So, your dream home is listed at R 1 000 000. It'll be a stretch to get the loan but maybe you can make it...
That is until you discover that that’s not all you will pay… the upfront costs are actually a total of...
- The Purchase Price
- Transfer and Bond Registration Legal Costs
- Transfer Duty; and
- A Bond Initiation Fee.
On a R 1 000 000 existing home that will cost you an additional R 53 000.
And that extra amount might just make your purchase unaffordable.
So find out about the upfront costs that you will need to pay before you go house hunting so that you know how they will affect your affordability.
That way you can go house hunting with confidence.
Let's start with the obviously biggest cost...
The Purchase Price of the Property
This is the biggest upfront cost and is largely determined by the following three factors that have the most influence on pricing:
- Location, location, location – Areas are more attractive to buyers if they have good amenities, good schools, low crime rates or special aspects such as elevated views. These cause demand for these areas to be high and has an upward impact on prices. Areas with lower appeal will generally have lower prices.
- Size of the stand/erf – Larger stands are generally more expensive. This is a very specific driver of price in larger metropoles.
- Size and condition of the buildings – Homes that are larger; have more bedrooms, bathrooms and reception rooms; have modern designs and finishes; and are in good condition are the most expensive.
What do you actually pay? And what is included in the price?
In the case of a new development, the purchase price is the total price that the purchaser pays the developer for the development/building package.
Developers are generally VAT vendors and so the purchase price will include VAT. This means that no Transfer Duty will be payable.
Many times developers also include the legal costs of transferring the property and registering a bond over the property in the purchase price.
You can view examples of developments where the developer pays the transfer costs on our new developments map.
For existing properties (where there has been a previous owner other than the developer) the total amount payable for the property, as negotiated between the purchaser and the seller and recorded in an offer to purchase, is the purchase price. This amount does not generally include VAT and so Transfer Duty will be payable.
In addition, this amount does not include any legal costs for transferring the property or registering a bond over the property. The legal costs of transferring and registering a bond need to be paid by the purchaser over and above the purchase price.
The purchase price is normally paid by means of a home loan (and a deposit from the buyers savings where applicable).
Transfer and Bond Registration Legal Costs
If you buy a property it will be transferred into your name and you will be recorded as the owner of the property in the Deeds Registry – a public register that shows the ownership of all fixed property in South Africa.
However until you repay the home loan to the bank, the bank will have the right to sell the property if you do not keep up with your loan installments. The fact that the bank has a mortgage bond as security over the property is also recorded in the Deeds Registry.
Conveyancers (attorneys) manage the process of transferring property from one person to another and registering a bond over the property in favour of the bank in the Deeds Registry.
The fees associated with these processes are conveyancers’ fees, paid for the attorneys’ role in changing the ownership of immovable property from the seller to the buyer in accordance with the deed of sale and registering a bond over the property. Often two sets of attorneys are involved: the transferring attorneys who deal with the transfer of ownership and the bond registration attorneys who act for the bank to register the bond over the property.
If you buy in a new development these fees are often paid for by the developer and included in the purchase price.
When buying an existing property the purchaser needs to be able to pay for these fees upfront and so generally existing property is only accessible to clients who have saved up to pay these costs.
It is possible that these costs can be covered by a personal loan where the buyer has additional borrowing capacity over and above the home loan. On rare occasions banks may include these amounts in the value of the home loan.
Legal transfer and bond registration costs are generally determined by the South African Law Society and published in a schedule of Conveyancing Fee Guidelines (although these are not fixed rates and are negotiable in certain instances).
You can use our transfer costs calculator to get an estimate of these fees.
Transfer duty is a government tax charged to the purchaser whenever fixed property is bought. This tax is payable to the South African Revenue Service (SARS) via the transferring attorney before transfer of the property can happen. SARS publishes a table of transfer duty rates on an annual basis.
When you buy from a developer you will not pay transfer duty: instead the price that the developer charges already includes VAT and so transfer duty is not payable.
You can use our transfer costs calculator to get an estimate of transfer duties payable.
Bond Initiation Fees
This is a fee charged by banks to provide you with a home loan. This is limited to R 6 038 (incl. VAT) in terms of the National Credit Act, 2007.
In general this needs to be paid upfront although some banks waive this fee or include it in the home loan on occasion.
You can use our transfer costs calculator to get an estimate of total upfront costs including bond initiation fees.
If you don’t have any savings to pay upfront transfer costs then it is critical that you get a 100% loan for the purchase price and if you are buying an existing property that you also are able to borrow money to pay the costs.
If you don’t have any savings and would like to be sure of what you can afford then get your free home buyer readiness assessment now.