When you want to buy a house anywhere in South Africa There are certain factors you need to keep in mind. One of those factors is the true cost and expenses that are involved with an important transaction such as this.
We take a look at all the financial obligations you as a buyer need to follow when you are looking to buy a house. It is important that you know everything there is to know concerning the costs involved and what you need to pay for.
Keep on reading and find out the real costs of buying a house in South Africa so you go into it with your eyes wide open.
Expenses You Need To Look Out For
Depending on your financial stand these are some of the costs you need to be prepared for before buying a house. Going through this list will make it much easier for you and help you to prepare for your new home.
The fee that is involved in the registration of a bond will solely depend on the size of the bond and that may include a deposit. This deposit is necessary because financial institutions will almost never loan you the full amount of the bond, which is normally around twenty-five percent.
It may also include the transfer fees of the property and VAT so you need to make sure you have this necessary expense available. Transfer fees can range from as little as three percent or up to thirteen percent, depending on the value of the house.
If the value of your new property is less than R1 million, you do not need to pay a transfer fee.
When you buy a stand-alone property or one inside a complex you need to get the water and electricity connected and that needs a deposit. The amount for this deposit fee will vary from area to area and is determined by the local municipality in your area.
Rates And Levies
This is only applicable if you buy a stand-alone property and the total fee depends on the value of the property. The fees are not the same in all areas so it is dependent on the area and your local municipality how much you pay.
If you buy a sectional title the levy will be determined by the body corporate and must be paid monthly for the general upkeep.
Deed Office Fees
To get the deed registered to your name when buying a house you need to pay a fee to the deeds office. Visit this website to see what fees you will pay when you buy a house, it is related to the price of the house.
When buying property in South Africa it is better to find a property lawyer to get everything done to save you time and effort. This can be done by them at a fee and the total amount depends on your lawyer.
Repairs And Maintenance
Before you move into your new house you would want it to be clean and for everything to work as it should. For this, you need to find a renovation contractor in the area to fix structural damage and repaint the house if necessary.
Electrical repairs may also be necessary while you may also need to get an electrical certificate from the previous owner. This certificate will serve as proof that all electrical outlets and the distribution board are safe and in working order.
You will need that for insurance purposes when you buy a new house and that is the next expense we will look at.
This is another necessary cost when buying a house in South Africa, and this will also be stipulated by your bank. It may not be an initial cost but it will be an expense you must have to cover your home in case of structural damage.
There is a long list of insurance companies with reasonable fees to consider, but you must do your homework to find one that suits you. Many of the financial institutes in South Africa will also be able to provide you with property insurance, just look for them.
With this type of insurance, only the property is covered by it so you need to find a separate one for other possessions.
Security is a very important factor and depending on the area you buy, you need to assess the security used in surrounding houses. You should have the budget for an armed response fee in areas where it is needed for better security options.
Unfortunately, crime is a reality not just in South Africa but around the world and you need to protect your loved ones and valuables.
Types Of Property Ownership In South Africa
There are 4 ways of buying property in South Africa and they all have their advantages and disadvantages you need to consider.
Owning a House As a Natural Person
This simply means that you buy the house as a natural person and it will be registered in your name. You also need to stipulate that the house will be your permanent and main residence where you will reside most of the time.
If you purchase a house this way you do not need to pay Capital Gains Tax on the first two million rand profit. That means you will not pay GST on any profit you make when selling the house if the profit is less than that two million.
If the total selling price of a house is less than two million Rand then there is no GST taken into consideration.
Buying a house in your name while you are the owner or partner in a business is not the best option. If something happens with your business and you experience financial difficulty your home will be used by creditors to cover their losses.
Another disadvantage of buying a home in your name as a business owner is that estate duty will be payable on death.
Buying Property As a (Pty) Ltd
Buying a house in this way, the rates of transfer duty will be the same as it is when buying as a natural person.
However, if your business is registered for VAT, transfer duty is not applicable when you sell the property at a later stage. You will need to prove that the property has been used for business operations all the time it was owned.
No estate duty is payable when the property is registered to a private company that is not a person who can die.
When a private company owns the property they will pay a much higher percentage CGT for any profit made when selling it. A secondary tax of 10 percent can be levied on profits distributed to the owners of a private company when the property is sold.
Income tax can be levied if the property is bought and sold in a short period of time to make a profit on it. So, if the private company does not keep the property to use for rental purposes and sell it they will be seen as a dealer.
Purchasing Property As a Close Corporation
A close corporation will pay the same CGT and transfer duties a private company pays as it is under current laws. However, there might be some changes when the old rules are phased out and the new rules will be applicable.
Any person or trust can be a member of a close corporation and make use of the same advantages that apply for a close corporation. There are a number of other advantages but one of the main ones is that it is considered as a separate legal entity.
Only ten individuals can be members of a closed corporation making it a limited option for more persons. Another disadvantage is that the financial statements of a close corporation must be prepared by a registered accountant.
Property Through a Trust
This is a type of business that is set up by a person who is called the founder or the settlor of the trust. Trustees will be appointed to manage the affairs of the trust on behalf of the beneficiaries involved with the trust.
The first benefit is that any property that is held by the trust will not be subjected to the estate of the individual. This also means that the property in the trust will also not be vulnerable to the creditors of the beneficiaries.
In case of death of the owner, none of the properties need to be transferred to the heir so, there are no executor fees involved.
A trust will be charged with the highest rate of CGT which can easily be around fourteen percent of the profit. The trust is the legal owner of the property so the founder has no control of any of the property held by the trust.
When a trust needs finance to purchase a property a much larger deposit is required because banks will not grant the full bond amount. It is important to find the best legal advice regarding the method you want to use to buy property in South Africa.
You can see that there are more expenses involved when buying a home in South Africa than just the bond amount. There are ways to save money on some of the expenses mentioned but this is the norm when buying a house.
Do your own research before buying a house in South Africa and you might find some ways to save a bit of money.