It is interesting to note how so many buyers and investors at large experience a total blackout when it comes to the transaction fees related to buying property. When you get to the point of buying a house, the devil is in the detail. You need to be aware of the amount of money you will spend throughout the entire buying process. Apart from the sale price, there are other real estate transaction fees you should keep in mind: mortgage fees, paying for a lawyer, and taxes related to property. Not forgetting to mention the hidden costs you might not be aware of.
These pointers will help you make the right decision when the time to buy a house comes. In turn, you will make the right investment decision knowingly. What fees should you keep in your mind when buying property in Kenya?
You Have to Get a Lawyer
The importance of getting a lawyer is like having oxygen: you can’t do without one. Lawyers in Kenya are regulated by an Act of Law known as the Advocates Remuneration Order. Sometimes, the fees that the lawyers charge are regulated by ethical principles and rules. The general rule of thumb is that the buyer will pay for these fees because the transaction benefits him. The Seller will also pay his Advocate such fees for representation, the initial due diligence process and drafting.
The percentage fees range from 1%-2% of the purchase price but the minimum payable is Kshs. 35,000. If the price on the purchase is low, the costs are higher. The converse is true; if the purchase amount is high, the costs will be low. You should note that it is illegal for your Advocate to charge you lower fees. Therefore, refrain from bargaining too much.
Who Does the Property Belong To?
Before you buy any property, you need to do a title search to know the rightful owner of the land. A title search will also help you know if the title has been charged, if it has a caveat or if there are any outstanding land rates to it. Performing a title search is a digital process offered by the government through the eCiziten platform. A title search costs Kshs. 500.
How Much Mortgage Will You Pay?
If you purchase property on mortgage, you will the capital with an interest rate capped at 14% p.a together with the ancillary costs which vary depending on the financier. You will pay evaluation costs which are approximately 0.2% of the assessment and 1% commitment fee to the bank. The duty payable for a mortgage is 0.1% of the mortgage amount.
Stamp All Your Documents
Once the Agreement for Sale is executed, the Seller’s Advocates will present it for stamping with duty at Kshs. 200/- for the original and Kshs. 20/- for each counterpart at the lands office. This fee is vital because in the event of a dispute, the court of law won’t accept any documents which haven’t been stamped.
Taxes Must Be Paid
Stamp Duty: In Kenya, this rate varies depending on the location of the property. Agricultural lands are charged 2% while land in urban areas is charged at 4%. If the property is registered as a company and the transfer is by way of shares rather than a title, then the stamp duty will be 1%. As a buyer, you will need an authorization slip from KRA to show that you have paid.
Capital Gains Tax: This is the final tax in the buying process which is usually at 5% of the value of the net gain. This is the excess amount of the transfer over the cost of the property which was adjusted.
Extra Costs Will Come Up
Depending on the firm and the development, other costs you will incur as a buyer include registration costs, valuation costs, proportionate cost of incorporation of the management company and the cost of transfer of reversionary interests.
More costs include electricity meter connection costs, water meter connection costs, purchaser’s share of reversionary transfer, cost of purchase of share in the management company, advance service charge which ranges from 3-6 months plus one (1) month’s service charge, secretarial charges and fees for filing return of allotments, notice of change of directors and Annual Returns.
Buying a house is a huge investment. You need to make sure that you follow each step correctly without any hiccups. Keeping these costs in mind will help you budget appropriately without denting your pocket.
Source: BuyRentKenya.com
