These hidden costs inflate a property's purchase price

Bianca Arnsmeyer, sales manager, Berman Brothers Property (BBP)

Costs that a prospective buyer must factor into their budget before signing an offer to purchase:

Transfer costs

The following four costs are generally known as the transfer costs. These costs must be settled before the property transaction is finalised, and are paid directly to the transferring attorneys who then pay the respective recipients accordingly.

1. Conveyancing fees

A buyer must pay these charges to the transferring attorney for generating the required documentation and executing the necessary legal procedures to transfer the property into their name. This fee is calculated as a percentage of the purchase price of the property and VAT applies. The conveyancing fee is the only part of the transfer costs that can be negotiated, and the attorney may consider a discounted rate in the case of repeat business, etc.

2. Administration fees

This fee is also owed to the transferring attorney by the purchaser and covers the cost of Deeds Office searches, FICA registration and sundries such as courier costs. This fee is VAT applicable and can’t be discounted as it is set as a minimum charge.

3. Deeds office fees

Thankfully this fee is VAT exempt. It is collected by the transferring attorney but is paid over to the Deeds Office for costs incurred by them for updating their records. The fee is non-negotiable and a tiered scale is used to calculate the cost according to purchase price.

4. Transfer duty fees

Transfer fees are usually the highest “hidden cost” a buyer will experience, however they do not apply to all property transactions. If applicable, this fee is paid by the buyer to the transferring attorney and is due before the transfer of the property. The transferring attorneys pay it to SARS as the tax payable on the transfer of property.

No transfer duty applies if the transaction is already subject to VAT. This means if the seller is registered as a VAT vendor, then no transfer duty is due from the buyer as the seller has already included VAT in the purchase price. This usually happens when buying a new development as most property developers are registered for VAT.

The transfer duty rates were amended in 2017’s budget speech and as of March 2017:

• No transfer duty for property under R900,000
• R900,001 to R1,250,000: Transfer duty is calculated at 3% of the value above R900,001 – meaning that you don't pay transfer duty on the first R900,000.
• R1,250,001 to R1,750,000: Transfer duty is calculated at 6% on the value above R1,250,000.00 plus a flat rate of R10,500.
• R1,750,001 to R2,250,000: Transfer duty is calculated at 8% on the value above R1,750,000, plus a flat rate of R40,500.
• R2,250,001 to R10,000,000: Transfer duty is calculated at 11% of the value above R2,250,000 plus R80,500.
• R10,000,001 and above: Transfer duty is calculated at 13% of the value exceeding R10,000,000 plus R933,000.

Homeowners’ insurance

If the buyer has taken a home loan to purchase their property, the bank will insist that the buyer takes out a homeowners’ insurance policy to cover the land and any permanent structures against natural disasters such as fire or flood damage. This will be a monthly ongoing charge that depends on the value of your property.

Levies

Levies are reviewed annually, and it is quite possible that the levies reflected on the sales agreement could increase after the transfer of the property. Body corporates can impose special levies for once-off costs and it is the responsibility of the buyer to check the financial health of the body corporate prior to purchase and ascertain if an increase on levies or a special levy is anticipated.

In the case of special levies, the sale agreement generally stipulates that the seller must pay levies that were imposed before the date of sale, while the buyer would be responsible for special levies imposed after the date of sale but before the transfer date. However the onus is on both seller and buyer to scrutinise the sales agreement carefully before signing.

Bond registration costs

This is a service fee paid to the registering bond conveyancer by the buyer in order to have the bond registered over the title deeds. This fee is linked to the buyer’s home loan amount and is based on tariffs recommended by the Law Society, although the fee may vary slightly according to the law firm in question.

VAT is applicable to this fee which must be paid before the registration of the bond. On a bond of approximately R1m the fees are approximately R18,000 plus VAT.

Bond initiation fee

The bank providing the mortgage loan will also charge an initiation fee which could fall in the region of R5,700. Fortunately, this amount is added to the mortgage loan amount and will not be paid upfront.

All in all, there are many extra costs that quickly inflate a property’s listed price. One can use an online cost calculator to assist with the purchasing process, such as the user-friendly calculator from OOBA Bond Originators which breaks down the additional costs according to your specific transaction. However it would be wise to be as fully informed as possible prior to signing an offer to purchase, and this is why it is important to use a qualified agent or attorney who will be able to help with the entire process and advise on all applicable fees.