The cost of taking out a bond

Private Property South Africa
Press

One of the big advantages of dealing with an experienced bond originator – or an estate agent who has been trained to help and mentor his buyers – is that the buyer will not be confronted as the sale nears fruition with a range of extra costs which he was quite possibly never aware of.

Note: this is an article from 2014 and the costs involved have changed. Click here to find updated info on registration and transfer costs.

“Those working in real estate marketing,” says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, “all too often assume that buyers will know the ins-and-outs and the extra costs associated with a home purchase. However, of course, this is not always the case. Even among highly qualified people like university academics, we fairly frequently find that they simply do not know about the extra costs involved in a home purchase and have difficulty raising the cash needed for these.”

Three kinds of extra costs

These extras, said van Alphen, come under three headings: transfer costs, bond costs and bank charges. The transfer duty is a government tax and is very much slanted in favour of lower income groups. The purchaser of a home with a sales price of R600 000 or less will pay no duty at all. If the price is in the R600 001 to R1-million bracket, the purchaser will pay only 3% of the value exceeding R600 000. If the value is from R1-million to R1.5-million, the transfer duty will be charged on a flat rate of R12 000 plus 5% of the value exceeding R1 million. If the property sells for more than this amount, the duty will be R37 000 plus 8% of the value above R1.5-million.

Also payable under the transfer cost heading is a FICA (Financial Intelligence Centre Act) charge and this fee enables the attorney to check the buyer’s bona fides. A conveyancing fee is also payable to the attorney effecting the transfer of the property. These fees’ limits are stipulated by the Law Society and are calculated on a sliding scale in relation to the property value. In general, said van Alphen, they are between 1% and 3.5% of the sale price. The conveyancer will also add a small charge for what are known as posts and petties (the direct office expenses incurred in getting the transfer registered). All property transactions are lodged with the Deeds Office, whose fees range from between R350 and R1 500.

Registration and bank charges

The next charges to be met by the buyer are related to the bond registration and bank charges. Here again a conveyancer will be involved (not necessarily the conveyancer who handled the transfer) and the maximum conveyancer’s registration fee is stipulated by the Law Society. Posts and petties will apply again.

In addition, the Deeds Office will charge a fee of anything between R450 and R2 000, and the banks will charge an initiation fee, with a stipulated maximum of R5 700 for processing the bond application.

“Taking it all in all, on the average middle class home, a buyer is likely to find himself paying 5% in extra costs before the transfer can take place. It is essential therefore,” said van Alphen, “that buyers pre-qualify themselves with those who understand these matters before they actually begin their house search. Too many sales have fallen apart because these extra costs were simply not known.”

Those wishing to do some research before they approach a bond originator or a bank should note, said van Alphen, that all the major banks, legal firms and estate agencies have online transfer and bond cost calculators, and very often, tables in which they set out exactly what costs will apply on the purchase of properties (usually between R100 000 and R15-million). These are very easy to understand — they are based on the current regulations regarding minimum and maximum charges.

Van Alphen concluded his advice to potential home buyers by listing a typical purchase example. In this case the purchase price was R1 million and a R800 000 bond was granted.

The total costs on this purchase were as follows:

Transfer costs

Conveyancing fees R13 750

Posts and petties R850

VAT R2 044

Deeds Office fee R800

Transfer duty R12 000

Total transfer costs: R29 444

Bond costs

Conveyancing fees R9 360

Posts and petties R850

VAT R1 430

Deeds Office fee R700

Total bond costs: R12 340

Bank charges

Initiation fee: R5 700

Thus, the total extra costs on this transaction were: R47 484

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