Are you thinking of buying a house or flat and you’re trying to work out how much you need to save? The first thing to realise is that there are significant additional costs besides the purchase price. Let’s run through them and look at a few examples.
Purchase price. The purchase price is what you end up offering the seller. Remember, the seller sets an asking price and you can (almost) always negotiate and offer less.
Taxes and duties. Transfer duty is a tax levied by SARS when you buy a property unless your circumstances allow you to be exempted. It’s calculated according to a table, based on the purchase price. There’s no transfer duty if the purchase price is R1 million or less.
Transfer costs. There’s a legal process that has to be followed when you transfer a property into your name. The seller will appoint a conveyancing attorney and you as the buyer must cover the conveyancing fees. Not many people realise that these fees are negotiable! Read the fee guidelines published by The Law Society of South Africa and speak to the seller about a discount. Conveyancing fees will also include deeds registration fees and sundries like courier fees, printing, etc. There might also be a fee for managing the process of registering your bond (see below).
Bond registration. If you plan to get a home loan (also known as a mortgage bond), take note that it’s not as easy (or cheap) as opening a bank account. You might have to pay an initiation fee (R6,038 maximum, as prescribed by the National Credit Act) and a bond registration fee to register the loan against the property’s title deed. There will also be other minor fees for the deeds office, like postage, petties etc.
Yikes! What does it all add up to?
We ran the numbers on three hypothetical purchase prices — see the table below. We assume the buyer will put down 20% as a cash deposit and also pay for the additional fees in cash. They’ll take a home loan for the balance of the purchase price.
Look how quickly the additional costs ramp up as the purchase price increases, mostly driven by the increase in transfer duty.
These costs assume you’re buying a property in your own name as a natural person, from another natural person.
Any other ‘hidden’ costs to consider?
If you have your own furniture, you’ll have to get it to your new house. Moving can be pricey, especially if you’re relocating between cities…
Your new property might not be the way you want it. Even if you don’t plan to put in a new kitchen, you’ll probably have to do some freshening up — a coat of paint or some deep cleaning. (Those shabby carpets… 😱) Pest control might be required, or locks might need to be changed. Maybe you want to improve your perimeter security or install a fibre line…
It’s also worth mentioning the ongoing monthly costs of owning a property, like the interest on the home loan, the rates and utilities (water and electricity), and levies if you’re in an apartment block or housing estate.
Long story short — you need to add up all the costs, not just the obvious ones, to get a real idea of what buying a property costs. Use 22seven to prepare a budget and see if your monthly income can support it.