Buyers are often shocked to find just how much they have to pay in transaction costs and just how involved the process of buying a property can be, says Dinis Martins, licensee for Seeff Somerset West.
It is a fantastic time to buy and with the interest rate drop, property is more affordable than what it has been in years. People will always buy houses regardless of the economy. And, he says: don’t waste a good crisis, get into the market now! The banks are keen to lend but know what you are in for cost-wise.
Buying property – how much do you need and who pays for what?
Seller pays for
The seller pays the agent’s commission, usually around 5%-6% of the selling price. If you have a bond, you may not be aware, but typically need to give three months’ notice before cancelling otherwise you will be charged penalty interest which is effectively a month’s bond interest on top of the instalment. Your rates and levies will also need to be up to date.
Various compliance certificates are required which will involve inspections to the cost of about R2,500 if no repairs are needed. Use a reputable company and get a second quote if repairs are necessary. Sellers need to ensure the property is in a good state as new legislation means they can no longer hide behind the “voetstoots” clause and full disclosure of defects is required.
Buyer pays for
The full purchase price either in cash, or part cash deposit and the balance funded with a mortgage loan. Transfer duty is payable on all transactions above R900,000. In the case of a development, there is usually no transfer duty as the developer will pay VAT.
On top of that are the various attorneys and deeds office fees and costs, pro-rata services and levies and so on. On a R1.1 million sale, the transfer costs are around R39,700. If you are taking a home loan, there will be additional costs to register the mortgage bond, estimated at around R24,500 (approx. R64,200 in total).
A R5 million sale will cost an additional around R450,000 for transfer costs including transfer duty and about R60,000 for the bond costs.
Renting property – who pays for what?
If you are renting, you also need to budget for costs. You can get better value and can rent a house in Somerset West for around R15,000 which would cost you about R20,000 per month to buy, but while it leaves more money in your pocket in the short-term, you don’t own the asset which can accumulate substantial value in the long-term.
Landlord pays for
If you are merely sourcing a tenant, you will pay an agency fee of around 8%-10% of the value of the lease, but if you include a management portion, there will be an additional cost. Landlords also need to factor in the cost of maintenance and rates on the value of the property or levies in the case of sectional title.
Tenant pays for
Deposits of one to two times the monthly rental is common. On a R15,000/month rental that means that you need up to R30,000 to put down as a deposit and will also have to pay the credit verification and lease fees which could amount to around R1,150 once-off.
The landlord (or agent) must invest the full deposit in an interest-bearing account for the benefit of the tenant. It may not be used for anything whatsoever. At the end of the lease, the capital sum plus interest must be refunded to the tenant subject to the landlord being able to deduct reasonable cost of repairs or unpaid rent from it.
The landlord must provide a property in a fit and habitable state and the tenant must keep it in a good condition including maintaining the garden and pool as provided for in the lease. A watertight lease and an incoming inspection are essential to agree on the state of the property upfront. At the end of the lease, an outgoing inspection must be undertaken to determine whether any funds can be deducted from the deposit. The tenant may not make any alterations without the express written permission of the landlord either.
