Purchasing a property can be a stressful experience and not knowing what costs you may incur registering the property in your name may just worsen the situation. Herewith a brief summary of the costs involved when purchasing a property.
Let’s take the Scenario where A, Purchases a property for R1 000 000.00 from B, and obtains a bond from XYZ (Pty) Ltd, but only for 80% of the purchase price, (i.e. R800 000.00).
It is common practice for an Agreement of Sale / Offer to Purchase to provide for a deposit to be paid, usually within 7-14 days after signature of such agreement. Usually the deposit to be paid is 10% of the purchase price i.e. R100 000.00. There is no provision in our law that states that any deposit has to be paid and it is thus a subject open for negotiation between the Seller, the Purchaser and the Financial Institution approving the bond. It is imminent that no deposit has to be paid in the event that the Purchaser secures a 100% Bond. Should a purchaser only be granted 80% bond finance (i.e. R800 000.00), provision has to be made in securing the remaining R200 000.00. If not as a deposit it can also be from the proceeds of a sale of the Purchaser’ (B’s) property.
In such an event the Conveyancer attending to the transfer of A’s property would require an undertaking, from the Conveyancers attending to the transfer of B’s property, that the balance of the purchase price, will be paid to A’s Conveyancer upon registration of the transfer.
Balance of the Purchase Price
The balance of the purchase price is calculated as follows: Purchase Price less Deposit (if any) = Balance of the purchase price. The balance of the purchase price has to be secured, either in cash, sale of another property, a bond granted by a Financial Institution or by means of a “Kustings Brief” (Where A grants a bond for the balance of the purchase price in favour of B.
Transfer cost is the total cost which is payable by the purchaser to the Conveyancer attending to the transfer. What is important to remember is that transfer cost includes transfer fees and transfer duties, terms which are commonly mistaken with each other. These terms are discussed below.
- Transfer fees, are fees charged by the Conveyancer to transfer the property from A to B. These fees are prescribed and it fluctuates according to the Purchase Price of the property.
- Transfer duty, is a form of tax to be paid to the South African Revenue Service. Each and every transfer either attracts Transfer Duty or VAT (The different scenarios to be discussed in future publications. Let’s assume transfer Duty, and not VAT, will be payable in our scenario: The transaction will either be exempt from transfer duty or it will be subject to transfer duty.
Section 9 of the Transfer Duty Act, provides for numerous situations where a transfer will be exempted from transfer duty (we will again discuss all of these exemptions in future publications). For now, we are going to focus on the exemption of transfer duties when the purchase price does not exceed the prescribed amount as determined by the Minister from time to time.
Following the recent budget speech, transfers where the purchase price does not exceed R900 000.00, are exempt from transfer duty.
Should the Purchase Price exceed the prescribed R900 000.00, transfer duty is payable on the amount exceeding R900 000.00 and in accordance with the formula published by S.A.R.S. In our Scenario, transfer duty will be due on the amount of R100 000.00 (The amount exceeding R900 00.00). According to the formula published by SARS 3% on R 100 000.00 will be due, amounting to R3000.00.
Coming back to transfer cost, it includes the Transfer Fees, Transfer Duty and expenses of the Conveyancer, Postage and Petties, Deeds Office Search Fee, Deeds Office Fee, Document Generation Fee, Application for Rates, Application for Transfer Duty Receipt/Exemption Certificate etc.
This pertains to costs of the Conveyancer attending to the registration of the Bond at the Deeds Office. As, “A” required a bond in the amount of R800 000.00 he will also have to pay the bond registration fees, also prescribed, and also the fees of the Bond Attorneys. This also fluctuates, depending on the amount of the bond to be registered. The bond registration fees, together with the Bond Attorney’s expenses form the Bond Cost.
Rates and Taxes
To have a property registered in a Purchaser’s name, Rates and Taxes payable to the Local Authority must be paid in full and in advance. Application has to be made to the Local Authority to issue a Rates Clearance Certificate, which certificate accompanies all the documents to be lodged at the Deeds Office. Such a certificate is sufficient proof that the rates are paid in full.
Upon the date of registration of transfer of the property in the name of the Purchaser, the conveyancer will attend to allocate the payment of Rates and Taxes proportionally to the Seller who is responsible for Rates and Taxes up to the date of registration of the transfer of the property, and obviously the Purchaser will be liable for the payment of the Rates and Taxes from the date of registration of the property in his name.
The above covers the basic costs, a Purchaser may incur when he/she purchases a property. It unfortunately cannot be seen as a rule, carved in stone, due to the diversity of each and every individual’s financial position and the selling price of the property concerned.
In the ordinary Selling and Buying of a property, the above can be used as a guideline. The purchaser will not be caught off guard in having to pay more that he/she initially bargained for.