Costs to consider before upgrading

Private Property South Africa

There comes a time when your home no longer fits your family or your needs. But, while you might qualify for the home loan, Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, warns that there are other associated costs involved in owning a larger property that buyers need to consider before taking this next step.

“Upgrading to a larger property is often a significant achievement in a person’s life. But, as exciting as the whole prospect might be, I would caution buyers to avoid looking at homes that are at the top-end of their budget. To ensure that they can afford the upgrade, the additional costs, such as higher municipal rates and transfer duties, need to be factored into the budget before going ahead with the purchase,” Goslett cautions.

Below are the three most important costs that buyers ought to consider before upgrading to a larger home:

Higher Transfer Duties

Buyers can avoid paying transfer duties on properties under R900,000. Anything above this will incur this cost above the selling price, which starts at 3% of the value on properties below R1,250,000 and gradually climbs to 13% of the value on properties above R10 million.

Higher Municipal Rates

Municipal rates are calculated based on the market value of the home, as is stipulated in the provincial General Valuation Roll that is updated every four years. Larger homes often have a higher market value that results in higher municipal rates. Buyers should ask the sellers what they are paying in municipal rates so they can add this expense to their monthly budget.

Capital Gains Tax (CGT)

This is an amount charged on the sale of your property. Sellers are exempt from capital gains tax on a primary residence where the profit that results from the sale is below R2 million. Thereafter, 40% of the net capital gain gets added to your annual taxable income. You could therefore avoid this tax on the sale of a home below R2 million, but if you upgrade to a home where the resultant sale will exceed R2 million, you will need to factor CGT in when you later decide to sell.

Upgrading to a larger home can be one of the most exciting moves in a person’s life provided that the relevant expenses have been budgeted for and are affordable. “Financial strain is often more difficult to live with than the discomfort of a tight or less luxurious living space. If you can afford upgrading to a new home, get in touch with a real estate advisor who can help you find a new home that suits the growing needs of your family,” Goslett concludes.

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