Owning a property is one of those integral steps to becoming an adult, along with marriage and babies. And like the latter two, buying a property is incredibly difficult to accomplish alone (in Cape Town at least). Luckily my parents were kind enough to help me with a large deposit, otherwise I would have seriously struggled. I still wanted to maintain my lifestyle. After all, I didn’t study my butt off to become a professional only to be crippled by debt and have to live like a pauper.
I was lucky enough to get a flat in one of these new developments that are now popping up all over the show (Obs, Woodstock, etc), and here’s my experience:
- It takes longer than they say. My block was meant to be completed in March 2017. Hand over only took place towards the end of November 2017… So always take the completion date with a pinch of salt.
- Budget for extra costs. Shortly after signing, I was given the option to upgrade some of the finishes (like the counters, floors, have double glazed windows etc). They could easily add up to an extra R100K.
- Rather put the deposit in your own savings account to earn better interest. The default option was to have the deposit kept in the lawyers’ trust account, but they offered a measly interest (I think it was around 2.5%). An alternative to that was to keep the money in a normal savings / fixed interest investment account and have the bank issue a property guarantee. I ended up putting the deposit in the FNB money maximiser account where the return was around 7%. It made a sizeable difference given the amount of time it took for the developer to finish building the block (±2 years). If you have a large deposit, it’s definitely worth while doing that. I chose the FNB money maximiser because they guarantee that you won’t lose your capital.
- Be aware of the recoupment if you are claiming the UDZ benefit. One of the top marketing ploys is they tell you about the UDZ tax benefit where you can claim up to 55% of the purchase cost as a deduction over 20 years which is not ring-fenced. But they don’t mention the recoupment… ie When you sell your property, any deduction you’ve claimed previously on the property is added back to your taxable income in the year of sale. Of course, there is still the time value of money and if you’re a savvy investor, it is still better to claim the deduction now and pay the tax later. Having said that, the equities market is difficult to predict and if you are looking to flip in the short term, it probably isn’t worthwhile claiming this deduction.
- Don’t forget about the primary residence exclusion. Unless you’re uber rich and have many properties, it is probably better to live in the flat and claim the primary residence exclusion (R2m of the capital gain is disregarded on the sale of the property).
- You’re buying it new, don’t settle for damaged parts. When I got the keys to my flat, my dad noticed two small chips in the bath tub. The agent suggested they repair the bath tub but my dad insisted that they replace it. We bought the flat new so shouldn’t have to accept anything that is broken or sub-standard. After some to and fro, they eventually agreed to replace the whole thing.
All in all it’s been a good buy. It was quite easy to find a flat mate due to the location. While it sucks to still be sharing an apartment, it helps a lot to have that extra income. And now that my folks are back home, I can finally feel like a proper grown up. :-D