The South African government’s decision to reduce transfer fees for properties under R2.3 million have left many home owners with an interesting question; is it the right time to be renovating or should you be looking at purchasing that new dream home?
In February, Finance Minister Nhlanhla Nene announced a reduction in transfer fees on the sale of residential properties which will provide welcome relief to middle-income households. The new rates eliminate transfer duty on properties below R750 000, while the rate on properties above R2.2 million have been increased.
The move means a removal of one of the barriers to entry for people interested in purchasing a home, particularly first-time buyers, leading to an increase in demand for properties in this sector, which will in turn drive up property prices.
Home owners are now faced with the dilemma whether to buy a new property and relocate or if it’s best to rather renovate.
“Buying a home is a major commitment, and most probably represents the largest investment most of us will make in our lifetime. The decision by government to reduce transfer fees and increased level of developments means that many South African home owners now have more options when it comes to getting the best return on investment,” says Carel Grönum, Managing Executive of Absa Home Loans
It is therefore imperative, Grönum says, that existing homeowners do their homework well before deciding on the most prudent investment.
Here are five tips to help you make a more informed decision:
Ensure it makes financial sense: Interrogate your finances and weigh up the costs of buying new versus renovating. Which one will be a better return on investment? The possible financial gain, while not the only reason, should be key when making your decision. Calculate how much it costs you to live in the home that you are currently in. Don’t forget to include rates and taxes, household insurance policies, and other costs.
Work out if you can afford the costs of owning the new home: When looking at properties to purchase, make sure you do your homework thoroughly. Consider all the reasons that make you want to move house i.e. location, traffic etc.
Don’t forget about the hidden costs: Transfer duties might be lower but don’t forget about things like conveyancer’s fees and deeds office costs. If you’re selling, remember capital gains tax, the estate agents commission and bond cancellation fees.
Calculate your disposable income: Income tax is up, the fuel levy has increased and the petrol price is expected to increase further. All of this will mean an increase in your cost of living which will affect your monthly disposable income.
Do a projection: Consider the potential growth value of the home that you are currently living in versus the area that you want to buy in. You may get far better value in one area i.e. a bigger home for less, but a smaller home that costs more in a better area may enjoy a better return over the long-run and be easier to sell when the time comes.
For more information on how Absa helps guide you home, search Absa Homeloans at www.absa.co.za.
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