Know the Hidden Costs when you Buy a Property
Category Agent Insights
As a potential homeowner you need to be aware that there are many hidden costs over and above the actual cost of your property. These additional costs can very quickly add up to hundreds of thousands of Rands that need to be paid before you even take ownership of your property.
When you are buying a property you need to factor in the hidden costs when you start your property search. This is now more important as due to South Africa’s junk status, combined with interest rates that have increased and credit approval that is becoming stricter.
Bianca Arnsmeyer is the Sales Manager of Berman Brothers Property (BBP), which is the Real Estate leg of the popular property developer group, Berman Brothers Group (BBG). This role has provided her with a wealth of knowledge about the property industry. Bianca shares some insights into the hidden costs that any potential property owner should budget for before signing anything.
These are the costs that are paid to the transfer attorneys who then pay them to the respective persons and need to be paid before property purchase is finalised. There are four costs that fall under the term of ‘transfer costs’;
- Administration Fees
These are the monies are paid to the Transferring Attorney by the buyer and contributes towards paying the Deeds Office, FICA registration and other admin expenses. This fee is VAT applicable and cannot be discounted.
- Deeds Office Fees
This amount is collected by the Transferring Attorney and paid over to the Deeds Office for the expense of updating their records. This fee is cannot be negotiated and is a determined by the purchase price of the property.
- Conveyancing Fees
This is the amount that is owed to the Transferring Attorney for all documentation and legal measures that are taken to ensure successful transfer of the property to the buyer’s name. This amount is VAT applicable and is calculated as a percentage of the purchase amount.
This is the only fee that can be negotiated at the discretion of the attorney.
- Transfer Duty Fees
This fee is due before the transfer of the property to the buyer and is paid to the Transfer Attorney. This is then paid to SARS as the tax payable on the property transfer. This amount is known to be one of the highest ‘hidden costs’ for a property purchase and does not apply to all property sales:
- If the property transaction is subject to VAT, then no tansfer duty fees are applicable. This means that the property seller is a registered VAT vendor and the VAT is already included in the purchase price. This is most likely when buying new developments as developers are already VAT registered.
The Transfer Duty rates were amended in 2017’s budget speech and as of March 2017:
- No Transfer Duty applies to property under R900 000
- R900 001 to R1 250 000: Transfer duty is calculated at 3% of the value above R900 001 – meaning that you don't pay transfer duty on the first R900 000.
- R 1 250 001 to R 1 750 000: Transfer Duty is calculated at 6% on the value above R 1 250 000.00 PLUS a flat rate of R 10 500
- R 1 750 001 to R 2 250 000: Transfer Duty is calculated at 8% on the value above R 1 750 000, PLUS a flat rate of R 40 500.
- R 2 250 001 to R10 000 000: Transfer Duty is calculated at 11% of the value above R 2 250 000 PLUS R 80 500.
- R 10 000 001 and above: Transfer Duty is calculated at 13% of the value exceeding R10 000 000 Plus R933 000.
If the buyer buys a property via a bank loan, the bank requires them to take out insurance to cover the land and any structures attached in case of flood, fire or other natural disasters. This amount is an ongoing amount and is based on the price of the property.
Bond Registration Costs
This service fee is paid to the Registering Bond Conveyancer in order to have the bond registered over the title deeds. This amount is related to the home loan amount and is based on tariffs suggested by the Law Society and can vary according to the law firm being used. This fee is VAT applicable and must be paid before the bond is registered. For a bond of R1 million, you will pay approximately R18 000 VAT.
These are reviewed on an annual basis and the levies reflected on the sales agreement can increase after the transfer of the property. Body Corporate’s can add special levies for once-off costs and it is the buyer’s responsibility to research the financial standing of the Body Corporate before purchase to anticipate a levy increase or special levy.
When dealing with special levies, the sales agreement usually specifies that the seller is liable for levies before the purchase date and the buyer is responsible for special levies that occur after the purchase date, but before the transfer date. This must be scrutinised by both the buyer and seller before any documents are signed.
Bond Initiation Fee
The financial institution that provides the mortgage loan will also charge an initiation fee of approximately R5 700. Thankfully this amount can be added to the principle debt and does not have to be paid directly.
These are the most likely ‘hidden costs’ that you will encounter when buying property and can cause the inflation of the property price. You can also make use of online cost calculators, such as OOBA Bond Originators, to help you keep track of your expenses before purchase. However it is always better to be informed and aware before signing an offer to purchase. We definitely suggest that you use a qualified sales agent and/or attorney to guide you through this process.
Author: Bianca Arnsmeyer