Buying a property is a significant financial investment that requires careful planning and consideration. Apart from the purchase price, there are various costs associated with buying and owning a property in South Africa. In this article, we’ll explore the different costs involved in buying and owning a property in South Africa, from the deposit to buy the property to homeownership expenses.
The decision to buy a property requires careful planning and careful analysis because it is a significant financial investment that calls for a diverse strategy.
There are several fees and expenses that are inextricably linked to buying and owning a property in South Africa, in addition to the obvious and prominent purchase price.
In the article that follows, we’ll try to clarify the various and complex costs that are tightly linked to buying and owning real estate in South Africa, beginning with the intriguing deposit to the rarely obscure and complex costs that surface after the purchase.
Deposit
When one embarks on the exciting and intricate journey of purchasing a property in South Africa, it is customary and oftentimes mandatory to fork out a considerable sum of money upfront, commonly referred to as the deposit.
This deposit amount typically ranges from 10% to 30% of the purchase price, contingent on a myriad of factors such as the lender’s peculiar requirements and the buyer’s financial situation, amongst other perplexing considerations.
For instance, if one is set on acquiring a property worth the sum of R1 million, it would not be uncommon to have to shell out a deposit of anywhere from R100,000 to R300,000, reflecting the complexity and diversity inherent in this intricate and multi-layered process.
This deposit serves as a security for the lender, providing them with peace of mind and a degree of insurance, while simultaneously signifying the buyer’s unwavering commitment to the purchase, amidst this labyrinthine world of property acquisition in South Africa.
Bond Registration Costs
If you’re taking out a home loan to finance your property purchase, you’ll be required to pay bond registration costs.
When a bank approves a home loan, it registers a mortgage bond to protect itself in case anything goes wrong. This bond must be registered, typically at the same time as the property transfer. A bank-appointed bond registration attorney handles this process and charges a one-time fee for registering the bond.
As the buyer, you are responsible for paying this fee before the registration process can begin. Other fees usually are payable with the bond registration costs, like Bank initiation Fee, Deeds Office Fee, Post, Petties, FICA and other fees.
All Related Transfer Costs
Transfer costs are the fees charged by the transferring attorney for transferring the property’s ownership from the seller to the buyer. The transfer costs are usually between 6% and 8% of the purchase price, depending on the property’s value and the attorney’s fees.
The transfer costs include transfer duty, conveyancing fees, deeds office fees, and VAT (if applicable).
Transfer Duty
Transfer duty is a tax imposed by the South African government on the transfer of property ownership. If you buy your property from a registered VAT vendor / seller, you will only need to pay VAT instead of transfer duty. The VAT is included in the sale price and is not an additional fee.
The transfer duty is calculated based on the property’s value and is payable by the buyer. The transfer duty rates for properties purchased on or after 1 March 2023 are as follows:
| Value of the property (R) | Rate |
|---|---|
| R1 to R1,100,000 | 0% |
| R1,100,001 – R1,512,500 | 3% of the value above R1,100,000 |
| R1,512,501 – R2,117,500 | R12,375 + 6% of the value above R1,512,500 |
| R2,117,501 – R2,722,500 | R48,675 + 8% of the value above R2,117,500 |
| R2,722,501 – R12,100,000 | R97,075 + 11% of the value above R2,722,500 |
| R12,100,001 and above | R1,128,600 + 13% of the value exceeding R12,100,000 |
Repairs or Damage Costs when Buying
When buying a property in South Africa, it’s important to consider the potential cost of repairs that may be needed.
Buyers should have the property inspected by a professional before making an offer to identify any necessary repairs and estimate the cost.
Depending on the results of the inspection, buyers may be able to negotiate with the seller to either make the necessary repairs or adjust the selling price.
It’s important to check if any warranties exist and what they cover. After the sale, the responsibility for repairs falls on the new owner, so it’s important to budget for any necessary repairs that may need to be made.
Ongoing Ownership Costs:
Once you’ve bought a property, there are several post-purchase costs that you need to consider.
Homeowners and Life Insurance
Homeowners insurance is essential to protect your property against risks such as fire, theft, and natural disasters.
The insurance premium is typically a percentage of the property’s value and depends on the level of cover and insurer’s requirements.
Life insurance is also recommended to ensure that your mortgage payments are covered in case of death or disability.
Personal Property Insurance
When you buy a property in South Africa, it’s essential to protect your investment with personal property insurance.
Personal property insurance covers the contents of your home, such as furniture, appliances, and personal belongings, against theft, damage such as fire, and other perils.
It provides peace of mind and protects your investment against unexpected losses.
Moving Expenses
Moving expenses include the cost of hiring a moving company, packing materials, and transporting your belongings to your new home.
The moving expenses vary depending on the distance, amount of items, and the type of moving services required.
This seems like something small to some people, but can be quite pricey when one is not choosing wisely.
Occupational Rent
If you take occupation of the property before the registration of transfer, you may be required to pay occupational rent to the seller.
The occupational rent is a monthly rental fee paid to the seller for using the property before the transfer of ownership.
The occupational rent amount is negotiable between the buyer and seller and can be agreed upon in the sale agreement.
Rates and Taxes
Rates and taxes are the local government’s charges for providing basic services such as water, electricity, and waste removal.
The rates and taxes are based on the property’s value and are payable by the property owner.
The rates and taxes can be paid monthly, quarterly, or annually, depending on the municipality’s policies.
Rates, Refuse, Sewerage
In addition to rates and taxes, some municipalities also charge fees for refuse removal and sewerage services.
These fees are usually included in the rates and taxes bill and can be paid separately.
Levies if applicable (Sectional Title Scheme / Development / Body Corporates | HOA)
If you’re buying a property in a sectional title scheme / Development, you’ll be required to pay levies.
Levies are the monthly fees charged by the Body Corporate or Homeowners Association (HOA) for maintaining and managing the common property.
The levies cover expenses such as security, maintenance, and insurance. The levies amount varies depending on the complex’s size and amenities. Levies usually do not form part of usual rates and taxes.
There are differences between Body Corporates and HOA’s, and it’s essential to obtain a detailed breakdown of the costs from the HOA before making a purchase to ensure that you understand the financial implications of owning a property in the estate or complex.
Maintenance
Property Maintenance is an ongoing expense that you need to consider when owning a property.
Regular maintenance is necessary to keep your property in good condition and prevent costly repairs.
The maintenance costs vary depending on the property’s age, size, and condition.
For instance, properties with wooden structures like Lapa’s, will have a higher maintenance costs to treat the wood and thatched roofs annually, comparing to your usual brick and plaster or Facebrick homes.
What to take away from this article...
Buying and owning a property in South Africa involves various costs that you need to consider before making a purchase. From the deposit to post-purchase expenses such as rates and taxes, moving expenses, and maintenance, it’s important to budget for these costs to avoid financial stress. By being aware of these costs, you can make informed decisions when buying and owning a property in South Africa.
Buying and owning a property in South Africa can be a complex and costly process. However, by using the relevant real estate services such as bond originators, property inspectors, and insurance providers, buyers can ease the process and ensure that they are well-informed and protected throughout the transaction. Ultimately, owning a property is a significant investment that can provide long-term financial benefits and stability.
By taking the time to understand the costs and responsibilities involved, buyers can make informed decisions and enjoy the many benefits that come with owning a property.
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