DIVORCE AND YOUR HOME – WHAT YOU NEED TO KNOW
Divorce is an extremely complicated situation with both emotional and financial issues to be resolved. In all the turmoil, one of the most important decisions you will need to make is what to do about the house.
There are 4 basic options which are somewhat dependent on your prenuptial agreement. If you didn’t sign a prenuptial agreement, then you are married in Community of Property. Essentially, this means that everything that you and your ex-spouse have is shared and needs to be divided equally or a different option must be negotiated.
Your options are as follows:
Sell the home - Selling your home in this situation should have one goal – to sell for the maximum price possible. While it is possible to sell your house privately, even in these circumstances, research shows that it is helpful to have an independent, unemotional third party to assist you. From your side, you want the emotional struggle over quickly. A real estate agent has no emotional ties to the property – they want to sell your home fast and for the most money possible!
Buy out your ex - If you choose to keep the house for yourself, you will have to take a good look at your new financial situation to ensure that you can afford the monthly financial obligations. Remember, you will now only have one salary, and you may be forced to pay maintenance out of that income before being able to settle other monthly debts.
Have your ex buy you out - If your ex wants to keep the home, you would have the opportunity to start again with cash in your pocket. This can be a good position but be warned: the liability for a joint mortgage is shared by you until the home is refinanced under your ex’s name – i.e. you still share the risk on your old home if you are a co-signatory on the bond. This liability may make it difficult for you to qualify for another loan.
Retain joint ownership - In some cases, the couple may choose to put off large financial decisions, such as selling the home, until a later date. A couple may choose to rent the house out or allow one partner to live there while the other lives elsewhere. This choice lessens your immediate concerns but ensure that there is a clear understanding of who is responsible for what in the home – like home and garden maintenance, broken lights, burst geysers, etc.
If you decide to sell the home, it will be important (although sometimes extremely difficult) to work closely with your ex to maximise your return. This process should be handled by a neutral professional, and both of you should be present when a mandate is signed with an estate agent. Both of you should ensure that you understand the contract, and both need to be part of the negotiations. Your estate agent will provide helpful, third party, independent advice.
Properties Don't Sell Themselves - Eleven Things to Ask an Estate Agent
Trust is key when appointing someone to assist you in dealing with what is usually your single biggest asset. Deciding who to trust is becoming more and more difficult these days when everyone seems to be jumping on to the “quick money” bandwagon.
Many estate agents in South Africa see the real estate industry as simply a method to make quick cash. These agents may even have had some success because, when things go right, the industry is not complicated to understand and navigate.
It is when things do not go as expected that experience and knowledge (as well as qualifications) become so critical, as they can save or cost you thousands.
Listed below are eleven questions you should ask before you hire a real estate agent. Make sure that you question your agent fully before signing anything with them!
What makes this agent different?
Each agency will have a slightly different spin on what makes them different to the others in the area. For some, it will be a lower commission, some a greater advertising span. Understand what your agent will do differently from other agents. Find a response that makes sense to you directly.
What's the agent’s track record and reputation in the marketplace?
Success in real estate can quite easily be measured by selling homes. How many homes your prospective estate agent has sold recently is a quick and easy way to measure how efficiently they will sell your home. The trick here is to gain a good understanding of how your agent will perform for you against the other estate agents in your area.
What is the agent’s marketing plans for your home?
Comparing the marketing plans and strategies of real estate agencies is another way to set them apart from the competition. How visible your house will be to potential buyers is determined by how the agent you appoint will market it. Make sure that your agent includes (at least) the following marketing avenues:
- Newspaper advertising;
- Signboards; and
- Internet advertising
What has the agency (not necessarily the agent themselves) sold in your area?
Knowledge of a specific area is critical to an estate agent who is going to be able to sell your home fast and for the best possible price. With this in mind, ask how many homes have been sold by the agency in your area. If the number is small, you may need to assess whether the agent can truly assist you with pricing your house correctly or has the insight needed to sell in your area.
What does the agent value my home at, and how did they arrive at that figure?
In South Africa, most real estate agents will give you a free evaluation of your house. It is important to understand not only the value the agent gives to your house, but also how they calculated that figure. The agent who has done their homework correctly should be able to base your evaluation on the trends of similar properties sold in your area in the last few months.
Ask for references.
All agents will try to display themselves in the best possible light. Ask the agent for a few clients who have sold in the last few months that you can contact directly as a reference. Be sure to ask them the following questions:
- 1. How did the agent perform?
- 2. Did they get the price they expected for their home?
- 3. Did the marketing strategies used work quickly?
- 4. How long was the house on the market and why?
- 5. What promises were made and how did the agent deliver on them?
- 6. Were there any difficulties in the process and how did the agent resolve them
When the agent sells a home, how close (on average) is the listing price to the sale price?
This will assist you in determining your agent’s ability to negotiate on your behalf. Most agents will give you two figures when doing your assessment – a listing price and a probable sale price. Make sure that the average sale price is greater than or equal to the probable sale price. If it is lower, use another agency.
How long does it take the agent to sell homes (on average)?
If an agent takes a long time to sell a home, it could be an indication that the evaluation was not done correctly and that the price was too high in the current market. You need an agent who can sell your home fast, at the highest possible price.
Does the agent have a database of buyers?
A number of estate agents try to match a property to their database of buyers. This helps to sell the house quickly as the agent already has an understanding of the buyer’s requirements.
Are all agents working for the agency qualified?
It is now a legal necessity for agents to be qualified and registered with the Estate Agency Affairs Board (EAAB). Make sure that the agent dealing with your property has the correct qualifications to do so, or you may find that your sale is at risk.
If you are unhappy with the real estate agent appointed, what happens?
Make sure that there is a way for you to get out of your contract if you need to. Be wary of agents who try to lock you into lengthy agreements which they can get out of, but you can’t. Make sure that the contract stipulates how they will market your home.
South Africa’s VAT increase for property transactions
For the first time in 25 years, the Value Added Tax (VAT) rate in South Africa will be increased by 1% from 14% to 15%. Here’s what this means for property transactions…
All property transactions that are subject to VAT (where the seller of fixed property is registered for VAT), agents commission as well as transfer fees and bond registration costs will be subject to the recent VAT increase from 14% to 15%.
Although the date of registration of transfer of immoveable property is the relevant date for payments, it is important to take cognisance of the following “Rate Specific Rules” in the VAT Act in order to determine which rate (14% or 15%) will apply at what time:
Supply of residential fixed property
Even if the time of supply is triggered after 1 April 2018 due to payment or registration of the property in the purchaser’s name in a Deeds Registry taking place, the supply of residential fixed property could be subject to VAT at 14%.
This rate specific rule only applies if –
- 1. The contract for the supply was concluded before 1 April 2018; and
- 2. both the payment of the purchase price and the registration of the property will occur on or after 1 April 2018; and
- 3. the VAT-inclusive purchase price was determined and stated as such in the agreement.
For purposes of this rule, “residential property” includes a dwelling and certain real rights and shares in share block companies relating to a right of occupation of or interest in a dwelling.
This agent commission is payable upon registration of the transfer. However, should either party cancel the contract once it has become unconditional and prior to registration, the agent is entitled to claim commission from the defaulting party.
The construction of a new dwelling by a construction enterprise is also included.
Subject to the above 3 conditions being present the VAT rate for all contracts concluded prior to 1 April 2018 will remain at 14%. It goes without saying that all VAT agreements for the sale of immovably property entered into after 1 April will be at a rate of 15%.
Note that the above “Rate Specific Rules” are only applicable to the contract purchase price, inclusive of VAT, in a sale of immoveable property.
In the instance of agents commission, transfer fees and bond registration costs, the date of payment thereof will determine the relevant VAT percentage.
WITH THANKS TO SNYMANS INCORPORATEDAgreements of sale of immovable property: Part 2 – Tips for Buyers and Sellers
Following on from Part 1, there are a number of aspects relating to the basic sections within a contract of sale that should be considered before either party signs on the dotted line.
In terms of the Alienation of Land Act, 68 of 1981, an agreement of sale of immovable property, also known as an Offer to Purchase (OTP) in the industry, must be in writing and signed by the parties thereto. In addition to this crucial element, there are further key considerations for buyers and sellers to take into account.
Suspensive conditions
A seller must be aware that until such time as this type of condition contained within the Offer to Purchase is met (typically relating to the approval of a buyer’s bond application or the sale of a buyer’s existing property), the fulfilment of the agreement is uncertain. As such, if the condition is not met within the required timeframe, the contract will become null and void and the seller will need to explore further avenues to conclude the desired property sale.
Agent Commission
Again, it becomes important to clearly state the agent commission that the seller agreed to pay, including whether this amount (usually in the form of a percentage of the sale price) is VAT inclusive or exclusive. If not stated, it is deemed that the commission value is VAT inclusive.
This agent commission is payable upon registration of the transfer. However, should either party cancel the contract once it has become unconditional and prior to registration, the agent is entitled to claim commission from the defaulting party.
VAT and Transfer Duty
All sales will be subject to either VAT or Transfer Duty. The general rule is that if the seller is registered for VAT, the sale will be subject to VAT. Commercial property transactions will typically be subject to VAT.
Individuals, Companies and Trusts
If a legal entity such as a company or trust buys immovable property, the legal entity must be represented by an individual or individuals with the necessary capacity to act on behalf of the company or trust by way of a resolution. This would normally be a director in the case of a company, or a trustee in the case of a trust.
The sale of a property can be a complex transaction and the written agreement of sale will need to reflect all the relevant requirements and be tailored for each particular sale. As such, this should be handled with a property professional to ensure all relevant information is accurately recorded in the necessary documentation.
WITH THANKS TO SNYMANS INCORPORATEDAgreements of sale of immovable property: Part 1 – Terms of the Agreement
In terms of the Alienation of Land Act, 68 of 1981, an agreement for the sale of immovable property, also known as an Offer to Purchase (OTP) in the industry, must be in writing and signed by the parties thereto. The OTP must further contain three essential elements to be legally binding:
Essential elements of an agreement of sale
While each Offer to Purchase may vary slightly in layout and content, there are 3 essential elements which must be included in order for the OTP to be valid and legally binding. These are a description of the parties to the agreement of sale (i.e. the buyer/s and seller/s), the purchase price, and the description of the property being transferred.
In addition to these three essential elements, the OTP typically includes a number of other sections which facilitates the smooth transfer of property, and while not an exhaustive list, these are key aspects to consider:
Bonds and finance
If a buyer will be borrowing money from a bank as a means of paying for the property, this information will be recorded in the OTP. The bond will be registered simultaneously with the transfer of property into the buyer’s name. As part of this section, provision will be made for the OTP to be suspensive, pending approval of the bond application by the bank, meaning that the contract will only come into force should the buyer be approved for the required finance. If this is not the case, and the buyer does not qualify for the necessary loan, the OTP will become null and void.
Occupation
This clause will stipulate when the buyer will move in. This is important considering the buyer only becomes the owner on the date that the transfer is registered. If the buyer moves in before registration takes place, compensation in the form of occupational rent must be paid to the seller as the existing owner. The same principle is applicable when the seller remains in the property after registration of the transfer has been completed.
Possession
This section clearly outlines that all benefits and risks of ownership are passed on the date of registration of the transfer from the seller to the buyer. From this date, the buyer as the new owner of the property will be liable for all rates, taxes and levies, as well as other responsibilities related to the ownership of the property.
Breach of Contract
All remedies are clearly laid out in this section so that all parties are aware of the consequences of one party being in breach of contract, for example, if a buyer does not pay the required deposit. The conveyancing attorneys attending to the matter will take instruction to place the defaulting party on terms, providing a set timeframe, stipulated in this OTP clause, within which to remedy the breach, failing which the contract may be cancelled by notice to that effect to the defaulting party.
Purchaser’s Capacity
OTPs often stipulate that, should the property be bought by a legal entity such as a company, the individual who signs on behalf of the entity will be personally liable in the case where the company cannot fulfil its duties under the terms of the contract.
Certificates
This section sets out the necessary compliance certificates which will be required, depending on the property being transferred. These may include electrical, gas and electric fence certificates.
Cooling Off Period
In terms of the Alienation of Land Act, 68 of 1981, a cooling off period is applied to OTPs where the property value does not exceed R250 000. This means that a buyer can legally cancel the OTP within 5 working days of signing by giving written notice.
Tax
A tax clause within an OTP will deal with what type of tax is applicable to the relevant property transfer – typically, this will be either VAT or Transfer Duty.
While these are the most commonly included sections based on industry best practice, when entering into an agreement of sale or when perusing your agreement of sale, it is always worth consulting a property professional who will be able to advise you on your specific transfer.
WITH THANKS TO SNYMANS INCORPORATEDHOW DOES THE BUDGET SPEECH AFFECT YOU, YOUR PROPERTY TRANSACTIONS AND YOUR ESTATE
Hereby a summary of the most significant proposals for the 2018/2019 Budget as tabled by the Minister of Finance:
2018/2019 Tax Proposals:
- VAT: A one percentage point (1%) increase in VAT from 14% to 15%.
- No adjustments to the top four income tax brackets. Below inflation adjustments to the bottom three income tax brackets proposed.
- Fuel Levies: Overall increase of 52c/litre for fuel, consisting of a 22c/litre increase in the general fuel levy and 30c/litre increase in the Road Accident Fund levy, effective 4 April 2018.
- Luxury Goods Tax: Increase in the ad-valorem excise duties rate on luxury goods from 7% to 9% effective 1 April 2018.
- Estate Duty Tax: Increased estate duty, to be levied at 25% for estates above R30 million, effective 1 March 2018. This is a 5% increase.
- Capital Gains and Dividend Tax: The capital gains tax rate for individuals remains unchanged at 18%, while the dividends tax rate remains unchanged at 20%.
- Medical Tax Credits: The medical tax credits will increase from R303 to R310 per month for the first two beneficiaries (2.3% increase), and from R204 to R209 per month for the remaining beneficiaries (2.5% increase).
- Sin Tax: Excise duties on tobacco products will increase by 8.5% and on alcohol by 6-10%.
- Environmental & Health Tax: Increases in the plastic bag levy, the motor vehicle emissions tax and the levy on incandescent light bulbs to promote eco-friendly choices.
Transfer Duty Fees:
| Value of Property (R) | Rate |
|---|---|
| 0 – 900 000 | 0% |
| 900 001 – 1 250 000 | 3% of the value above 900 000 |
| 1 250 001 – 1 750 000 | 10 500 + 6% of the value above 1 250 000 |
| 1 750 001 – 2 250 000 | 40 500 + 8% of the value above 1 750 000 |
| 2 250 001 – 10 000 000 | 80 500 + 11% of the value above 2 250 000 |
| 10 000 001 and above | 933 000 + 13% of the value above 10 000 000 |
Estate Duty Tax:
The 2018 Budget proposes to increase estate duty from 20% to 25% for estates worth R30 million and more. This is in line with Davis Tax Committee recommendations, and in keeping with the progressive structure of the tax system. Any donations above R30 million in one tax year will be taxed at 25%, in order to limit the staggering of donations and avoid the higher estate duty rate. Both measures will be effective from 1 March 2018.
Estate duty is levied on property of residents and South African property of non-residents less allowable deductions. The duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% above R30 million. A basic deduction of R3.5 million is allowed in the determination of an estate’s liability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses.
THE 7 BIG MISTAKES MADE WHEN SELLING A PROPERTY
7 mistakes that affect your bottom line when selling your home.
I’ve been in the real estate industry for many years and have facilitated the sale of a large number of homes. During this time, I have noticed that there are a number of mistakes that are repeated by sellers time and time again. Most of these mistakes are not only expensive, but can be easily avoided if the seller knows about them!
Each mistake listed below has a financial implication and all should be taken into account when selling your home.
Mistake 1 >>> “To make money, you have to spend money”
The neighbourhood in which your house is situated should form the basis for determining how much time and money you spend ‘upgrading’ your house before you attempt to sell. The temptation is to follow the time-honoured saying “To make money you have to spend money” and go on a spending spree that adds little, if anything, to the sellable value of your home, ultimately costing you money. The seller who spends thousands of Rands ensuring that their house is the only house with a second storey water feature that is visible from the road, will often find that the feature will deter buyers instead of attract them, and that the ‘improvement’ simply takes money off the bottom line.
Mistake 2 >>> “You need to be excited and eager to sell your house”
We all want to sell as quickly as possible, but, in the eagerness to get the property on the market, we often find ourselves in a situation where we will be painting a house when it needs to go on show. Or we may not yet have finished the much needed ‘spring clean’. This often occurs in sales that are ‘urgent’ – usually because we have either not spent the time on the house before trying to sell, or because we get impatient. Remember that presentation is everything for a buyer, so make sure you have everything in place before you put your house on the market. This lie will also be used to get you to settle for an amount less that the value of your house.
Mistake 3 >>> “You should price your home on what you want to net.”
Our biggest temptation is to value our property on what we want to get out as the bottom line at the end of the sale. The problem with this pricing mechanism is that we usually come up with a figure that is not market related. Unfortunately, we can’t set the price that a person is willing to pay – the market sets that price. With this in mind, it is important to get a ‘true’ valuation of your property from a licensed professional. People tend to undervalue their houses as often as overvalue them.
Mistake 4 >>> “The best thing to do is to use a ‘trusted’ friend or family member as your Estate Agent.”
We are all tempted to use family and friends to assist us with the sale of our houses. While this is not a problem in many cases, consider the implications should something go wrong. Not only could your largest asset be in jeopardy, your relationship with the family member or friend can also be placed under huge stress. The only reason you should hire an estate agent is to sell your house, so make sure that your estate agent has both the experience and credentials required.
Mistake 5 >>> “Because selling my home is emotional, it’s OK to let my emotions play a part in the sale.”
If we’ve lived in a house for a number of years, chances are that we have grown emotionally attached (through memories and events) to at least some aspects of the house. The problem with these emotional attachments is that they often blackmail us. The seller, who becomes very attached to a specific section of the house (perhaps a baby’s room), will be deeply disturbed if a potential buyer makes an offhand remark like – “Wow! We should break this room out completely” or “Well, this will have to go!”
Emotional baggage should, as far as possible, be left outside of the house during a sale – the buyer is not buying you or your memories. They are buying a place where they can make their own memories without the ghosts of memories past haunting them.
Mistake 6 >>> “If I can hide problems with the house until after the transfer, I’ll be ‘home free’!”
If you’ve been living in your house for a few years, chances are that you’ve identified at least a few problems that you mean to get to ‘one of these days.’ Now that you are selling your house, the temptation may be to simply cover up the fact. The problem with this is that it leaves a door open for the transfer of the property to be delayed or cancelled completely. The best way to deal with things is to state the facts completely & honestly (or fix the issues before selling).
Mistake 7 >>> “Once you have a valid offer to purchase – the deal is basically done.”
It is always a thrill to celebrate a sale once you have a valid offer to purchase. We do this in many ways, including purchasing a new home, spending the ‘extra’ money we have made, etc. The problem with this is that there are still many things that can go wrong with the transaction. Your buyer could be retrenched, at which stage the bank has the right to withdraw the bond.
Your estate agent should be able to provide guidance on the applicable laws and potential pitfalls. Avoiding these mistakes is not difficult, but it often helps to discuss your sale in detail with an experienced agent.
That is why I’m here.
With thanks to Ready to Send
FIRST TIME HOME BUYERS BEWARE!!!
As with everything in life, when you are starting out with a new project, you have a lot to learn. Being a first-time home buyer is no different, and the purchasing process should be approached in much the same way.
Before you set out to purchase, you need to gain an understanding of Real Estate and your market position. Knowing what you can afford is as critical as finding the perfect home. What’s the point in getting excited about a potential new home if you can’t afford it?
This transaction will likely become your largest asset ever, so there’s little room for errors caused by lack of knowledge or by inexperience. Buying your first home can be an intimidating task, but you can ease your fears if you simply slow down and take the process one step at a time.
Below is a list of Do’s and Don’ts designed to assist first-time buyers in achieving their home owning goals without feeling the panic-inducing stress that is often associated with making your first purchase of this magnitude.
The list focuses on areas first-timers typically stumble over in their initial home buying attempts. Simply knowing what you could face in the market will help you avoid some of those trip-ups.
The Do’s
Step 1
Examine your credit standing. This should be the first step in the process of journeying toward home ownership. If you do not have a history of borrowing money, it can count against you when applying for a large loan. If you don’t have any credit cards or store accounts (Edgars, etc), consider applying for one simply to get the credit rating (just make sure you always pay it when it is due!!!). A credit check will be done by most financial institutions.
Step 2
You’re going to need assistance in this process, so go ahead and line up your dream team of professionals. You may need a real estate agent, attorney, bond originator, home inspector and others to be your professional eyes during your home search.
Step 3
Buy for your lifestyle. Your first home will probably not be your last, so try to anticipate how long you’ll live in your home and buy based on future plans. Various things like raising children, starting your own business, changing jobs, providing housing for your parents, etc. will all impact the size or type of home you need.
Step 4
Create a comprehensive budget that will assist you in figuring out your available finances. Separate your “wants” from your “needs” so you know where you can compromise to stay on this budget.
Step 5
Take your time in deciding on your home and make sure you have a clear idea in mind before you begin the process.
Step 6
When you visit a show house, check everything, including the light fittings, and ask the agent to disclose everything that is wrong with the house. This will assist you in realistically pricing the house (including fix-ups, etc.)
The Don’ts
Step 1
Don’t get so taken in by the first house you see that you stop looking. Cultivate multiple options by keeping an open mind and spending sufficient time finding the right fit in a house and neighbourhood for your needs.
Step 2
Don’t spend more than you can afford. Banks will often lend you as much as your financial condition will allow, but to stretch yourself too thin means that you may not be able to purchase other things that you want (like a new TV, washing machine, etc.)
Step 3
Don’t try and time the purchase of your house against perceived market trends. The value of a home will appreciate and depreciate in cycles which are often difficult to predict.
Step 4
Don’t appear too eager to purchase when you go to a show day. This will simply give the seller an advantage over you when the price negotiations start. Better to be clinical and approach the home as a business deal rather than a passionate purchase.
Step 5
Don’t settle for the first interest rate that a financial institution offers you – shop around. Often your local bank will offer you a higher interest rate than a financial institution looking to gain a new client.
Step 6
Don’t be scared to ask for assistance. Most issues can be avoided if you ask the correct questions of the correct people. Chat to other owners in the neighbourhood and talk to Estate agents who specialize in the area you are looking at.
With thanks to Ready to Send
The Ins and Outs of Capital Gains Tax
There appears to be a lot of confusion as to when Capital Gains Tax (CGT) applies. While it doesn’t apply to every property transaction, it is important for sellers to remain well informed and understand the implications pertaining to their particular transaction.
CGT was introduced in South Africa in October 2001. In short, it is tax payable by a seller on the profit that he makes from the sale of a fixed property or the capital acquired from the sale of assets globally.
CGT applies to all natural persons (individual South African resident taxpayers) as well as legal entities (companies, close corporations and trusts) and also includes foreign investors.
Exclusions from CGT can be found in the Eighth Schedule to the Income Tax Act, 1962 (the Act), which determines a taxable capital gain or assessed capital loss.
“When we look at the sale of a primary residence, the majority of sales transactions will not be subject to CGT because the first R2-million of any capital gain or loss on the sale is disregarded for CGT purposes,” says Marsha Haupt Cooper, principal of Links Living. “The owner or their spouse must reside in the property as their main residence and it must predominantly be used for domestic purposes and registered in the name of the natural person (individual /owner or spouse name).”
When a residential property used for business purposes is sold, the CGT exemption will be apportioned for those periods where the property was not used as a primary residence.
There are some cases where the owner of the property will be treated as having been ordinarily resident for a continuous period of up to two years even if they have not been living in the primary residence during that two-year period, provided the following circumstances apply:
- The primary residence has been accidentally rendered uninhabitable.
- The primary residence was in the process of being sold while a new primary residence was acquired or was in the process of being acquired.
- The property was being built on land acquired for the purpose of erecting a primary residence before 1 March 2012 when the primary residence exclusion was R1.5-million. (In the budget speech of March 2012 the exemption on a primary residence was changed to R2-million.)
“The most important fact to remember is that the capital gain is attached to the sale price and not the purchase price of the property. This means that there are a number of expenses that will need to be taken into account to determine whether CGT is applicable or not i.e.:
- Sellers need to deduct the amount for which the property is sold from the purchase price. They then have to add all the costs they have incurred to acquire the property such as transfer costs and duties, attorney’s fees, agent’s commission and other services. These costs must include any renovations, which qualify as improvements to the property, and routine maintenance costs. The sum of these costs must be deducted from the sale proceeds.
- Only once this net profit is determined, it is possible to calculate the CGT.
- Section 26A of the Act provides that a taxable capital gain must be included in the seller’s taxable income and will be taxed according to their tax bracket. The CGT is payable and will have to be submitted at the end of the financial year during which the property was sold.
“In the case where the primary residence is registered jointly in the names of the owner and their spouse, each one would benefit from the exclusion according to the percentage interest they hold in that residence,” says Haupt Cooper. “In the case where each spouse holds an equal share in the property, each would qualify for a primary residence exclusion of R1-million, subject to the fact that both parties reside in the property together and do not own separate primary residences.”
The sale of an individual’s second home or holiday home will have no exemption and full CGT will apply on the capital gain achieved.
Property tax is complicated and if sellers are unsure, it is always advisable to seek the advice of a professional CGT tax consultant. An expert tax consultant or conveyancing attorney can offer invaluable guidance and point the uncertain in the right direction.
With thanks to www.privateproperty.co.za
Prepare for All the Costs of Buying a Home
Wouldn’t it be lovely if the price tag on your new home was all you had to pay? In reality, there are several hidden and not-so-hidden costs associated with buying property. Here are some of the major expenses, to help you prepare.
“Buying a home is the biggest financial commitment that most people will make in their lifetime,” says Linda Rall, provincial sales manager in KwaZulu-Natal at ooba, South Africa’s biggest bond originator. “But there are a lot of other expenses to factor in, and it’s worth planning for these in advance of transfer so that you can be sure you have the money available when you move in.”
She says that the following expenses should be planned for:
Bond registration and transfer costs
These are probably the biggest cost associated with buying a property. They are also unavoidable. You can work out the fees on properties that you are considering by using the calculators at www.ooba.co.za/calculators/bond-and-transfer-costs-calculator. But to give you an idea, on a R1 million bond, the bond registration cost estimate would be R19,759 and the transfer cost estimate would be R28,875.
“These days, banks are less likely to grant 100% bonds, and they are unlikely to incorporate the costs of transfer, so make sure that you have the funds available for this vital part of the homebuying process,” says Rall.
Moving costs
You’ve bought the place; now you’re going to have to move in. Depending on where you’ve been living, and how much furniture you already own, you might have to hire a moving company to get you into your new home.
This costs anywhere between R5,000 and R15,000 in the same city, but most companies offer a discount if you move in the week and in the middle of the month, when demand is lower. You can also investigate mini move or bakkie-for-hire options, which would be cheaper, but perhaps a bit more work for you.
General repairs and maintenance
While some homes are in perfect condition on the day of transfer, chances are you’ll have to do some cleaning, repainting and general repairs to make yours feel more like home. Some of these will be essential, others will relate to your own personal taste or budget.
“You should definitely set aside some cash for these unforeseen expenses,” says Rall. “Try to gain access to the property ahead of moving in, so that you can write up a realistic budget for what you will need to spend.”
You should also set aside a few hundred rand for all the basic household maintenance items you will need, like detergents, brooms, cloths and polish. And remember that houses need ongoing maintenance, so always keep some cash ready for unexpected expenses.
Getting the utilities in
If you are buying a freehold property (not a sectional title), you will need to register for your water and electricity connection, and your telephone and internet lines if you need those. These costs vary from area to area, and the internet fee will depend on the type of connection that you want, and whether the relevant lines are already installed.
In general, put aside around R1,000 to R3,000 for connecting the electricity, water and telephone– but you may be required to put down a deposit with the telephone company as well, depending on your credit profile. Investigate the different internet connection costs with your service provider.
And obviously, once those services are connected, you will have to pay for them every month.
Prepare for rates and levies
If you have purchased a freehold property, you will have to pay rates and taxes, which can be anywhere from a couple of hundred to a few thousand rand, depending on the value of your property. Rates cover sewer usage and garbage removal, while your taxes are calculated against the value of your property. The estate agent should have included these rates in the information about the property when you were househunting, but if you need to find out, you can ask the municipality representative when you register for water and electricity. These rates will stay the same every month.
If you have bought into a sectional title, the apartment block’s body corporate will have set a levy to pay every month for the general upkeep of the buildings.
Some suburbs have additional levies that are charged for a street security guard or boom operator. While these are most often voluntary, if you benefit from the arrangement, it’s good to contribute.
Security
When buying a new home, it’s a good idea to assess the security of the other houses in the area, and find out about the crime rates from the local police station, and then update your own security accordingly. And you’ll have to budget for a monthly armed response fee as well.
“Many security companies offer a package deal on installation with a contract for a certain term,” says Rall. “Be sure that you’re happy with the length of the commitment before signing a deal like this, but it can be a very cost effective way to get a good security system in place.”
Insurance
Your bank will insist that you have homeowners insurance in place to cover any structural damage to the property. This is generally affordable with competitive options available to you and can be included in your monthly bond repayments. However, your possessions are not covered by this insurance, so it’s a good idea to explore the costs of an additional policy to cover you for theft.
Rall also cautions that if you have existing insurance cover, you must inform your broker of your new address as this can change the risk factors in your policy and alter your premiums.
Furniture and electronics
Once you have a home, you will want to fill it with beautiful things. Of course, this kind of refurbishment is a luxury, and one that can be put off until you have settled in. However, if there are any items that are vital to making your life in your new home comfortable, then get a costing on these and factor them into your budget.
“Owning a new home is liberating, but the financial commitment can feel like a burden,” says Rall. “With forethought and planning, you can budget for the major expenses that are likely to come your way, which will give you a bit of control and confidence as you settle in to your new home.”
WITH THANKS TO OOBA
Take great care in the choice of your rental agent
Make certain the agent has a track record of assessing tenants’ previous rental and credit history.
With finance for residential property purchases still hard to come by (in some less affluent areas 70% of bond applications are still being turned down), demand for rented property has improved greatly and buy-to-let investors are again evident throughout the Cape.
However, very few property investors are able or willing to find and manage their tenants themselves. They have, therefore, to rely on rental agents to do this for them – for better or for worse.
Rental agents like any other group, vary greatly in dedication and ability: some are excellent; others really should not be in this line of work.
This being the case, before an investor appoints a rental agent, he should make certain that that person has a track record of checking on and assessing tenants’ previous rental and credit history. Any tenant who has been blacklisted by credit bureaux should be suspect as should any who have fallen behind on previous rent payments or been disruptive in their communities.
In today’s rental market some buy-to-let investors favour gated communities and sectional title schemes because these maintain standards. They are (usually, not always) well managed by bodies corporate and managing agents, tend to be more secure and able to apply some control on residents’ behaviour.
If and when a tenant misbehaves some bodies corporate have the right to impose substantial fines and to double and treble these and charge compound interest if they are not immediately paid.
However, a tenant who is fined, say, for rowdiness late at night, or for blocking drains or for leaving broken windows or doors unrepaired, will often not pay the fines, and the landlord, seeing these fines mount up month by month, will be forced to pay them. It is, of course true that the tenant’s one or two months deposit can be seized to cover these outlays but with this type of tenant the full deposit – and more – will often be needed to rehabilitate the unit when his lease has expired.
It is far better, therefore, to leave a unit untenanted than to accept a tenant over whom there is a question mark – but lazy or greedy rental agents will often do this and will later make matters worse by not reporting problems to the landlord and by neglecting to submit detailed monthly report backs and accounts.
The moral of the story, therefore, is Yes, buy-to-let is a good field to be in right now but be very careful about the rental agent you choose – and if his or her principal is not a good administrator (many agencies’ principals loathe this side of their work), look elsewhere for your rental management service.
WITH THANKS TO LANICE STEWARD
Six misconceptions about homeloans
Information on how to apply for bond finance to help purchase a home has been disseminated by SA’s banks and bond originators in a steady stream for some years.
Aspirant home buyers applying for home finance frequently make false assumptions that create problems in the application process.
Property consultants find themselves daily dealing with false assumptions which often reveal a deep-rooted ignorance as to the rules of property purchasing and how to finance these transactions.
1. Minor or not too serious credit defaults in one’s past will either go undetected by the banks or will be overlooked.
“There is a perception that, for example, a missed installment or two on household appliances or a car is no great issue. However, every credit payment failure is a black mark on the applicant’s record and the chances are high that it will have been recorded.
To get a big percentage bond, you have to have a completely clean record. A bank might still make an offer to such a client, but it certainly will not be above 90%.
2. Those able to get a loan at 2% below prime before will be able to do so again.
This misconception crops up regularly with those who bought in the boom times prior to 2007 and probably did get a very favourable rate then.
Today the banks are pricing for risk (as they perceive it in the client’s position) and for increased profits. In practice this means that, even with “good” clients, bonds are typically awarded at the standard rate or often above it, i.e. 9.5 or 10%. Those who now get even 1% below prime, are the fortunate low-risk few.
3. The applicant’s own banks will give them the best deal.
Regrettably every bank has different lending policies and different views of risk. “Every loan is treated on its own merits and, as the banks’ lending criteria are all different, the borrower will quite possibly get a better deal from a bank he has never dealt with before.”
4. A bank valuation on the property means that the bank has given it a “clean bill of health” and it is in an acceptable condition.
This is not the case. The bank valuer’s task is simply to assess the market value of the home at the time it is bought.
5. Home buying and getting bond finance are not for the poor.
SA’s banks he says have committed themselves to the affordable (R350 000 to R500 000) market and, if anything, are inclined to be a little more lenient in their rulings here than on the more expensive properties.
The goal is to make South Africa a property owning nation, and the latest figures from FNB do show a big rise in first-time home buyers, who now comprise 23% of the total.
6. The bond applicant working overseas and earning a big salary will be considered a good loan risk.
Again this is not true – the banks have seen too many cases in which, on returning to SA, the high wage earner has had to settle for a substantially lower salary which in turn, has made it difficult for him to service a big bond perhaps granted on the higher income he was earning overseas. The banks therefore tend to limit overseas applicants’ bonds to between 50% and 70% of the purchase price, he adds.
Is there a general rule of bond financing illustrated by these common errors?
The rule is that those who persevere win in the end.
It may take time, but if the applicant works at qualifying for a bond, he will often do so in the end, even if he has to lower his sights in the process.
Tips on buying a home
Here are a few tips on buying any property. It’s a major purchase, yet some people spend more time on choosing where they go on holiday than on buying a new home.
1 – Be an intelligent home buyer. Anyone looking to buy a home should do so carefully. Take your time to find the right one. Do not treat home buying like you are shopping at the mall. A serious buyer looks at their present needs in addition to their future prospects. This will help you purchase the right place.
2 – Consider hiring a buyer’s agent. A buyer’s agent is one who’s there to look out for your needs. They’ll know the best tips, tricks, and solutions to any problem you may have.
3 – Enquire about the owner’s title insurance. If the owner is set to renew the home’s title insurance, save money by buying a reissue. A complete new title insurance policy can range in price. You lose nothing by reissuing insurance. This is one to save money when buying.
4 – Have your money in the right spot. If you are an investor, you need to be prepared when you are ready to buy. Closings can happen in a number of days if you’re ready. If you aren’t, it can take much longer. If you are a cash buyer, you may need to move funds around to afford the purchase. No matter what, the money you need at closing should be available a few days ahead of time. This will ensure there is a smooth transaction.
5 – Get involved in the buying process. Hiring a real estate professional will help you but you should not allow them to do everything. This is the biggest mistake a buyer can make. You need to know what is going on. You should be aware of the smallest details. These details will keep you informed and help you to know what you are getting into with your purchase.
6 – Bad weather can be an advantage. Most people will avoid going to open houses in bad weather. This is a mistake you won’t want to make. Bad weather is a good time to check out a new home. This is going to let you see how the home handles the weather. If you want to check for leaks and poor roof quality, a rainstorm is the time to do so.
7 – Rate the homes you view. If you plan to see more than a few homes, rate them to keep track of the ones you like the best. This will keep everything in simple order for you. Rate the homes on what you need, want, and their ability to resell at a later date. This removes your worry of remembering if house 3 or 4 was your favourite.
8 – Don’t buy at the asking price. Do not assume you have to pay whatever the seller is asking. As a buyer, you have the right to make an offer. If the offer is not too low and you have financing lined up, the seller may be receptive. Check with your real estate professional to see if your offer is too low. They should have a firm grasp of the current market value. They can tell you what the home is really worth.
9 – Sell your home before buying another. Sellers are more willing to deal with people that are ready to move. If you are looking to buy on the contingency that your old home sells, be prepared to lose the home you want. Unless you can afford an extra house payment, avoid contingency buying and concentrate on selling. Then you can buy when you’re ready.
10 – Don’t let someone else choose your home. You are the one that will live in your new house. Don’t be bullied into choosing something. The average new home is picked out within a week. If you don’t find something you’re satisfied with, wait until you do. Take as long as you need. This is your financial investment and not anyone else’s.
Posted by: DWC Realtors
