Whats important to know upfront is whether or not the Seller is
acting in the capacity of a vat registered vendor.
This will determine whether Vat is applicable or Transfer Duty.
The other important questions concerns what is actually being purchased.
Is it for example a “going concern” or is it simply a warehouse with offices to be occupied by the new owners.
Here is a link to a useful costs calculator provided by courtesy of Faurie Nell Inc of Dunkeld West.
Various cost items that typically affects a property transaction in South Africa are as follows:
Costs to the Purchaser:
Attorney (Conveyancer’s) Fees
The first cost item to consider when buying a property is the conveyancing (attorney) fees. Although the purchaser pays the Conveyancer’s fee, it is usually the seller who appoints the attorney. This ensures that the conveyancer acts in the Seller’s interest and prevents unnecessary delays in the transfer process.
The conveyancer’s fee is paid for his/her role to change the ownership of immovable property from the Seller to the Buyer in accordance with the Deed of Sale.
Property Search Fee
The conveyancer has to do a Deed Search to ensure that there are no conditions in the title deed that prevents the proposed nature of the transaction. This is a fairly involved process as in many cases Title Deeds may refer to conditions in prior Title Deeds
Postages and Petties
Postages and Petties includes (but is not limited to) telephone costs, postage and courier fees, administration fees and bank charges. As a rule, the Transferring Attorney can recover any direct costs associated with the transfer of a property, but in reality it is often difficult to calculate the exact amount applicable to a specific transaction. Thus an estimate is used.
With the introduction of the Financial Intelligence Centre Act in 2001, it became compulsory for all persons listed as Accountable Institutions in the Act to establish and verify the identity of any client prior to establishing a business relationship with such client. These include requiring a proof of residential address, the verification of the Identity Documents of the client and an in-person identification of the client. All documents pertaining to such verification must be stored for a period of at least five years.
Electronic Generation Fees
Not all attorneys charge for Electronic Generation Fees, but nowadays this practice is quite common. This charge is usually disbursed to the purchaser when the Conveyancing Firm makes use of the Transactional Billing option that is offered by many Software Vendors. The Firm pays a fixed amount per set of documents that is generated with the software and this is passed on to the purchaser.
The conveyancer must obtain a Rates Clearance Certificate from the Local Authority to verify that there are no outstanding Rates and Taxes payable by the Seller. The municipality will not issue a Rates Clearance Certificate before all outstanding monies are paid.
Provisional Rates and Taxes
The purchaser will have to pay all rates and taxes 4 months in advance before the registration of the property can take place, but can claim a refund from the council for any amount paid, which is attributable to the rates due, following the registration of the Transfer
Deeds Office Fee
The Deeds Office’s Fee for transferring a property is calculated on a sliding scale based on the purchase price of the property and is published in the Government Gazette from time to time.
Transfer Duty is a Tax that is levied by the Government on property transactions that depends on the Entity that buys the property.
For Natural Persons the tax is calculated on a sliding scale based on the purchase price of the property:
Below is a summary of the transfer tax rates from 01 March 2016.
Value of the property beeing transferred Transfer duty rate
R 0 – R 750,000 – No transfer duty
R 750,001 – R 1,250,000 – 3% of the amount above R 750,000
R 1,250,001 – R 1,750,000 – R 15,000 + 6% of the amount above R 1,250,000
R 1,750,001 – R 2,250,000 – R 45,000 + 8% of the amount above R 1,750,000
R 2,250,000 – R 10,000,000 – R 85,000 + 11% of the amount above R 2,250,000
Above R 10,000,000 – R 937,500 + 13% of the amount above R 10,000,000
Entities pay a flat rate of 8% but if they are registered for VAT can claim Transfer Duties paid back from the South African Revenue Service (SARS), but must levy VAT on top of the sale price when they sell the property again.
A Seller registered for VAT can sell a property as a going concern to Purchaser who is also registered for VAT and then a zero vatable transaction can occur.
Property Owners Association Consent and Admin Fee
It is often a condition of the Local Authority that properties in Property Owners Association (POA) may not be transferred without the consent of the POA. This prevents the situation where a property can be transferred to a person who has not bound himself to the rules of the POA. The cost levied differs from onePOA to the next, but typically is around R1000-00 plus VAT.
Bond Registration Costs
These are paid to the conveyancer also known as the registration attorney for registering the mortgage bond. These fees comprise the conveyancer’s fees plus VAT.
Bond initiation fee
This is a once-off fee covering the cost of processing the home loan application.
Costs to the Seller
Estate Agent Commission
If a seller employs the services of an estate agent, the amount of commission negotiated will be payable by the seller on the registration of the transfer of the property. Commission usually varies between 3% and 5% (excluding VAT) of the selling price of the property.
Bond Cancellation Costs
If a bond is cancelled, the bank may require a three month notice of the seller’s intention to do so. If the seller fails to do this, the bank may charge interest for up to three months.
The fee paid to the attorney of a bank for the cancellation of an existing bond is +/- R 1 600.00.
Electrical and Gas Conpliance Certificates
The seller is obligated to give the buyer an electrical compliance certificate and is liable to pay the cost of any repairs to the electrical installation. Cost: Approximately R1500-00 plus vat.
Capital Gains Tax
Sellers have to pay capital gains tax on a property when it is sold. A capital gain (or loss) is the difference between the base cost of an asset and the net selling price upon the disposal of the asset.