Greenleaf Property Developers

Buyers are often unaware of the "hidden" costs incurred in buying a home. Diana McIlrath of Shepstone & Wylie Attorneys property department highlights some of the things you need to budget for.

"You need to list these costs and draw up a budget correctly before signing an offer to purchase and being burdened with costs you may be unable to afford," advises Diana McIlrath of Shepstone & Wylie Attorneys property department.

These include items such as transfer and bond costs as well as removal costs, monthly rates and taxes, bond repayments, insurance and utility bills once the house is registered in your name," she adds.

Transfer costs are legal costs payable by the purchaser of a home and are related to the purchase price of such property.

"It is important to differentiate between transfer or conveyancing fees and transfer duty," says McIlrath.

Transfer duty is a form of tax levied by SARS on the purchase of immovable property, payable on the amount paid or on the fair value of the property, calculated as a percentage of that price or value. It is collected by the conveyancer on behalf of SARS. Transfer duty is payable to SARS prior to lodgement of the transfer documents in the Deeds Office. "So mortgage bonds that include your costs will not necessarily assist you in paying for transfer duty," warns McIlrath.

She adds that generally with the transfer of residential property, transfer duty is payable and not VAT. However if it is the sale of a property by a developer who is a VAT vendor, then VAT may be payable on the purchase price and not transfer duty.

A different rate of transfer duty is payable depending on whether the purchaser is a 'natural person' or a legal entity, for example, a company or close corporation or trust.

Conveyancing fees are attorney's fees charged by the conveyancer in attending to the registration of the property into your name. These fees are guided by the Law Society's tariff in respect of conveyancing fees.

In addition to conveyancing fees, there are additional disbursement costs including FICA identification and verification costs as conveyancers are held to be accountable institutions in terms of the Financial Intelligence Centre Act and are required to identify and verify their clients.

"The majority of buyers require some form of financing through a financial institution, mostly in the form of a mortgage bond registered over the property," comments Diana McIlrath. In such an instance, the buyer will incur conveyancer's bond registration fees and bank costs which are generally collected by the conveyancer on the bank's behalf. "Fortunately, the National Credit Act has gone a long way in assisting the buyer in spelling out the additional costs as well as the interest being charged on mortgage bond finance," she adds.

The bank charges include a bond initiation fee and a bank administration fee. Once the property is registered in your name your monthly repayments will begin.

Other than the legal costs relating to the purchase of the property, service connection costs, including utility deposits for electricity, Telkom, and so on, are generally required. Insurance costs, repair and/or removal costs and monthly levies to the body corporate if you are in a sectional title unit must also be included in the equation.

Now that the Municipal Property Rates Act is in place, rates are being calculated according to the value of your property. Sectional title units will now also fall within the ambit of the Act. It would be wise to find out what the municipality intends charging as rates for the property you intend purchasing.

"Certain agreements of sale provide that the purchaser is required to pay a deposit and lodge it with the conveyancers and, if you are taking occupation of the property prior to registration of the property into your name, you will be required to pay occupational rent," says McIlrath.

She advises that prospective buyers should make a list of all of these costs and put down an approximate figure next to each item, before signing a sale agreement which binds them to their purchase of their dream home.