Budget carefully before upscaling your home

If you’re planning to buy a bigger home, it’s likely that you’ve put one of the many online bond calculators to good use and made some assumptions regarding future interest rate hikes to test your affordability. While it’s important to ensure that your new bond repayments are within your means, it’s just as important to understand the associated upfront and ongoing costs that can be associated with buying a bigger home.

If you’re planning to sell your current home, you will need to factor your estate agent’s commission into your selling price to ensure that the net profits from the sale are aligned with your needs. According to Ooba Home loans, the standard commission for estate agents in South Africa is 9.75% of the sale price, although it is likely that you can negotiate reduced commission of between 5% and 7.5% with your agent – keeping in mind that there are no regulations governing the amount an agent should be paid. Assuming that you intend selling your current home for an amount of R2 million, you will need to factor in agent’s commission of between R100 000 and R195 000 which is deducted from the sale price of the property.

To improve your property’s chances of being sold quickly, it is advisable to ensure that all the requisite certificates are obtained. The cost of an electrical compliance certificate is around R1 500 – but, if any electrical faults are detected, you may need to pay extra to have the repairs done. A beetle compliance certificate is needed to ensure that your property is free from any wood-destroying organisms, and although this is not a legislated requirement for sellers, the absence of one could cause delays if an interested buyer requests one. Other certificates that you may need to budget for include a gas installation certificate, electric fence compliance certificate, and water installation certificate.

Buying property is expensive and, as a rule of thumb, if registering a bond to buy the property, it is wise to budget for transfer and associated costs of between 8% and 10% of the purchase price of the property. As a buyer, it is important to understand the difference between transfer costs and transfer duty, being two distinct costs that need to be budgeted for. Transfer costs are those costs charged by the conveyancing attorney who is contracted to transfer the title deeds of the property into your name, whereas transfer duty is tax levied on the sale of fixed property and is payable on any property purchased over R1 000 000. Keep in mind that bond registration costs, which are normally added to the total value of the home loan, are often overlooked, so be sure to budget for these.

So, if you purchase a house for R3 million, you can expect to pay transfer duty, bond registration and associated costs of around R245 000. The transfer duty rates applicable on property, as of March 2022 to February 2023 according to SARS is as follows:

Value of the property (R)​​ ​Rate
​1 – 1000 000​ ​0%
1 000 001 – 1 375 000 ​3% of the value above R1 000 000
1 375 001 – 1 925 000 ​R11 250 + 6% of the value above R 1 375 000
1 925 001 – 2 475 000 ​R44 250 + 8% of the value above R 1 925 000
2 475 001 – 11 000 000 ​R88 250 +11% of the value above R2 475 000
​11 000 001 and above ​R1 026 000 + 13% of the value exceeding R11 000 000

Over and above these more obvious upfront expenses, it’s also wise to consider other costs you may be faced with such as moving and storage costs which can range anywhere between R5 000 and R50 000 depending on your needs. The services offered by removal companies range from providing transport only to full packing, fine art removal, vehicle transfer, storage, and unpacking services, so it’s advisable to decide exactly what services you require before requesting quotes. Generally speaking, removal companies provide more favourable rates if you’re willing to move mid-week and/or mid-month, so consider this as an option if you’re looking to reduce expenses. You will also need to factor in the costs of insuring your goods in transit and during storage.

To personalise your new home, you may want to undertake alterations, renovations and upgrades, and these costs – including the costs of having plans drawn and submitted – will need to be factored in. Importantly, be sure to check that the property’s plans as held by the local council accurately reflect the physical structure on the property. Remember, once you take transfer, it will be your legal responsibility to make sure that the plans are compliant and up to date. Check also that the renovations you intend for the property are not in contravention with the property’s title deeds or any by-laws. Other upfront costs when moving into a new home may include reconnection and installation fees, cabling and networking, furniture and appliances, fittings, fixtures and soft furnishings – keeping in mind that an increase in the value of your household contents will also increase your monthly short-term insurance premiums. It is likely that you also need to increase the value of your building insurance to align it with the value of your new property, so expect these premiums to increase as well.

Assuming that you take a full bond on your R3 million property at 9.75% interest over a twenty-year term, your new home loan repayments would be R28 455 per month – but these are not the only monthly costs that need your consideration. It is likely that you will need to increase your life cover in line with the value of your home loan, so be sure to factor in a life insurance premium increase. Municipal rates and taxes are calculated on the market value of your home, which means that larger homes with a greater market value will have higher municipal rates, and this is something you will need to budget for. Your estate agent should be able to give you an indication of the rates and taxes the seller is currently paying on the property so that you can budget accordingly. A bigger home and property may mean that your water and electricity consumption increases so, again, speak to the seller to get a feel for what their monthly costs are. You may also need to factor additional cleaning and gardening services, general maintenance, DIY, and pool servicing into your monthly budget.

As is evident from the above, if you’re contemplating buying a bigger home there are a number of upfront costs together with a range of ongoing expenses that need to be carefully planned for to ensure that you are tripped up by unforeseeable expenses further down the line.

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