Understanding the costs involved in buying a property

When purchasing a property, it is important to look further than the purchase when determining what it actually costs to purchase a property. There are a number of obvious – and not so obvious – costs that should be factored into the equation when preparing your budget. For the purposes of this article, we have assumed a purchase price of R2.5 million, with a home loan of R2 250 000 and upfront deposit of R250 000. The bond is registered over a 20-year period at an interest rate of 7.25%.

Property transfer is highly technical and is a specialised area of our law. As such, there are a number of layers of costs involved, with most of them being for the buyer’s account.

Deposit

In recent years, most banks have changed their lending criteria and it is now fairly difficult to qualify for a 100% home loan. As such, it is advisable to budget for an upfront deposit of between 10% and 30% of the purchase price just in case you don’t qualify for a full home loan. Paying a deposit on your property also serves to reduce your monthly bond instalments, so it is to your advantage to save towards a deposit. If you are making a deposit, the money will need to be paid in advance to the transferring attorneys who will hold the funds in a trust account until the day your bond is registered. Upon registration, the money is paid over to the bank and any interest that accrued in the trust account is paid to you by the transferring attorneys.

Bond registration costs

In order to get the bond registered over the property’s title deeds, you will need to pay bond registration costs to the registering attorneys. These costs vary depending on the value of your home loan, but on a bond of R2 250 000 as per this case study you can expect to pay bond registration costs of around R32 000. This fee needs to be paid by the buyer to the registering attorney before the bond is registered. Other costs include a levy charged by the registering attorneys of around R1 200 to cover the costs of sundries, postage and petties, and a Deeds Office registry fee of around R2 000 to cover the legal registration of your home loan.

Transfer duty

Other than your deposit, transfer duty is the single biggest cost involved when purchasing a property. Transfer duty, which is payable by the buyer on any property over R1 million, is a government tax levied to transfer the property from the seller’s name to the buyer’s name. As a buyer of a R2.5 million property, you can expect to pay transfer duty of R91 000, bearing in mind that this amount must be paid upfront to the transferring attorneys who will pay it over to Sars on your behalf. 

Other transfer costs

Not to be confused with transfer duty, transfer costs are paid by the buyer to the transferring attorney to cover the costs of registering your ownership with the Deeds Office. On a R2.5 million property, a buyer can expect to pay transfer costs of around R35 000, as well as sundries, postage and petties of around R1 200, and a Deeds Office registry fee of about R1 500. 

Bond initiation fee

When taking a home loan, the buyer can also expect to pay a bond initiation fee to the bank which can either be paid upfront as a once-off fee or capitalised over the period of the home loan. This fee essentially pays the bank to process the home loan application for you, bearing in mind that you will still be liable for the fee if your home loan application is rejected. Bond initiative fees generally do not exceed around R6 000.

Moving costs

You will also need to budget for moving costs which can range between R5 000 and R25 000 depending on the contents of your home, your location and when you choose to move. In general, mid-week and mid-month moves are more affordable than end-of-month or weekend moves.

Utilities

As the new owner of your home, you will need to budget for water and electricity connection costs, phone and internet connection fees, as well as deposits and/or connection costs for any other utilities that you require including costs such as security systems, armed response and fibre connectivity.

Additional expenses

It may also be prudent to factor in costs such as cleaning and gardening services, renovations, repairs, soft furnishings and other fittings that you would like installed in your new home.

Occupational rental/ bond repayments

If you take occupation of the property before it has transferred, you will be liable to pay occupational rent at a rate which is normally stipulated in the offer to purchase. Once the property has transferred into your name, your bond repayments will be in the amount of R17 783 per month on a 20-year home loan of R2 250 000. Bear in mind that your bank is likely to charge an ongoing fee to administer your home loan, and home loan owners can expect to pay between R60 and R80 per month in this regard.

Building and contents insurance

Your bank is also likely to insist that you have building insurance to cover the property and existing structures against unforeseeable events such as fire, flood and other natural disasters. Once again, it may be more cost-effective to shop around for cover in your personal capacity rather than using the bank’s insurer.

When taking out cover in your personal capacity, you will be required to provide the bank with proof of insurance. At the same time, it makes sense to ensure that the contents of your home are adequately insured, and it is often more cost-effective to insure them on the same policy.

Bond cover

If you’ve taken out a home loan, the bank will usually insist that you provide security for the loan in the form of life cover which is ceded to the bank. While most banks will offer you life cover, it is often more cost-effective to increase your personal cover to the extent that the bank requires surety.

Rates and taxes

The rates and taxes payable on your new property will range in price depending on the value of your property and where it is located. Ideally, a buyer should investigate these costs before buying the property to ensure that he is able to afford them on an ongoing basis.

SUMMARY

Bond registration costs

Bond registration: R32 000

Bank initiation fee: R6 000

Deeds Office levy: R1 500

Postage, petties & sundry: R1 200

Property transfer costs

Transfer duty: R91 000

Transfer costs: R35 000

Postage, petties & sundry: R1 200

Deeds Office levy: R1 500

Deposit: R250 000

TOTAL: R419 900         

This article first appeared on Moneyweb and has been republished with permission.

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