Author: Nicolas Nel
Additional costs to budget for when purchasing a property. Purchasing a property often represents a new chapter in one’s life. Such excitement can however turn to unnecessary stress when seeing all the additional costs you will be required to pay. To avoid this stress and to adequately budget ahead of time, it is important to inform yourself of all the costs involved when buying a new home. This article unpacks the hidden or unexpected costs in order to provide you with the best framework to ensure you are better prepared and not left with less money than you were expecting.
Taking out a bond is an agreement which is regulated by the National Credit Act (“NCA”). A consequence of this is that the bank or financial institution will charge the consumer (purchaser) an initiation fee for entering into the agreement. The NCA gives the consumer two ways in which they can pay this initiation fee. They can either pay the initiation fee upfront, in which instance no interest will be charged on the fee, or they can let the initiation fee form part of their monthly instalments. When the initiation fee is paid as part of the monthly instalment interest will, however, be charged on the fee. The NCA further limits the amount of the initiation fee, stating it may never be more than 15% of the loan amount granted to the purchaser (Source).
When purchasing a property where the purchase price is greater than R1 000 000, transfer duty (not to be confused with transfer costs) is likely to be your biggest additional cost. Transfer duty is a tax levied by the government, and when applicable, the property cannot be transferred to the new owner without the duty having been paid. The only time that a property sold for more than R1 000 000 is not subject to transfer duty, is when you are buying directly from a registered VAT vendor (such as a developer). If this is the case, VAT is included in the purchase price. The transfer duty is often included in the proforma invoice that the transferring attorneys will provide you.
This means that once you have paid the transfer duty over to the transferring attorneys, they will pay that amount to SARS on your behalf as a disbursement. The amount of the transfer duty payable is linked to the purchase price of the property. Kindly refer to the SARS website for transfer duty calculations (Source).
This is the professional fee that is paid to the transferring attorneys to register the property on to your name in the Deeds office, securing your legal title to the property. This is a once-off payment made before registration. These costs are calculated on the purchase price of the property and are based on guidelines issued by the Legal Practice Council of South Africa. For an estimate of these costs feel free to make use of our VTC Cost Calculator Dashboard, found on the home page of our website (Source).
Bond registration costs
When taking out a bond over a property, the bond will also need to be registered at the Deeds Office. This bond is registered for the bank to ensure they have security over the property you have taken a loan on. A bond confers certain rights in the property to the bank for the duration that the bond is registered over the property. Only once the bond is cancelled in the deed’s office will the banks rights terminate in the property. It is important to note that bond registration costs are separate from transfer costs and that both are payable by the purchaser. Kindly refer to our cost calculator for estimations of bond costs involved (Source).
Homeowners and life insurance
When taking out a bond, the bank has to ensure that their interest in the property is protected should anything happen to the property or to the person in whose name the property is. The bank protects this interest by making it compulsory to take out structural insurance and in some instances life insurance on the life of the homeowner. Weigh up your options and decide which insurance provider suits your specific needs best.
Further costs to consider
Over and above the costs already mentioned, there are a few more to consider. If you purchase a property, you will have to pay rates and taxes. These costs vary depending on the value of the property as well as the area. When house hunting, the estate agent will be able to bring your attention to the specific amount the rates will be. Alternatively, you can always contact your municipal representative to find out.
If you purchased a sectional title, the relevant body corporate will have a set levy to pay every month for the general upkeep of the property, which usually covers the structural insurance premium.
Informing yourself as to the additional costs when purchasing a property is vital to ensure that you are financially prepared for the transaction so that you can move into the property with as little stress as possible.