Property is one of the biggest financial commitments you will ever make in your life. Upscaling to a bigger house comes with numerous hidden costs – both upfront and ongoing expenses – that many homeowners tend to overlook. When contemplating buying a bigger house, consider the following when doing your budgeting exercises:
- Transfer costs: As a buyer of a property, you are liable for transfer duty and costs on any property purchased for over R900 000. The transfer costs and duty are paid over and above the cost of the property and is based on the price of the property. So, if you purchase a house for R2 million, you can expect to pay transfer duty and costs of around R91 000. In addition to this, you would need to pay bond registration fees, bank initiation fees, Deeds Office levies and property transfer costs. Your total costs on a property purchased for R2 million would be around R130 000.
- Monthly bond repayments: Assuming you do not pay a deposit on your new R2 million property, your new monthly repayments would be R19 300 per month at an interest rate of 10% per annum. You will need to factor these increased repayments into your monthly budget, making allowance for potential fluctuations in prime lending rates.
- Electrical and beetle certificates on your old home: If you are selling your old home, remember that you will be responsible for obtaining electrical and beetle certificates. Depending on the condition of the wiring in your home, you may need to outlay some capital to meet the electrical compliance criteria.
- Life insurance: If you have bonded your property, the bank may require that you have sufficient life cover to the value of the home loan. This is to ensure that the home loan can be repaid in the event of your death. While many banks will provide you with quotes for this life cover, it is likely to be more cost-effective to increase your existing personal cover to cover the bond amount. You are not obligated to purchase the insurance offered by your bank.
- Rates and taxes: Municipal rates and taxes are calculated based on the market value of your home, which means that larger homes with a higher market value will have higher municipal rates. Speak to the seller of the property about what they are currently paying in rates and taxes so that you can build this amount into your monthly budget.
- Water and electricity: A bigger home and property means that your water and electricity consumption is likely to increase. Again, speak to the seller to get a feel for what their monthly usage is. If you intend installing solar panels or geysers, add these costs into your budget.
- Capital Gains Tax: If you are selling your primary residence, you will be exempt from Capital Gains Tax where the profit you make from the sale is below R2 million. Thereafter, 40% of the net capital gain will be added to your annual taxable income. CGT will therefore only affect you if you have made a profit of more than R2 million on the sale of your home.
- Moving costs: The costs of hiring movers differs depending on the services that you require, the distance that you are moving and the quantity of furniture that you have. Prices can range between R1 000 and R50 000 depending on your needs, bearing in mind that you will also need to take out insurance to cover any damages during the move.
- Storage: If you need to move into a temporary home or don’t plan to take all your belongings to your new home, you may need to incur storage costs. These costs depend on the size of the container, the number of items going into storage and the length of time you need storage facilities for. Once again, you will need to insure these belongings.
- Reconnection and installation fees: When moving from one home to another, you will need to arrange for the disconnection and reconnection of services such as Telkom, DSTV and fibre. You may also need to incur costs installing having your TVs, sound systems, appliances and computers according to your specifications.
- Cleaning: Depending on the state of your new property, it may be necessary to pay general cleaning, fumigation and carpet cleaning contractors to get the house ready for your arrival.
- Minor renovations and plans: Be sure to check with the seller and the local counsel that the plans the counsel have a record reflect the physical structure(s) on the property. Once you take transfer it will become your legal responsibility, and therefore at your cost, to ensure these plans are legal and up to date. If you intend doing renovations on your new home, obtain some quotes beforehand so that you know how much you are in for. Remember, depending on the nature of your renovations, it may be necessary to hire an architect or draughtsman.
- Landscaping and gardening: If you are not a gardener, it may be necessary to hire a landscaper to design and establish your garden. This could include costs such as sinking a borehole or well-point, installing an irrigation system, sourcing plants, and purchasing garden appliances. If your new garden is substantially larger, bear in mind that you may need to hire a gardener or garden service more frequently.
- Soft furnishings and décor: All your curtains and blinds will either need to be reconfigured to fit the windows and doors of your new home or purchased new. Other soft furnishings you may need to spend money on include lights and light fittings, bedding and linen, cutlery, crockery and décor accessories.
- Furniture and appliances: A bigger home will require more furniture and these costs should be factored into your budget. If your old appliances such as fridge, dishwasher, stove and tumble dryer do not fit into your new home, you may need to replace these with new appliances.
- Building insurance: A larger home with a higher market value will generally mean that your building insurance will escalate and result in a higher monthly premium. An extra living room, bigger entertainment area, larger patio or extra bedrooms means you will need to spend money furnishing these rooms.
- Maintenance and upkeep: The size of your new property may result in increased maintenance and upkeep costs. A larger property means more can go wrong, and it makes sense to build extra maintenance costs into your budget, especially if you have additional facilities such as a swimming pool, extra garages, fishponds, jacuzzi or tennis courts.
- Security: It may be necessary to install or upgrade the alarm system in your new home, hire an armed response unit, install electric fencing and security gates, or add extra burglar bars, all of which cost money.
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