What It Takes To Purchase A Home

Purchasing a property requires more than just the need or want to own a home. It also requires a certain amount of knowledge, intelligence and attitude!

Here are some important aspects to consider...

1. What can you afford if you do not possess the full purchase price in cash?

Of course, finance is always the first consideration. Do not purchase outside of your means. In other words, do not spend more than 30% of your combined (if purchasing with a partner) gross income on the financing of your purchase. Also, your monthly mortgage payment should not exceed your net income after deduction of your fixed monthly costs as well as your monthly expenses.

The best advice is to always to make the biggest possible down payment, i.e. at least 20% of the purchase price and then see if the balance can be financed by means of a mortgage loan based on the above calculation.

If not, you are aiming too high!

2. Purchasing costs

Always calculate the costs of purchasing a new property so as not to be short of cash when taking transfer of ownership. Here is a checklist for buyers to utilise when purchasing (your professional REDZetc estate agent will provide you with all of the relevant costs as listed below) :

• Transfer Duty
• Rates Clearance Certificate
• Levies or HOA clearance certificate (if applicable)
• Conveyancer's transfer fee
• Deeds office fee
• Deeds office search
• Posts & Petties
• Conveyancer's Electronic instruction fee
• Electronic Rates fee
• Municipal provision for Rates and Taxes (if applicable)
• Occupational Rental (if applicable)

3.  What taxes apply when purchasing and once you own a home?

3.1 Acquisition taxes: These are payable either in the form of Transfer Duty or VAT. Transfer Duty is payable unless the seller is a VAT vendor in which case the purchase price includes VAT and the purchaser is then not liable for Transfer Duty. (In the next article we will discuss acquisition and disposal taxes in more detail).

3.2 Taxation payable by the homeowner: Once you have taken transfer of ownership of your home you will become liable to pay Rates and Taxes to the local municipality. Should you be purchasing in a community scheme there are also levies payable. It is also wise to consider the fact that you may also be liable for capital gains tax when you again dispose of your primary residence and the gain exceeds R2 million. Should your acquisition be a holiday home, CGT is payable on the full gain (minus certain allowable deductions).

4. If you need to sell your existing home in order to purchase a new one

It is extremely important to understand how a sale works when your offer to purchase (OTP) is subject to the sale of another property. The transaction is dependent upon the sale of the buyer's current home. If the condition is met in the agreed time-frame, the sale contract becomes binding and if it doesn't sell by the specified date, the contract is terminated.

This type of conditional sale normally allows the seller to continue marketing the home with the stipulation that the buyer will be given a certain period of time (normally 72 hours) to waive the benefit of the condition if the seller receives another acceptable offer. If the buyer cannot waive the condition, the seller may accept the new offer and the deposit is returned to the buyer.

This type of suspensive condition must be inserted into the OTP in order to protect the buyer, but the 72 hour escape clause is necessary to protect the seller's interest. It is important that the exact details of the suspensive condition must be specified in the OTP and that both parties to the contract understand the meaning and consequences thereof as the agreement of sale is a legally binding contract. A qualified REDZetc real estate agent or an attorney should be consulted to ensure the correct legal utilisation of such a condition.

5. Making your final decision is reliant on so may factors...

5.1 Location: Why the fuss? Of course, you want to purchase in an area where you are secure in the knowledge that your investment will grow and you will obtain the best capital growth over time. It is therefore absolutely necessary that this research is undertaken by yourself or on your behalf by your REDZetc real estate agent that you have built a good relationship with and is looking after your best interests.

The statistics including recent and long-term trends should provide a buyer with valuable information regarding specific areas, especially in terms of the current situation being one of a buyer's or seller's market.

Price range will be a factor in deciding on the geographic location and neighbourhood and the age and personal circumstances of the buyer will also play a major part in selecting an urban location or perhaps one closer to schools, shops, the sea or walking trails.

5.2 Property type, style and size:  Purchasers should carefully consider whether a single, double-storey, duplex, apartment, townhouse or gated village is their preference according to their personal needs. The style can also be another major consideration when one considers a future home's appearance and also function. Open-plan or separate formal areas? More traditional or modern?  A large or smaller garden?

Some buyers have a picture of their ideal home in mind in respect of size, number of bedrooms, bathrooms, entertainment areas, garages and more. Nowadays many people work from home and require a home office and a buyer may need an extra hobby or playroom. It is also necessary to consider not only current but also future needs in respect of the possibility to add on more rooms later or a swimming pool or undercover braai.

5.3 Age of the home: Modern homes may have newer architectural features like granite counters and clean lines with polished cement finishes, but older homes possess a certain charm and stability and are normally set in a lush established garden that a purchaser may desire.

It can be challenging to find a home that meets all the buyer's needs and desires...and still stay within the budget. Good deals can be found, but never buy in a hurry! Buyers who take their time and connect with a really good, well trained and professional REDZetc estate agent that understands them and is not pushy will always find the 'right' home at the 'right' time at the 'right' price!

Pam Snyman CPRE (NQF Level 7)

(MPhil, Dip Advanced Property Practice, Dip Property Investment & Valuation)