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Buying a home ranks as the most expensive investment people make, but acquiring that dream comes with a price tag significantly higher than the listed price – and that can affect the deposit you have so carefully squirreled away to make that vital down-payment.
Richard Gray says the transfer duty – the government tax paid to the South African Receiver of Revenue on the transfer of property – is the largest additional cost.
“Transfer duty on vacant land is calculated exclusively on the land value, but when buying an existing house, a sliding scale applies to the combined land and building value,” he says.
To minimise the costs on entry-level properties, transfer duties are exempt on properties worth up to R500 000. However, for properties priced between R500 001 and R1 million the government claims 5% of the price, after which the duty shifts to R25 000 plus 8% of the price above R1m.
Gray says transfer duty should not to be confused with transfer fees, which are essentially the attorney’s costs for transferring the property and these are levied according to recommended guidelines.
Buyers also pay about R5 000 in bank initiation fees to cover the costs of reviewing the property before the bond can be granted. Gray says if the bank needs to repossess the property for defaulted payments, the institution wants to know beforehand that the asset is worth the amount loaned.
There are also costs involved in registering the bond, again calculated on a sliding scale depending on the mortgage size. Also, the municipalities also want to ensure their share, which means buyers are levied up to five months in advance on their annual rates and taxes.
Gray says sellers must provide entomology and electrical certificates of compliance which cost about R300. However, there may be other costs involved if the home needs to be tented against bugs and white ants (R4 000) or electrical maintenance.
Meumann White Attorneys’ managing partner, Bruce Forrest, says increasingly buyers must request copies of the municipal plans for the properties they intend buying.
“Too often renovations have been undertaken without planning approval – and that means you stand the risk of buying a property only to discover you have to knock down a section because it traverses the boundary wall,” he says.
Gray says once transfer has been effected, owners must take out homeowners’ insurance and consider taking out life cover. Homeowners’ insurance covers the cost of replacing the building if it is destroyed.
“Think of turning the house on its roof – what does not move is covered by homeowners’ insurance. Life cover, often a bond condition, pays out on the death of the breadwinners or owners,” Gray says.
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