What is the real cost of buying property?
Buying an asset such as property is a major investment commitment and in many cases, it’s one of the biggest personal investments an individual will make in their lifetime. However, one of the most common mistakes home buyers make is focusing primarily on the cost of the property and not on the entire cost of acquiring and maintaining the property.
The cost of purchasing the property is a real cost that in all cases must be outlaid and settled in full prior to the property being transferred into your name. The high cost of acquisition has been the reason at least 10% of purchases fall through and never reach a successful conclusion. It is the main factor that makes homeownership difficult to access and sustain for many South Africans.
There are four major costs a potential buyer would need to contend with in order to acquire property, the first one being the transfer duty. The transfer duty is a government tax levied to transfer the property from the seller's name into the buyer's name. This cost is typically between 3% to 10% of the value of the property excluding the first R1 million of the property value. In the recent budget speech, the finance minister decided to keep the transfer duty threshold steady for all transfers of property above R1m.
This is good news for first-time home buyers as the average cost of property is at R1.1m therefore the cost to enter the market is relatively lower for clients purchasing in this price range. The second major cost of acquisition is the transfer cost, which is the cost of appointing a conveyance to attend to the transfer of the property from the seller into your name as the buyer. This cost is paid for by the buyer however the seller appoints the transfer attorney. For a property worth R1m, the cost is between R22,000 and R25,000.
The third major cost of acquisition is the cost of registration. This cost is only applicable if you’re getting a home loan to finance your property, therefore the cost of registering a bond in your name, on the property at the deed’s office. On an R1m property purchase, the cost is similar to the transfer cost, which is between R22,000 to R25,000 and is paid upfront by the buyer.
The final major cost that is only paid if are getting a home loan to buy your property is the cost of the initiation fee, which amounts to R5 989.
The best way to minimise the cost of acquisition is by doing the following;
- Firstly, seek to purchase property in a new property development, the rationale for this is that in most cases your acquisition cost will be zero or limited to the registration cost only. All new developments are sold with no transfer duty payable to the buyers and the majority of these developments include at least the cost of transfer with a discount on the registration cost.
- Secondly, you can request for the bond initiation fees of R6000 to be capitalized with your bond so you don’t have to incur this cost upfront.
- Thirdly, you are entitled to request a discount from both the transferring and registration attorney. It is the discretion of the attorneys to grant this request, however, it is common practice for attorneys to discount their fees to assist the buyer with managing the cost.
Buying a property does come at a cost regardless of your ability to minimise these costs using the advice stated above, beyond the cost of purchasing property, the cost of maintaining the property which is another important cost to preserve the resale value of the property.