Buying a House – A Breakdown of the Costs

Note: This article was originally published on Zonotho, a financial education start-up, in August 2020

Author’s Note: This article is written considering taxes and regulations in South Africa.

For many people, buying a property is an emotional decision. They look at the living room and imagine laughing with their friends and they look outside and picture their kids playing. Many people find their dream home, fall in love with it, and based on the repayment the bank is asking for, they decide they can afford it. And then when the bills arrive in the mail, they’re caught by surprise.

In this article, we’ll break the costs down so you can have realistic expectations about what buying a property will cost you.

Ongoing Costs

Rates – Rates are monthly taxes the government charges you for owning a property. The rates for a property are public knowledge and you can ask the agent or seller for the rates before you make an offer. Make sure you factor this in along with your monthly repayment.

Levies – If you are buying an apartment in a complex (i.e. a sectional title), then you need to pay monthly levies to cover the costs of insurance, maintenance, and security. Make sure you know what the levies are as some complexes can be expensive to live in. If you’re buying a house, you won’t need to pay levies, but you will need to pay for insurance and other services yourself.

Interest – If you take out a mortgage, you will have to pay a monthly instalment. Part of this instalment will be the purchase price of the property and the rest will be interest paid to the bank. If you are just able to cover the interest payment, then you are not actually paying off the property. Ben and Thando have written more about interest payments on mortgages here and here.

Up-Front Costs

Deposit – When you purchase a property on a mortgage, many banks will require a cash deposit upfront. This is usually around 10% but ask your bank as their rules may differ. For a property costing R500,000, you will need R50,000 up-front to meet a 10% deposit and the remaining R450,000 will be a mortgage. For a property costing R2m, you will need R200,000 upfront and the remaining R1.8m will be a mortgage. This is a large sum, so save and plan accordingly.

Transfer Costs – When you purchase a property, the government requires you to pay a tax called Transfer Duty, which can be significant depending on the price of the property. You can find the SARS Transfer Duty table here. You will also need to pay lawyers and the South African Deeds Office to transfer the property into your name. All of this adds up, so ask your bank for an estimate.

Bond Registration Costs – Unless you are wealthy enough to buy the property for cash, you will need to take out a bond. You will need to pay lawyers as well as the Deeds Office to register the bond. Your bank will also charge an “initiation fee” to set up the mortgage and may also charge you to have an expert assess the value of the property (“valuation fee”). These costs add up but can sometimes be added to your mortgage. Ask your bank for estimates.

Other Costs

Moving Costs – If you can move yourself or with the help of friends and family, you won’t need to pay a mover. However, most people are going to have to pay a moving company to help with the furniture and appliances. You can contact one to get an estimate of the cost.

Repairs and Maintenance – You might be lucky enough to find a property where you can move right in. More often you’ll find the property needs some work. You might have to repaint, fix some leaks, or repair some cupboards before you’re happy with the place. Make sure to inspect the place before you buy it and make a list of everything that needs to be fixed.

New Furniture – If the layout of your new house is different, some of your old furniture may no longer be practical or you may need to buy new furniture entirely. This doesn’t need to be purchased immediately, but it is worth noting as part of the cost of buying a new house.

And with that all planned for, happy house hunting!