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