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The Costs of Buying a Property:
Published on: 27/09/2006 | Written by Steve Paul

THE COST OF BUYING A PROPERTY IN SOUTH AFRICA

Property is not cheap. First time buyers and very often even "old hands" in the property game are surprised at the costs they are expected to pay when they are buying or selling a property. It is important to do one's homework and ascertain the exact costs and other required payments involved in a property transaction

DEPOSIT

Although not a cost as such, the purchaser is normally required to pay a deposit (cash) soon after signature of the deed of sale by the parties. This payment is negotiable as a term of the contract but will these days always be required in sales in new developments, or where the purchaser requires early occupation of the property prior to transfer. The amount of the deposit depends on the value of the property and usually amounts to 10% of the purchase price. This amount is held in the trust account of either the estate agent or the conveyancer pending registration of transfer.

TRANSFER DUTY

Transfer duty often constitutes the majority of the costs payable by the purchaser. If the purchaser is a natural person, transfer duty is payable as follows, 0% on the first R500.000 of he purchase price, 5% on the amount between R500.000 and R1 000 000, and 8% on any amount exceeding R1 000 000. Purchases by close corporations, companies or trusts attract a transfer duty payable at a flat rate of 8% of the purchase price. If the transaction is subject to value added tax, transfer duty is not payable and VAT at 14% will be included in the purchase price.

CONVEYANCING FEES

The purchaser will be expected to pay transfer fees to the seller's coveyancer attending to the transfer and bond registration fees to the conveyancer acting on behalf of the bank. These fees also attract VAT and are calculated on a sliding scale based on the purchase price or bond amount.

POSTAGE AND PETTIES

The conveyancers involved in the transaction will recover these general costs to cover their bank charges and other incidentals necessary to effect registration. These costs are also subject to VAT.

FICA COMPLIANCE

Most conveyancers charge an additional cost for complying with the Financial Intelligence Centre Act legislation. VAT will be added to these costs.                               

INVESTMENT CHARGES

Some firms of conveyancers also add a cost, subject to VAT, for attending to the investment of the deposit or any other amounts on behalf of their clients.

ELECTRONIC GENNERATION CHARGES

In order for the bond registration attorney to receive instructions and to communicate with their bank clients, they are required to subscribe to specialized software prescribed by the banks. These facilities come at a price from the IT vendors, which some firms pass onto their clients in the form of an additional electronic generation charge; this is also subject to VAT.

ADDITIONAL CREDIT SECURITY CHARGES

If the bank in question requires additional credit security in the form of surety or cession contracts as condition for approving the bond, the bond registration attorney may charge an additional fee for attending thereto. These charges are also subject to VAT.             

RATES AND TAXES

Property cannot be transferred until the rates due to the local authority have been paid in full for the financial year. The seller is liable for payments until transfer takes place, that is, for the part of the year during which he/she occupied the property. The purchaser pays a pro rata portion of the municipal rates for the rest of the financial year. The purchaser also has to pay a charge to the municipality for obtaining the rates clearance certificate, which is required so that it can be lodged with the transfer documents in the deeds office. In the case of purchasing a sectional title unit, the purchaser will be required to pay levies up until the end of the body corporate's financial year as well as a fee to the managing agents for the body corporate, in order to obtain the required levy clearance certificate.

DEEDS OFFICE FEES

For the registration of transfer, bonds and other rights in immovable property the deeds office charges a stipulated fee which is also calculated according to the purchase price of bond amount

BANK CHARGES

The bank charge valuation, initiation and administration costs when a new bond is registered. These costs are recovered by the bond attorney on behalf of the bank as part of the bond registration cost.

HOMEOWNERS INSURANCE

When taken out a loan, the bank will insist that you take out homeowners insurance. If you are buying a sectional title unit the home owners insurance is usually included in your monthly levy, payable to the body corporate.

LIFE COVER

Often the Banks will insist you take out a life cover policy, unless you already have one. This is for the protection of you and your family, as it ensures that your home loan is settled in the event of your death.

BOND CANCELLATION CHARGES

The seller will be liable for payment of the conveyancing fees charged by the bond cancellation attorneys, subject to VAT, with deeds office fees also payable on the cancellation as a separate transaction which is registered in the deeds office.

BEETLE & ELECTRICAL CLEARENCES

Sale agreements usually stipulate that the seller will be liable for beetle infestation clearance and the electrical compliance certificates.

What must also be borne in mind is that these cost are payable prior to registration, unless they are included in the bond finance. If not, and in the event of the purchaser not being able to pay these cost before registration, bridging finance may be obtained for this purpose. Again, nothing is free and the bridging finance will involve interest and a cost, payable by the borrower.

Make sure that you know what you are in for before you jump into the deep end.




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