Beware! The hidden cost of property ownership.
Category Advice
There are few things in life as significant as purchasing property for the first time. And rightly so, we dream about it, plan for it, save for it and work hard for it.
And with the interest rate at a historic low, more first-time buyers have been able to enter the property market, which bodes well for the market and the economy in general.
It's a good feeling until those "hidden" costs present themselves. "There are a number of expenses that come with the territory of owning a property, and they can come as something of a surprise and derail the excitement of being a new property owner," explains Elmarie Bester, principal at Leapfrog Faerie Glen.
As such, it is important to recognise that the bond repayment is the main cost factor but certainly not the only one. Bester says to expect to have to make provision for some of the following:
He adds that it is important to not only be aware of the other costs around property ownership but
Bond registration and transfer costs
The bond registration cost is the fee payable to the conveyancing attorney for the registration of the bond over the title deed. The amount is related to the loan amount and is based on tariffs recommended by the Law Society but may vary from firm to firm. This is a once-off cost that is paid to the conveyancing attorneys before the bond is registered.
Transfer duty, on the other hand, is a government tax levied to transfer the property from one owner to another (effectively from the seller's name into the buyer's name). The current threshold on transfer duty is R1 million, which means there is no transfer duty payable on properties valued at R1 million or less.
Rates and taxes
Rates are the fees for services such as sewerage usage and waste removal while taxes are what you pay on the value of the property, while tax is based on the municipal value of the property and determined by the size of the property, as well as the location.
Rates and taxes are payable monthly to the local municipality. Bester suggests finding out what the average monthly cost of the rates and taxes on a property and adjust your budget accordingly.
"The rates and taxes can be a couple of hundred Rands a month or well into the thousands, so it helps to be forewarned," Bester says.
Homeowners insurance
When it comes to homeowners insurance the important thing is to not view it as the grudge purchase that its reputation hinges on, but rather about a form of financial protection in the event of damage or loss related to the property.
Bester explains that while there is no legal obligation to take out homeowners insurance, the lender (typically the bank) may require insurance for bonded properties that cover the value of the property.
Depending on the type of insurance product you opt for, it may also include emergency repair services and cover for temporary living if a property has to be evacuated.
Bester is quick to emphasise that these expenses shouldn't deter anybody from getting onto the property ladder. "The fact that you're buying property already speaks volumes about your money management skills, so it's more a case of not being caught off-guard and planning appropriately, then being put off by rates and taxes!".
Author: Leapfrog Property Group
