R150,000 hidden cost for homeowners

South Africans looking to sell their houses could be met with a nasty surprise when they realise the often overlooked costs related to home sales.

Taurus Capital’s head of property bridging finance, Elad Smadja, said expenses related to selling a house in South Africa have grown significantly over recent years and now average around R150,000.

South Africa’s property market has been under severe pressure in recent years, as the Covid-19 crisis dampened demand and, more recently, high interest rates have discouraged South Africans from buying property.

FNB’s latest Property Barometer and House Price Index (HPI) recently revealed that home prices in South Africa have shown marginal growth in the past three years, and property prices have sharply declined in real terms. 

FNB’s HPI averaged growth of 0.8% in the first quarter of 2024, unchanged from the end of 2023. This is emblematic of South Africa’s weak economy, translating into slowing property demand. 

The bank said elevated borrowing costs due to high interest rates and heightened political uncertainty are short-term factors weighing on property demand. 

Longer-term factors resulting in declining demand for property include South Africa’s weak economy and the rising cost of having a house, with electricity prices, rates, and taxes rising sharply in the past decade. 

With interest rates set to remain high for a long time, the bank does not expect an uptick in property demand soon. 

The South African Reserve Bank has signalled a potential shift towards a stricter inflation target of 3%, compared to the current 4.5% target. However, the exact timing of this change remains unclear.

This potentially means keeping interest rates higher for longer to achieve this new target and control inflation. 

As a result, the bank adjusted its forecast for the repo rate, predicting a slower and delayed decrease with some potential downside risk in the medium to long term.

These adjustments led FNB to expect a delayed recovery in the housing market, with a slightly lower overall growth trajectory compared to our previous forecast.

Smadja told Daily Investor that the problem of funding a property sale is actually becoming worse. 

“As the property market continues to slow, the waiting period between putting a property on the market and final transfer extends,” he explained. 

“For sellers who are under financial pressure, this can exacerbate problems such as arrears mortgage interest, as well as arrears municipal and body-corporate accounts.”

Smadja said the following costs can apply when selling a house –

• Bond cancellation: Bond cancellation costs are managed by the bank’s appointed attorney and include bond cancellation fees, as well as pro-rata interest.
• Rates, taxes, and levies: Sellers are responsible for paying rates and levies until the property’s registration date.
• Compliance certificates: You must obtain certificates for electrical, plumbing, and beetle inspections. These certificates typically range from R500 to R1,000 each, and potentially more if issues are uncovered during inspections as they will need to be fixed.
• Repairs and maintenance: Preparing your property for sale may require investment in repairs and maintenance to make it more appealing to potential buyers.
• Moving costs: Moving costs include expenses related to packing, hiring a moving company, storage, transportation, and potentially temporary accommodation if your new property is not immediately available.
• Personal debt like school fees or credit card payments.

However, he said there are ways for homeowners to avoid some of these costs, although many come with a caveat. 

For example, sellers who are in arrears on their rates, taxes, and levies might try to negotiate discounts with the municipality or their body corporate. However, he specified that the results of these negotiations are case-specific and not guaranteed.

Sellers could also try to shop around for cheaper providers of compliance certificates.

In addition, they can try to sell their homes without repairs and maintenance. However, Smadja warned that this may result in the property selling slowly, not at all, or at a reduced price.