HomeManaging Finances

Real cost of home ownership in South Africa

Real cost of home ownership in South Africa

Purchasing your initial property constitutes a monumentally significant fiscal commitment, necessitating a thorough comprehension of the associated e

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Purchasing your initial property constitutes a monumentally significant fiscal commitment, necessitating a thorough comprehension of the associated expenditures. Conceptualize it as an interconnected sequence of financial obligations, akin to a home buying value chain.

Before proffering an offer to acquire a house, nascent homeowners must meticulously evaluate the totality of expenses involved.

Angela Glover, spearheading product development at FNB Home and Structured Lending, emphasizes, “Erstwhile homebuyers can circumvent unforeseen financial burdens by familiarizing themselves with the commonplace expenses typically encountered during the acquisition of their maiden property.”

Dissecting the Acquisition and Transfer Outlay

Aspiring homeowners must grasp the fundamental precept that securing their dream apartment or house, procured with the assistance of a real estate agent, often necessitates the upfront payment of a deposit to the property developers or sellers. This, however, is merely the initial financial hurdle. Upon the successful acquisition of a home loan, transfer duty fees and the registration of the bond (entailing the alteration of ownership details within the property registry) must be factored into the budgetary equation, as this process is generally facilitated by legal representatives, such as attorneys, acting on behalf of both the bank and the property developers or sellers. Finalization through the Attorney’s office and the Deeds Office can transpire over a period of several months before one is able to occupy their newly acquired property.

It is noteworthy that transfer duties are not applicable to loans less than R1 million, while a graduated scale applies to loans exceeding this threshold. Customarily, attorney fees and registration costs amount to somewhere between 10% and 15% of the total bond value.

Navigating the intricacies of Bond Repayment

It is imperative for homeowners to acknowledge the existence of two distinct types of loan agreements: variable and fixed. The variable interest rate agreement hinges upon the fluctuating repo rate, established by the central bank, and the prime lending rate, determined by an individual’s creditworthiness. When repo rates decrease, there is a corresponding reduction in home loan repayments with variable interest rates, offering a measure of financial relief to homeowners on a monthly basis.

Conversely, a fixed interest rate agreement translates to a predetermined monthly bond repayment, albeit at a slightly higher rate. This remains consistent irrespective of fluctuations in the repo rate. For individuals seeking to alleviate financial stress and establish a predictable budgetary allocation for their bond repayments, this option might be eminently suitable, provided they possess a comprehensive understanding of the terms and conditions stipulated within the loan agreement.

As a general rule, anticipate your repayment to be roughly 1% of the total bond amount, contingent upon the prevailing interest rates. To gain a more precise understanding of your potential repayments, explore the helpful calculators available on the FNB App under the “Home” navigation section.

The Imperative of Homeownership Insurance

Frequently overlooked when considering the overall monthly expenses associated with homeownership is the significance of safeguarding one’s property, household contents, and oneself through life insurance. When potential property owners are advised to procure short-term and long-term insurance as a means of protecting their recently acquired asset, a common, yet somewhat sarcastic, retort is, “What could possibly go wrong?”

The reality is that life is inherently unpredictable, and unforeseen events such as geyser ruptures, pipe leaks, or house break-ins can transpire. The financial implications of repairing or replacing these damaged or stolen items are often not factored into the budget, particularly in the absence of emergency savings. Having home and household content insurance provides much-needed financial solace, offering the knowledge that claims can be filed in the event of significant mishaps. Moreover, should you pass away before the conclusion of the home loan repayment agreement, a life insurance policy acts as a safeguard for your loved ones, ensuring that the outstanding balance of the purchase price is settled by the insurance benefit.

The Ongoing Necessity of Maintenance

Houses invariably necessitate attention in the form of minor maintenance and repairs that might not qualify for insurance claims. Examples include leaky faucets, loose gutters, and other incidental issues. Allocate a portion of your budget towards maintaining your property in good condition, safeguarding its value and ensuring its continued appreciation.

Understanding Levies

If residing in a gated estate is your preference, be prepared for an additional monthly expense known as levies, which are paid to a governing body. These levies encompass estate management, 24-hour security, controlled access for residents and visitors at the main gate, municipal water and sewage charges, backup power during load shedding or outages, and the cleaning, repair, and maintenance of all communal areas within the estate. Levies typically increase on an annual basis, subject to the determinations of the Body Corporate and the agreements reached during annual general meetings.

Rates and Taxes: An Inevitable Obligation

Whether you choose to buy a freestanding property, cluster, or sectional title home, you will be charged municipal rates and taxes. The rate and taxes billing includes residential property rates depending on the market value of your home, road maintenance, street light maintenance and refuse collection.

It is important to note that some freestanding property owners have post-paid electricity and water based on their month end usage, this is usually included in their municipal rates and taxes invoice. Most cluster, or sectional title home usually have prepaid electricity meters which they need to top-up on a regular basis.

“As a prospective first-time home buyer, taking the time to understand what expenses are involved in buying a property can go a long way to help you manage your property effectively,” concludes Glover.

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