Things to think of when buying a home

It is exciting to purchase a home. For some, it may be the biggest investment they will ever make. It is therefore essential that all prospective purchasers plan a purchase in advance, to avoid a situation where the process becomes a stressful one.

Can I afford it, and what will it cost?

This is possibly the most important question to ask before you purchase your home. There are many hidden costs involved in purchasing a property- as the saying goes, failing to plan is planning to fail! If you do not have sufficient funds to pay for all the costs of transfer of the property, including unexpected costs, you could find yourself in breach of the contract and may be liable to the seller for damages for breach of contract, as well as for the potential cancellation of the contract.

The following are usual costs to expect when purchasing a home:

The purchase price
The conveyancing fees for transfer of the property
The bond registration fees (note- this is in addition to the conveyancing fees, and the bond registration is usually performed by a separate firm of attorneys)
Transfer duty or Value Added Tax levied on the purchase price (where applicable)
Levy clearance fees/ home owners association clearance fees (if applicable)
Occupational rent (if applicable)
Moving costs

It is important to note that conveyancing fees are usually paid for by the purchaser. Many purchasers in the past have failed to take this into account, much to their detriment, despite having signed a sale agreement which specified the purchaser’s responsibility in this regard. Prospective purchasers are able to use our cost calculator to obtain an estimate as to likely conveyancing charges. Try our cost calculator here.

If you intend financing your property through a mortgage bond, you need to bear in mind that each bank has its own specific lending criteria before granting a mortgage bond. It is possible that you may not obtain the full home loan financing for which you applied, which is why it is best to pre-calculate your monthly bond instalments, to ensure that you can afford the repayments (Try it here).

Should I purchase in my name, a trust or in a company?

Normally you will purchase the property in your own name, although you may wish to consider purchasing in the name of a trust or a company. It is advisable to engage the services of your legal advisor and/or tax practitioner to explore the potential legal and tax implications of purchasing in your personal name, a trust or via a juristic person. Each person’s financial circumstances differ and therefore it is not always possible to provide generic advice. There are, for example, various tax implications involved in each of the possible options, and differing effective rates of capital gains tax for trusts, companies and individuals. There are also various legal implications when an individual, shareholder or trustee (where applicable) passes away.

Should I buy a residential property or a sectional title property

Whether you should purchase a residential property or a sectional title property depends on your situation and needs. With a sectional title property, a prospective purchaser should bear in mind that upon transfer of a sectional title property, the purchaser automatically becomes a member of the body corporate and is bound by the rules of the body corporate. Accordingly, you should familiarise yourself with the rules of the body corporate of the scheme before finalising a property purchase.

When purchasing a residential property, you should also ensure that you are aware of any restrictions and/or servitudes registered against the title deed, including whether you are obliged to become a member of a homeowners association, which should be evident from the title deed of the property.

Bear in mind that levies are payable, in addition to municipal rates charged by the local authority, if you are a member of a body corporate or a member of a homeowners association. In addition to normal levies being charged by the body corporate, special levies may be imposed by the body corporate should additional funds be required, for example, to replace the lifts of the building. You can read more about special levies here.

Make sure you understand the sale agreement before you sign!

Once you have signed the sale agreement, you cannot claim ignorance of the contents of the agreement. It is highly recommended that you obtain legal advice before signing an agreement, to assist you in identifying any possible risks.

It is also preferable for the parties to annex a “defects list” to the agreement of sale when signing, as this will avoid a situation where the seller claims a defect was disclosed to the purchaser verbally, but the purchaser disputes this claim.

Ensure that you have checked whether transfer duty is applicable to the sale, or whether Value Added Tax will be levied in addition to the purchase price, which at 15% could be quite an unexpected shock.

If your agreement is subject to any suspensive conditions, it is critical that the agreement is clear as to how the suspensive conditions must be fulfilled and by when. It must also be clear when suspensive conditions are deemed to be fulfilled. Recent case law has outlined situations where the sellers and purchasers have held differing views as to what constituted fulfilment of suspensive conditions, with resultant devastating consequences, including cancellation of the sale and damages claims.

When it comes to occupation of the property, be wary of “occupation” and “possession” clauses. If the parties agree to early occupation, this should not be confused with possession of the property. In normal circumstances, possession of the property passes to the purchaser on registration of transfer.

Make sure you understand each and every clause. If you do not take care in preparing the most important part of the sale, it could result in misunderstanding, expensive litigation and disappointment.

The transfer process

If no transfer date is specified in the agreement of sale, registration of transfer of property into the purchaser’s name can usually take place within 2-3 months after the fulfilment of any suspensive conditions (assuming that both parties perform timeously).

The seller’s conveyancer usually performs the transfer, and oversees the process. As a purchaser, you are entitled to request that your attorney also assist you in overseeing the transfer process to keep you informed along the way, even though the seller’s conveyancer will do the actual registration of transfer. Usually this will result in an extra cost for you.

The following are the usual steps in an ordinary transfer:

Agreement of sale is signed.
The conveyancer establishes contact with the parties and collects important information such as FICA.
The conveyancer requests guarantees and/or payment of the purchase price from the purchaser to secure the purchase price.
The conveyancer requests advance municipal rates clearance figures from the municipality in order to obtain a rates clearance certificate.
The conveyancer prepares the transfer documentation for signature, which both parties must sign.
The conveyancer requests a transfer duty receipt/ a transfer duty exemption receipt (in the event that the sale is subject to VAT) from the South African Revenue Services, which the purchaser must pay.
The conveyancer requests a levy clearance certificate from the home owners association and/or body corporate (where applicable).
The conveyancer prepares all documents to be lodged at the deeds office and subsequently lodges the transfer at the deeds office for registration.
The deeds office examines whether all documents are in order, and if everything is in order, registration can be effected within 5-15 working days (depending on whether the deeds office is experiencing a backlog).
Registration of transfer is registered, and the seller is paid.

In the event that a mortgage bond is registered over the property it will need to be cancelled on registration of transfer. If the purchaser is financing the purchase via a mortgage bond, additional steps will need to be followed and the mortgage bond will be registered simultaneously with the registration of the transfer into the purchaser’s name.

Some helpful advice

Prepare your property insurance in advance, to ensure that your property will be insured once it is registered in your name. This can be arranged through your bank if you will be registering a mortgage bond.
When you sell your property, you may pay capital gains tax to the South African Revenue Services. You will need copies of all invoices relating to capital expenditure on the property for when you sell, as it is difficult to claim capital expenditure deductions if you do not have supporting documentation. Our tax department can assist you with calculating your capital gains tax obligations. We can also assist you with the safekeeping of your records. Visit our Tax Department here

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