Buying Property As A First Time Buyer In South Africa?

You have managed to make it through college, saved some money doing part-time jobs and now you’ve finally landed that nice job you’ve been dreaming about. Next up on your checklist is buying a home. As a first time buyer in South Africa, it is important to do your homework before plunging into one of life’s most exciting times: buying your first property.

Unlike buying that new laptop, buying a home is quite different to what you’ve ever purchased before. Besides the fact that you’re not buying one every day, there’s a lot that comes into play now that you need to be aware of as you go through the stages of buying your property.

What are you looking for…

First things first: you need to decide what it is that you’re looking for. This might come across as ‘duh advice‘ but many homebuyers spend a lot of time looking at a lot of properties, only to release that they should have had a basic ‘plan of action’ prepared before they started searching.

Take a few hours and seriously ponder about what you would like to have in your new home:

  • Start with what unfortunately limits most of us: our budget. How much can you afford to spend on a monthly bond repayment? That will immediately set the tone of property that is within your financial means.
  • Now that you’ve got an idea on the amount, how about deciding on which area of town (country) you would like to live? Do you need to be close to work or perhaps you like to be close to the social scene?
  • Budget question. Check. Location question. Check. Next up is the type of property: ranging from apartment, cluster, or freestanding house? Is security very important or do you want a lot of space?
  • At this point, you’re probably need to put down the number of bedrooms. Depending on your family situation (single, small family, divorced with kids etc), you’ll need to make changes to the number of rooms accordingly.
  • Lastly, do you prefer a ‘finished product’ or don’t you mind doing some renovations to the property?

Having gone through this questionnaire above, you ought to have your ideal preferences on paper. Try to be somewhat flexible to what you came up with above, as some properties might be perfect for you, but might have a small garden vs. your desired large garden. Or your preferred location and budget combination only allows you certain properties. Don’t worry about the details. The purpose here is that you need to have an idea of what you’re looking for before you start the search!

Do your research, research, research…

Statistics indicate that a first time buyer in South Africa tends to start with his search online. You could either go to individual real estate agency websites or start off with a listing property portal such as ImmoAfrica, PrivateProperty or Property24.

The newspapers for a first time buyer in South Africa are an invaluable source as well. Even though the internet is quickly advancing, the traditional print press still has quite the cloud (pardon the pun). Weekend newspaper editions, such as the Saturday Star or Sunday Times are definitely places you ought to consult.

Make sure to visit the real estate agents’ showhouses in the preferred area of your choice. A great soundboard for the list you created on top. The agents will be able to tell you more about the upside/downside of the neighborhood, prices of nearby properties, etc.

Housing costs for the first time buyer in South Africa…

By now, you have realized that buying a house doesn’t mean that the costs of owning that house have ceased. If anything, they’re accumulating at a steady monthly pace, starting with the biggest portion of them all: the monthly bond installment.

You will be faced with quite a few extra costs which you didn’t have as a tenant:

  • Municipal rates: every few years, the municipal valuation of your property gets adjusted. Depending on your area, a certain multiplier is used in combination with your municipal valuation to arrive at your monthly rates bill.
  • If you own a property in a apartment complex or cluster, you’re very likely be paying levies as well. These pay for guards, grounds maintenance, building/walls upkeep etc.
  • The monthly electricity and water bills will be arriving at your doorstep as well.
  • Bills for the homeowner’s insurance (building), as well as household insurance (content), will also be payable.
  • And finally, the daily/weekly/monthly house repairs and maintenance (ie painting, plumbing, roof, pool etc) costs will pile on.

Hidden costs not to be forgotten…

Hidden costs might not necessarily be the correct name but it seems that a lot of few first time buyers do not realise there are more costs to buying a home than the actual purchase price!

  • The biggest chunk will likely be the transfer duty, which is payable to SARS every time a property gets sold and gets determined by the property’s value. The first R600,000 ($60,000) are not subject to transfer duty. On an example of a purchase price of R1,000,000 ($100,000) you will be looking at R12,000 ($1,200).
  • The transfer fees or conveyancing fees are payable to the conveyancing attorneys handling the transfer from a 3rd party into your name. With the example of R1,000,000 ($100,000) purchase price, this would be a R14,000 bill ($1,400).
  • If you’re opting to go with a bond, you will facing a number of costs there as well. Your bond will need to be registered with the Deeds Office via the attorneys. This bond registration fee, plus a few additional costs, would add up to total bond costs of around R15,000 ($1,500) in the R1,000,000 ($100,000) example.
  • The attorneys will charge you for a number of petty costs, which includes the FICA, copying, searching, tracking of deeds, and Deeds Office. This amounts to around R4,000 ($400) for our R1,000,000 ($100,000) purchase example.

So, if the price limit of your budget is R1,000,000 ($100,000) to purchase a home as that’s all the money you have available (via personal savings and bank loans), you need to know that the extra costs will increase by an additional R45,000 ($4,500), which practically means that your house purchase price can maximum be R950,000 ($95,000)!

Quite a crucial calculation detail you do not want to miss! The last thing you need is to put an offer forward of R1,000,000 ($100,000) on your dream house, only to come to the realization that you don’t have another R45,000 ($4,500) to take care of all these extra costs!

Get all your ducks in a row…

How does your credit rating look like? Have you been paying your outstanding bills on time? Every time? The better you have done so, the higher the odds of getting a better interest rate from the bank, as well as an increased bond amount! Not only that, but perhaps it might be worth trying to pay off all your outstanding debt before applying for a bond. Outstanding or existing debt obligations might be looked upon negatively when calculating your potential bond amount.

In addition to following what has been suggested above, it’s always a good idea to go to your financial institution and get a pre-approval. Although this doesn’t guarantee the actual bond amount, it will tell you how much bond you will qualify for, as well as give you a good idea of how high of a price you can pay for your property! The minimum you ought to do is use an online affordability calculator.

In our experience, putting down an offer accompanied by a pre-approval letter puts you ahead of 90% of the other buyers, hereby making your offer more attractive to the sellers and bringing you another step closer to buying that first home!

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