Durban – If you are planning to buy a home and are basing your budget on the cost of the property – and the monthly instalments, you are in for a nasty surprise.
Even if you are aware that you will probably have to pay transfer duty on the property, depending on its value, you are still not taking into account all the extra fees you need to pay.
Many people like to refer to these as ‘hidden costs’, but in truth they are actually just costs that most buyers are not aware of. And there are a number of them, in fact, that Dave Nezar, partner at Kaplan Blumberg Attorneys, says are associated with the transaction.
“The costs of transferring ownership of property into your name comprise costs due to the government in the form of transfer duty, legal costs, as well as a number of payments the attorneys have to make to obtain clearances.”
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Some of these include:
- Transfer attorney fees: fees prescribed by the Law Society of South Africa, calculated on the purchase price of the property.
- Postages and petties: costs incurred such as telephone costs, postage and courier fees, administration fees and bank charges.
- Deeds Office fees: fees published in the Government Gazette, based on the purchase price of the property.
- Electronic generation fees: fees incurred for the generation of electronic documents.
- FICA: costs incurred when verifying the identity of a client prior to establishing a business relationship with them.
- Rates clearance fees: a rates clearance certificate must be obtained to verify there are no outstanding rates and taxes payable by the seller of the property.
- Transfer duty: tax levied by the government on property transactions. If you are using a bond to buy the house, there will be bond costs payable too.
“The bank will also appoint an attorney firm on their panel to attend to the registration of the bond. We often find clients don’t know this and don’t budget for the second conveyancing account”.
If you are buying a brand new property you will not have to pay transfer duty, but you will have to pay VAT.
Ensure you truly know what to expect
To give you an idea, Rhys Dyer, chief executive of the ooba Group, uses the example of a purchase of a R1.2 million freehold property (from a seller who is not VAT registered) by a person, not a trust or company.
The bond registration cost alone will set you back R32 814, including VAT, while the transfer cost estimate will be R32 776, including VAT.
“Note, these costs are an estimate, and include the bank initiation fee, which other calculators may not include. You should also take into account deeds office fees of approximately R1 220, and other fees that may be charged by attorneys at their discretion.”
Dyer gives a more detailed breakdown below:
Don’t forget your moving costs
Depending on where you’ve been living, and how much furniture you already own, Dyer says you might have to hire a moving company to get you into your new home.
“It is advisable to obtain a couple of quotes to compare the costs and determine the insurance cover provided for your possessions whilst in transit.”
The costs, he says, can be anywhere between R5 000 and R15 000 in the same city, “but most companies offer a discount if you move in the week and in the middle of the month, when demand is lower”.
You can also investigate mini movers or bakkie-for-hire options, which would be cheaper, but perhaps a bit more work for you.
You also have to pay to connect your lights and water
If you are buying a freehold property (not a sectional title), you will need to register for your water and electricity connection, and your telephone and internet lines if you need those, Dyer adds.
“These costs vary from area to area, and the internet fee will depend on the type of connection that you want and whether the relevant lines are already installed.”
Generally speaking, he recommends that you put aside around R1 000 to R3 000 for connecting the electricity, water and telephone – but you may be required to put down a deposit with the telephone company as well, depending on your credit profile.
You may also need to take out life insurance
When it comes to securing a loan and ultimately registering a mortgage bond, Micaela da Silva, senior associate at Adams & Adams Attorneys, says it a common misconception that a life insurance policy is compulsory. However, although it is true that the approval of a loan may be made subject to a life insurance policy being put into place, this is not a hard and fast rule.
“It remains within the lender’s discretion to impose such a requirement and this will be determined based on the client’s unique profile. However, it is indisputable that a life insurance policy is of great value and it is advisable for a prospective buyer to obtain a life insurance policy to settle the bond in the event of the purchaser’s death.”
Why are there so many different attorneys?
Attorneys from NEA Inc, Lauzanne Engelbrecht, Shae-Lee Scott, and Surita Janse van Rensburg outline this, and more:
- In practice, the general rule applied (unless the deed of sale deals with it differently) is that the seller chooses the transferring attorney (called a conveyancer) who will transfer the property from the seller into the name of the purchaser. The conveyancer is entitled to charge transferring fees to transfer the property, and again these costs are usually carried by the purchaser.
- The fees chargeable by a conveyancer are based on fee guidelines for conveyancers that are annually issued by the Law Society of South Africa (LSSA). These fees are also based on a sliding scale, with fees chargeable linked to the purchase price or property value, which means that the higher the price or value, the higher the transfer fees will be.
- Should you wish to finance a portion of the purchase price through a home loan, another set of costs to be considered are that of the bond attorneys. As financial institutions will require a mortgage bond to be registered over the property, the financial institution will appoint a bond attorney to do this and the bond attorney will also charge the purchaser bond registration costs. These costs are also based on prescribed tariffs.
Can I choose my own conveyancing attorney?
Da Silva says many buyers mistakenly believe that the conveyancer represents the best interests of the seller but this is not the case.
“The conveyancer is there to execute the transaction in accordance with the sale agreement for the benefit of all the parties involved.”
Louis Kruger, director at Kruger Attorneys & Conveyancers, says while sellers typically nominate the conveyancer who will attend to the transfer, this is customary and not law.
“The purchaser may nominate their own conveyancers as a term of the agreement.”
Simonne Nurse, managing director of CWN Inc says while the seller usually gets to choose the conveyancer, parties should have open discussions as to which conveyancing firm would be best as the buyer pays the conveyancing fees.
She adds: “Conveyancing is a highly specialised field so choose wisely. Your estate agents don’t have the information that a conveyancer does.”
Now that you are aware of the costs, start your property search here
IOL WEALTH