It is no secret that I’m not buying any more rental properties at this stage of my investment career. Some of my first articles on this blog covered this topic in depth. You can read the articles here and here. I do think buying property in South Africa will remain a personal preference. I’m not here to tell you it is wrong since the return from properties still makes sense. It is fulfilling to own physical property and I can’t deny that.
Owning the property that you live in might make sense for you. We own our home (well the bank owns 50%) and it works for us. I have been through the process of buying property five times now (was unsuccessful twice). I’m no expert, but I have picked up a few things that can help you the next time you buy a property. Let’s start with the costs involved with buying a property.
First up is the transfer duty. This works on a sliding scale from 0% to 13% depending on the purchase price of the property. Anything under R900 000 will not trigger transfer duty. One thing to note is that when you purchase a property from a developer, there is no transfer duty payable. Since you are the first owner, it is not transferred.
As you can see from the chart, the transfer costs can be significant if you are buying a property worth a few million. This money goes to the South African Revenue Service (SARS) in case you were wondering. On top of this, you pay for the transferring attorney, also called the conveyancer. They charge anything from about R12 000 to R25 000 depending on the purchase price. Is it more effort to transfer more expensive properties?
The attorney is specified by the seller for some ridiculous reason. Usually, the seller doesn’t even have someone they want you to use, so the estate agent recommends someone. Then you end up paying the cost and you don’t get to dispute the costs. How fucked up is that? If you buy from a developer, they will usually pay the conveyancer costs. I’ll tell you how to save on this cost after I have discussed the other attorney costs.
Next, you pay for registering the bond. This can be broken down into two separate costs, the home loan initiation fee to the bank and the cost for registering the bond. The maximum initiation fee that the bank can charge is R5 000 (excl VAT). So, take a wild guess what most banks charge?
Then the second attorney you pay is the bond registration attorney. They also charge between R12 000 to R22 000 depending on the bond amount. This is understandable since the deeds office costs vary depending on the loan amount. In total, on a property of R1.5 million, you will pay transfer costs of R25 500, an attorney to do the transfer for about R20 000, a home loan initiation fee of R5 750 and bond registration attorney fees of about R15 000. This adds up to R66 250.
You can’t do anything about the home loan initiation fees or the transfer fees. All that you can do is to pay the home loan initiation fee beforehand, otherwise, it will be added to your bond and you will pay interest on it. So how do you reduce your attorney costs?
Optimise attorney cost
Before you look at buying a property, find an attorney yourself. Then negotiate the price you are willing to pay for the attorney beforehand. When you sign the purchase agreement, ask the seller if you can specify the attorney. Unless it is a friend of the seller, they will usually not have a problem with this.
Now, you must use an attorney to transfer the property and one to register the bond. There is nothing preventing this from being the same attorney. So ask the conveyancer to give you a bulk deal on doing the bond registration as well. If you negotiate this beforehand, you have the power because their alternative is getting nothing. But if you try to negotiate after everything is signed, they will tell you to kindly fuck off.
Then you just tell the bank they must use your attorney for the bond registration. They have not said no to me yet. I have managed to do the bond registration for as low as R7 200. This was on a property I bought from a developer so they paid for the transfer. I then contacted their attorney and asked if they want to do the bond registration as well. So the R7 200 was my total attorney cost.
Estate agent costs
Estate agents charge anything between 3% and 10% of the purchase price. This is what they charge for finding a buyer for the property. Posting it on Private Property is free and posting it on Property 24 is about R200. So the more or less R80 000 they charge on a property of R1.5 million is mostly for showing the property, taking potential buyers to the property and handing everything over to the lawyers. The only way you can avoid this cost is to buy directly from the seller. However, few people advertise their property themselves, which makes it difficult.
Most people in South Africa buy property from Property 24 and Private Property. As a side note, I quite enjoy how these two are bidding on each other’s keywords. So, sometimes when you search Property 24, Private Property will pop up as the first result.
Another option is buying properties on Auction. This will most likely result in a cost-saving. However, you will probably also need a lot more cash for this option. Once the hammer falls on the price you have bid, there are a few costs you must pay straight away. The first of these costs is the auctioneer’s commission, usually about 10% of the price. On top of this, you will also pay Value Added Tax (VAT) on the whole amount, to the tune of 15%.
Finally, you might be required to pay a deposit of at least 5%. This means that once the hammer falls on your bid, you must be able to produce about 30% of the property costs right there. For the outstanding amount, you can use financing. However, you will need to arrange this well in advance since this must show in the seller’s account within 3 days. I don’t have any specific tips for buying on auction, but know that you can get great deals if you have enough cash.
When you apply for a home loan the bank will give you an approval in principle with an interest rate and the deposit amount required. A good interest rate at this stage will be anything below prime, which is 10% presently (fresh off the press). Don’t worry if the first quoted interest rate is above prime. Apply to various banks and SA Homeloans and play them against each other. Most institutions will be willing to beat or match another institution’s interest rate.
You can use bond originators like Betterbond or Ooba to apply to all the banks for you. There are mixed opinions on bond originators. On the one hand, they charge the bank for bringing clients to them. This can mean that banks will favour people that are applying personally. On the other hand, banks would need to spend more on marketing if they did not use bond originators. I have had better results by applying personally, but might be the exception to the rule. Using a bond originator will not cost you anything and it does save you time.
When looking for a good property at a good price, you must be willing to walk away. Although you might like a house, if the seller is pressing you to pay more than you are willing to pay, you must be able to move on. Make an offer that you can afford. It’s a buyer’s market and most sellers are willing to come down at least 5% on the listed price.
Make your offer valid for a short time (without being unreasonable). You want the seller to have time to think it over, but not to find another buyer. About two days should be sufficient. Make sure that the contract states clearly that the plans should be included and up to date. This can add significant additional costs if the property was expanded. Extend the period that you can apply for a loan to 28 days. Most contracts state 14 days and this is too short to negotiate a better interest rate with the bank.
Lastly, a really good resource to check what your credit score is is ClearScore. It is free and gets updated monthly. It helps you track your score and improve it in order to get better interest rates. On their platform, you can also see any loan payments, outstanding amounts and insurance payments you are presently liable for. Give them a try.
Not all of these tips will work in each situation. But try to reduce your costs as much as possible. Buying property has a lot of additional costs and if you can streamline this a bit it might be worth the trouble. If you have any other tips, feel free to post them in the comments. I also wrote a mortgage calculator that shows you what your property purchase will cost you and what your outstanding amount will be over the repayment period.
Be safe out there,
Quote of the week“Judging by your pins, you’ll need a house with 14 bathrooms, 27 living rooms, and a master closet the size of a small village.” – Someecards Click To Tweet
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