Property buying costs you should be aware of
Properties at Ela Beach
Buying a property is a dream for many. But the cost of buying property is so expensive these days only a few get to realise that dream. To make things worse, the purchase price of a property is not the maximum price you will end up paying before you obtain title. In fact, the purchase price is the minimum you will pay because there are additional costs that will be added on to the purchase price. So let’s look at some of the cost categories and some estimations based on current market trends. The type of title for this article is based on State Leases.
- Stamp duty
Stamp duty is normally paid on the purchase of a property by the buyer. It is normally a percentage of the value of the property, however, the consideration may be taken as the value of the property. Note that the purchase price is different to the value of the property. There are concessions to citizen first home buyers and you should check with the IRC or your lawyer on the likely stamp duty you will pay on the purchase.
- Land rent
Land rent is payable to the Department of Lands and is currently calculated as 5% of the unimproved value of the property. Land rent is charged on an annual basis and depending on what time of the year the property is purchased, the buyer will usually meet the cost from the date of settlement to the last day of the year. This portion will be added onto the purchase price.
- Local authority charges
In the National Capital District, the local authority (National Capital District Commission) charges for land tax and garbage rates. These are calculated quarterly and like the land rent, how much the buyer is liable to pay depends on the date settlement of the purchase is made. Note also that parties can agree on how to apportion the costs although normally the apportionments are based on when the buyer takes possession.
- Water charges
Water in the city is supplied by Eda Ranu. It’s unlikely that there will be apportionments as the charges are based on use. However, if the seller has prepaid a certain amount in water charges, it’s likely that the seller will want the prepaid amount refunded on settlement of the purchase.
- Legal fees
It’s hard to go through the buying process without a lawyer. Yes, whenever a lawyer is mentioned it means more costs and legal fees are not cheap these days. That said, having a lawyer (an experienced one in property) is critical in the buying process because ultimately you want the title to the property transferred under your name without a glitch. Lawyers draft the sale contracts and act in your best interest to ensure you get proper title when you hand over the funds for the purchase. Every law firm has their own charges but as an estimate, you can expect to pay between K5,000 to K10,000 in legal fees. If you can pay less than K5,000 then you’ve got a good deal.
- Valuation fees
Hiring a valuer is not compulsory but recommended. Valuers are recommended because they can give you an idea on the market value of the property you are about to purchase. By knowing the market value, you can then get an idea as to whether you are being offered a reasonable deal or one that is far more expensive than what the property is actually worth. Normally, buying above market value is not recommended as you will be starting off your ownership with a loss. If you do obtain finance, the bank usually engages a valuer to conduct a valuation as part of its assessment in considering your finance application. Cost of valuers like legal fees defer from firm to firm. Valuers also place their fees based on the area size of the property to be purchased, the number of bedrooms and so on. For a standalone 3 bedroom house, valuation fees can be around K1,500 to K3,000. Again this is only an estimate and could be higher than this.
- Finance costs
Most purchasers seeking to buy a home will need finance from the bank. If you’re seeking finance from a bank, the bank will, as part of its finance package, will charge a loan fee and in some cases other associated charges. It is important to find out what the fees are and how frequent this fee will be charged.
The treatment of GST on the purchase of a property is quite a complex one. You can find more details on GST in the IRC website here http://www.irc.gov.pg/gst.html
- Body corporate fees
For properties that have title in a strata form, a body corporate fee will need to be paid either on an annual or quarterly basis. Strata titles are usually held by a company with shares being allocated to each unit or apartment. The fees vary and you should enquire about these fees when considering a purchase.
- Ministerial approval fees
Under the current Land Act, there are certain transactions or dealings with land that require the approval of the Minister or his delegate. You should consult your lawyer as to whether your purchase requires Ministerial approval. At present, the approval fee is around K50.
There may be other costs associated with the purchase but the above are the traditional charges in the buying of property. You should consult your lawyer to get specific advice for your circumstances as all transactions are not the same. This is a guide only so should not be relied on in your specific matter.
Please follow and like us: