Are you aware of these hidden buying costs?
MAIN IMAGE: Rhys Dyer, CEO of ooba Group; Andrea Tucker, Director at MortgageMe
Buying a home is one of the most significant – and therefore expensive – purchases you will make in your lifetime. And while some first-time buyers are under the impression that being granted a 100% home loan and not having to put down a deposit means that they are exempt from upfront costs, they are mistaken.
“The home buying process doesn’t end once the buyer and seller sign the contract,” explains Rhys Dyer, CEO of ooba Group.
“It’s important that potential buyers familiarise themselves with the legal and administrative costs involved in officially transferring ownership of property.”
“These costs, considering conveyancing fees and transfer duty, can total tens of thousands of Rands so buyers need to be prepared and have the funds available. If they don’t poor planning could derail their dreams of home ownership.”
Once a buyer has their Offer to Purchase (OTP) accepted by the seller, a conveyancing attorney is needed to legally transfer ownership to the buyer. There are three kinds of conveyancing attorneys involved in this process: bond attorneys, transfer attorneys and cancellation attorneys. The buyer is responsible for paying the fees of the bond attorney and the transfer attorney.
Dyer breaks down the key differences between the two:
- Appointed by: The buyer’s bank after a home loan is granted.
- Services: Registering the new bond over the property in favour of the bank that is financing the property and preparing the required legal documents for the buyer to sign.
- Fees: The bond attorney is a once-off fee that must be paid upfront. The fee is calculated on a sliding scale in relation to the cost of the property or the bond amount.
- Appointed by: The seller but their fees must still be paid by the buyer.
- Services: Ensuring that property ownership is legally transferred from the seller to the buyer and the lodging a Record of The Sale with the Deeds Office.
- Fees: Like the bond attorney, the fee is calculated on a sliding scale in relation to the purchase price or bond amount. However, they may charge for extra services as needed.
Conveyancing attorneys also charge a levy to cover small costs such as postage, petties, and FICA (ID and proof of residence) documents. This is usually a fixed rate and varies per law firm.
“Buyers should note that conveyancing fees are the only portion of the transfer costs that are actually negotiable. These fees are equal to a percentage of the property value, but there’s no harm in talking to the attorney to see if a discount is possible,” Dyer recommends.
Transfer duty and admin costs
Transfer duty, unlike conveyancing fees, is non-negotiable. This amount is a tax paid by the buyer to the South African Revenue Service (SARS) within six months of the property transfer.
There is no liability for transfer duty if a property purchase is cancelled before the transfer is registered at the Deeds Office or if the property is valued at less than R1 million.
Current transfer duties in 2021 are calculated as follows:
|Value of property (R)||Rate|
|0 – 1000 000||No transfer duty|
|1 000 001 — 1 375 000||3% of the value above R1 000 000|
|1 375 001 – 1 925 000||R11 250 + 6% of the value above R1 375 000|
|1 925 001 – 2 475 000||R44 250 + 8% of the value above R1 925 000|
|2 475 001 – 11 000 000||R88 250 + 11% of the value above R2 475 000|
|11 000 001 and above||R1 026 000 + 13% of the value above R11 000 000|
“When calculating transfer costs, buyers should speak to the conveyancing attorney to find out if the seller is registered for VAT. If so, no transfer duty is payable, and the seller must have included VAT in the purchase price. This is often the case when buying a property in a new development,” says Dyer.
Another cost that first-time buyers need to be aware of is the bank initiation fee, payable to the bank for the processing of the home loan. This amount varies by bank but cannot exceed R6,037.
“Also be sure to factor in other often overlooked costs such as moving costs, occupational interest, municipal rates and taxes, repairs and maintenance as well as home insurance.”
Buying vs renting
Before purchasing your first home, it’s important to consider how it will affect your finances and your lifestyle,” says Andrea Tucker, Director at MortgageMe.
“Taking stock of the advantages and disadvantages is a good place to start. When you buy, you also buy privacy, it usually is a good investment, you are aware of stable costs from year to year, there are certain tax incentives involved and you build up on your equity.
“On the downside is the long-term commitment, maintenance and repair costs, a lack of flexibility, high upfront costs, and more expensive monthly expenses.
“When renting there are no tax incentives and no building of equity, the latter which is probably the most important. There isn’t a definitive answer as to which one is best as each person’s circumstances and income differs which affects the choice,” she says.
Start saving early
To avoid any nasty surprises when the time comes to pay the fees, Dyer recommends using free online tools such as ooba’s Transfer Cost Calculator to get an accurate idea of how much a buyer should set aside for legal and administrative costs based on the purchase price.
As an example, the registration and transfer costs on a R1,407,071 home (the country’s average purchase price according to the latest oobarometer stats) are:
Bond registration (attorney) fees (incl VAT): R29,394
Bank initiation fees (incl VAT): R6,037
Post, petties, FICA, and other administrative fees (including VAT): R2,400
Property transfer (attorney) fees (incl VAT): R29,394
Transfer duty: R13,174
“It is important to put money aside each month and start saving early so that you will be able to pay these lump sums when it comes time to sign on the dotted line. Otherwise, you risk going into further debt or worse yet, having the property transaction fall through and having to give up the dream of becoming a homeowner,” he concludes