If Michael buys an off plan home to the value of R2.0m, he will only need to pay for the 10 % deposit that the bank requires. The developer will be paying the bond and transfer fees and transfer duty does not apply.
However, if Michael buys an existing property, the R200 000 cash needs to be used for the 10 % deposit, fees and transfer duty. They will then need to set their lifestyle expectations on a home of about R1.38m. In such a case the fees and transfer duty will amount to nearly R62 000, and the 10 % deposit will be
R138 000. An alternative will be to postpone their purchase decision until they have more cash available, but this comes with the risk of higher property prices in future. The graph for Example 2 shows how much cash a buyer needs to buy a property, assuming that a 10 % deposit will be required. The difference between the‘ buying off plan’ line and the‘ buying an existing property’ line is the sum of the fees and the transfer duty that are payable when buying an existing property. The red signs indicate the values from this example.
X
X
In the same vein, a client who has R300 000 cash available may meet the criteria for an off plan home of R3.0m, but will only meet the criteria for a R 1.95m on an existing home.
Note that both these examples focus on the transaction costs and impact thereof and do not reflect the change in monthly loan repayments. Monthly loan repayments are specific for each borrower and is based on the capital borrowed and the buyer’ s credit profile.
Notes:
• Transfer duty is not payable when buying off plan from a developer because VAT is already included in the purchase price of a new development( provided the developer does developments as their main line of business). In contrast to this, when you buy an existing home from another owner, the buyer pays transfer duty, which is paid in addition to the purchase price. As the tax component is included in the purchase price with a new development, this can be financed through the home loan.
• When you consider buying a property off plan, confirm upfront with the agent that the fees are paid by the developer and transfer duty is not applicable.
• There are also other benefits when buying newly developed properties: o Everything in the property is new; therefore the maintenance should be minimal for a number of years. o The finishes should be more modern, which means that you have a much longer time before considering renovations.
RESOURCES
True Value Properties
18 FEBRUARY 2017 SA Real Estate Investor www. reimag. co. za