pay them commission. Expect to pay them between 5 and 7% on the value of the property sold. And lastly property sellers are obligated to pay three to six months’ worth of rates and taxes to the local council ensuring that these costs are covered during the selling process. If the property is sold earlier than expected, the local council will have to refund any excess paid by the seller.It is clear that if you are considering buying a new property, it is wise to not only consider the purchase price. Being financial aware and prepared to pay these costs will ensure the process runs smoothly and that when you do buy property it enhances your lifestyle without putting you a financially difficult position. In next week’s article we will unpack all the additional ongoing costs you need to budget