Sabrina N. Gordon, Business Reporter

When buying real estate, apart from the normal purchase price of the property, there are usually several transaction costs, including taxes, to consider.

Real estate taxes are mandatory and payable during and after the acquisition, and involves different types.

The first involves taxes levied on parties to the transaction - the buyer and seller.

These are levied by the Stamp Office, which handles all stamping on Jamaican real estate titles, and the Titles Office that keeps copies and prepares all new titles.

The next type of real estate taxes are levied on the buyer over the long term, that is, each owner of real estate in Jamaica is charged property tax based on the value of the property.

For most Jamaicans, the funds required to make cash purchases on a property are not readily available and so, the route of mortgage sale has become the norm.

"Estimates of costs associated with the purchase of a property with a projected valued of $5 million under a mortgage sale, indicate that one needs to have approximately $1.4 million cash on hand to cover deposit, on signing of sale agreement and closing cost," said Gina Harrison, general manager of Century 21 Heave-Ho Properties.

On buying a property, the vendor will ask the purchaser to pay an initial deposit, which is usually 15 per cent of the sale value.

"While this percentage represents the normal required deposit, vendors may in some cases ask for a deposit of 20 per cent and higher," said Harrison.

For a $5 million property, this initial deposit would be about $750,000, with the remaining 85 per cent being covered by the financial institution from which the mortgage is obtained.

Today, there are several financial institutions that offer mortgage financing of up to 95 per cent of the value of the property, and with the ease of a single application to also access one's National Housing Trust (NHT) benefit.

Apart from that initial deposit, the purchaser will incur what is considered closing costs.

Finalising costs

These are costs connected with finalising the transaction and include mortgage application and sales agreement costs, stamp duty, lawyers' fees among other required costs when buying a property.

The cost to obtain a mortgage may go as high as six per cent of the amount financed by a mortgage and include costs such as the bank's attorneys' fees, and insurance charges, among others.

This could amount to about $255,000, Harrison disclosed.

To complete the mortgage application, there are also certain reports that are needed, including a valuation and surveyor's ID report, which are normally charged as a percentage of the value of the property.

Based on current market trends, this cost could be about 30 per cent, which would see the buyer paying out another $30,000 combined for these reports.

Among the other transaction costs are those related to drawing up the sales agreement, getting the letter of possession, stamp duty charges as well as registration fees.

However, these fees are shared between the seller and the buyer, in a fixed proportion.

On the decision to proceed with the acquisition of the property, a sales agreement will be drawn up by the vendor's lawyer and can cost as high as $50,000 to prepare.

The cost for the letter of possession ranges between $5,000 and $10,000, but these costs are also split equally between the buyer and the seller of the property.

Additionally, there is the required stamp duty and registration of title fee. By regulation, stamp duty and registration fees are 5.5 per cent and 0.5 per cent, respectively as a percentage of the projected price at which the property is being sold.

These costs again are shared proportionally between the seller and the buyer, and so may see the buyer paying over $130,000 and $12,000 in stamp duty and registration fees for a property value of $5 million.

Adding all these expenses then, a person buying a house with an estimated value of $5 million is looking at a cash requirement of $600,000, in addition to the initial deposit and lawyers' fees, which average about 3.0 per cent of the sale cost, plus GCT, amounting to well over $1 million.

Having finalised the purchase, one will now be looking towards repaying the mortgage on a monthly basis at varying interest rates as offered by the financial institution and NHT. Current rates are at a low of 12.99 per cent in the private mortgage market.

sabrina.gordon@gleanerjm.com.