Buying a property, particularly if it is to be your home, can be a rewarding and challenging exercise. If the property is to be your home, the purchase is an investment in your and your family's future. A sound choice will enable you to enjoy capital growth and to upgrade as your income or requirements increase.
This brochure is intended primarily for the home buyer. However, many of the principles and procedures apply to the property investor. We hope the information will guide you into making a sound choice and a worthwhile investment.
At the outset it is necessary for you as the purchaser to:
- calculate what you can afford or want to spend and decide what type of property you wish to buy.
The next stage is to start searching for the property in your price range.
You will inevitably look in the local newspapers where estate agents offer properties for sale on behalf of their clients - the sellers.
We shall discuss how the estate agent can help you in another part of this brochure.
Once you start looking you will have to choose one of the properties shown to you.
We hope to give you some guidelines to help you choose.
When you have made up your mind, you make an offer to buy the property. The main provisions of the offer are described below.
THE FINAL STAGE
Finally, with the assistance of the seller's conveyancer, the property is transferred into your name.
HOW MUCH CAN YOU AFFORD TO SPEND
Many purchasers fail to do their sums properly. As a result they run short of funds and are embarrassed. The starting point is the amount of cash you have available. The rest of the money will have to be borrowed from a bank. The bank lends money with the property as security, protected by a mortgage bond in favour of the bank over the property.
The banks have rules about how much money may be lent to any one person. The main restriction comes from the borrower's ability to pay the monthly instalment on the loan. This instalment may not be more than 30% of the available income.
Before you start to buy therefore, find out from your bank:
- how much the bank will lend to you;
- what percentage of the purchase price is covered by the proposed loan;
- whether the bank will prevalue the property before you sign an offer to purchase; and \whether you should consider a mortgage protection policy.
Thus, if the bank will lend you 80% of the purchase price and your income allows you to borrow R200 000,00 you can buy for up to R250 000,00. You will then need a cash deposit of R50 000,00. Any loan in excess of 80% attracts extra interest.
For certain employees, notably civil servants, there are subsidy and guarantee schemes available. You should therefore find out from your employer whether you qualify for extra help. Your bank, attorney or estate agent will usually have details.
BUT in the example given, the R50 000,00 cash will not be enough. You must also pay the following amounts in cash. [We have used approximate figures which must be checked properly.]
Transfer duty to the state on a property of R250 000,00
[If the seller is a registered vendor for VAT, transfer duty may be avoided.
The amount of transfer duty is higher if you buy in the name of a company, close corporation or trust.
R 10 100,00
Transfer registration fees, including VAT to the Conveyancer
R 3 130,00
Cost to the bank for inspecting the property [This may vary]
Stamp duty on a bond of R200 000,00 R 400,00
Bond registration fees, including VAT to the bank's conveyancers
R 1 960,00
Deeds office registration levies R 230,00
Your share of the annual rates
[Municipalities require the total annual rates to be paid before registration]
[This does not apply to sectional title levies]
R 1 200,00
Annual comprehensive insurance premium to the bank [This may vary]
In addition to the cash deposit you will need approximately R18 320,00.
Note: These figures are estimates only. R18 320,00
The estate agent should be able to assist you with most of this information. In the case of a private sale your attorney will help you with the figures.
BUT remember the cost of
- new curtains, appliances and furniture;
- furniture removal costs;
- possible repainting;
- new school uniforms; and
- telephone, electricity and water deposits
THE ESTATE AGENT
In the residential property industry it is accepted by both sellers and agents that the agent acts for the seller. Thus it is the seller who pays the agent's commission. Occasionally a purchaser may appoint an agent to find a specific commercial or industrial property.
On these rare occasions the purchaser must ensure that a proper agreement is drawn up regarding the agent's mandate and remuneration.
Agents entrusted with the sale of a property advertise extensively. The result of this advertising is usually the first contact between agent and purchaser. The purchaser must deal with the agent who is offering a property for sale. If the agent recognises a purchaser who is willing and able to buy, the agent will try to find a property which interests the purchaser.
The purchaser is likely to be shown a representative selection of available properties because most agents have access to a property listing service or can persuade other agents to share commission. If this happens, the purchaser should try to stay with an agent who demonstrates competency and compatibility.
WHAT TYPE OF PROPERTY?
Before you start searching you should identify the type of property you want to own:
- townhouse or cluster housing;
- house with a granny flat;
- house in the country; or
- thatch roof etc.
It is also helpful if you have an idea of the number and type of rooms and amenities required (pool, braai area, garden size etc). A useful guide can be obtained by visiting the weekend showhouses.
Ultimately, the type, size and quality is dictated by your ability to pay.
EVALUATING A PROPERTY
- Ask for a written list of known defects.
- Establish which movable items are included in the sale
(television aerials, swimming pool equipment, stove etc).
- Examine the roof and ceiling carefully and consult an expert if necessary.
- Look for dampness in walls.
- Look for signs of cracks due to poor foundations.
- Insist on an electrical certificate of compliance and inspect the plumbing carefully.
- Inquire whether there are any known boundary encroachments.
- Ask if a comparative market analysis is available.
- Find out if a borer beetle certificate is being offered.
- Be careful of flood risks and sloping ground.
- Evaluate the locality carefully with reference to schools, transport, other public services, cultural, social and sporting activities.
Try to avoid buying a property which is out of character or value for its area. In case of doubt, seek outside professional assistance.
THE AGREEMENT OF SALE
Every sale of immovable property must be in writing. The seller and the purchaser must both sign the document and initial changes.
Either party may appoint, in writing, someone to do so on their behalf.
An offer to purchase signed by the purchaser becomes a binding agreement on written acceptance by the seller.
SOME PROBLEM AREAS
Experience has shown that with care mistakes and complications can usually be avoided. For example:
- Read and understand the sale agreement before signing it.
- Do not be rushed into making your decision.
- Do not buy another property until your finances are in order and if you are selling a property, ensure that the two transactions are properly linked.
- Ensure that the agreement of sale is clear on all important items.
- Your deposit should be invested in trust until transfer.
If you have any doubts, seek advice.
Sale of flats and townhouses are along similar lines as conventional houses. In addition remember:
- Exclusive use areas such as parking bays and garden areas should be mentioned in the agreement of sale.
- Special levies may need to be negotiated.
- Study the rules and the body corporate's financial statements.
THE REGISTRATION PROCEDURE
After the agreement has been signed and the conditions met, the property must be registered in your name.
The South African deeds registration system is arguably the best in the world.
The conveyancer will contact you:
- for proof of identity
- for payment of the cash deposit
- to arrange the financial guarantees from the bank
- to pay costs, transfer duty, share of rates, etc
- to sign the necessary documents
- for the occupational interest.
The period for registration will vary according to the time taken to meet the special requirements of the parties. The usual period is between 30 and 60 days.
After the transfer is registered the conveyancer will send you a final accounting and, ultimately the title deed (unless the Bank holds it).
If you do not understand the process, you are entitled to ask for explanations. It is your right to expect that the conveyancer will personally attend to you when signing documents. Furthermore you should insist on receiving regular progress reports. However, the greater your co-operation, the sooner the transaction will be completed.
It is not essential for the purchaser to have separate legal representation. However, advice should be sought before signing the agreement of sale if you have any doubts.
Similarly if difficulties arise over registration or occupation, it may be necessary to seek legal help.
You are entitled to expect and to insist on professional service from the estate agent and the conveyancers. If you receive this, the pleasure of buying your property will be enhanced.
For more information, contact our offices on +24 41 396 9200.