How much does it cost to buy a house in Melbourne?
Purchasing a house in Melbourne is an amazing achievement. Not only will it be a place to call your own, it will be the most expensive asset you acquire. For those seeking to purchase their first home, and for others who are keen to make the move, acquiring a home does require a considerable investment on your part. The majority of people will need to approach a bank or lender to provide funds to purchase the property in return for a security over the property and steady monthly repayments.
Given the value of properties in Melbourne, a question on most minds is how much does it cost to buy a house in Melbourne. While the price of most consumer products is advertised and comparable, residential properties operate in a different market where exact prices are not known. Prices are based on, generally, historical values, consumer demand and perception, supply of property, vendor expectations and other market factors. While there are other economic factors, a good indication of the value of the home in Melbourne can be ascertained by doing your homework and asking industry professionals such as real estate agents.
In addition to the value of the property, there are other costs that will be incurred such as these in this example. These costs relate to the legal transfer of the property, borrowing and financing, legal review, moving to the new property, moving out of an existing property, utility bills, insurance and other incidentals. All these costs must be considered prior to buying a house in Melbourne. Otherwise, you may underestimate the financial commitment you have entered into.
Here is a list of the top 10 costs that you will incur when your purchase a house in Melbourne.
- Value of the property
The greatest cost that you will incur when you purchase a property in Melbourne will be the value of the property itself. The value of the property is not fixed like most consumable products and varies depending on market conditions. A helpful indictor of the value in Victoria, is the requirement for all properties to have a Statement of Information (see here for more information about this document). If the property is being sold at auction, the price will be set by the bidders who attend the auction (provided the bids are above the reserve (i.e. will not be passed in) and the property is on the market for sale). If the property is being sold by private negotiations, the value will be agreed between the ultimate buyer and seller. It is this price that will need to be paid by the purchaser when both parties sign the Contract of Sale. The average price of properties in Melbourne depending on the location, type of property, amenities and other features.
- Stamp duty (or land transfer)
The next cost that you will incur is stamp (or land transfer duty). This cost applies when you purchase property. The rate of tax payable is based on the dutiable value of the property, the date of the transaction, your personal circumstances, the type of property acquired and whether the property is your principal place of residence. It is important to consult with the State Revenue Office of Victoria for the current rules and tax rates as they change from time to time. Always to make sure that you factor this amount in when you acquire a loan from a bank because often many people forget about this until after the loan funds have been approved.
- Conveyancing and legal fees
When you purchase a property, you will need to engage a professional conveyancer or lawyer to assist you with the legal aspects of the property transaction. They will help ensure that the transfer of title to the property occurs in accordance with correct legal procedures. The conveyancer or lawyer will also assist with reviewing the Contract of Sale, advising on any material risks, assisting with establishing the loan with the bank, asking and responding to queries from the vendor’s lawyer or conveyancer, and completing other tasks upon request from you. These fees vary depending on the level of service required.
- Building and pest inspection
Most purchasers avoid this cost, but it is wise to engage a building inspector and a pest inspector. Receiving a professional report on the condition of the building and pest activity can provide peace of mind that the property has no hidden surprises. If the report does reveal any issues, these can be forwarded to the vendor for their review and response. To ensure the place is habitable, the vendor may be required to make good any defects or issues detected. It is also wise to ask the vendor about whether recent improvements have been made to the property and to inspect any compliance certificates to verify the works have been conducted in accordance with building standards.
- Bank loan establishment
The majority of purchasers will approach a bank to loan funds to pay for the property in return for the bank securing a mortgage on the property. To establish a bank loan, costs will be incurred. You will need to apply for the loan, submit documents, respond to questions, prove your creditworthiness and ability to repay and pay fees to establish the account. You may also need to consider a type of mortgage insurance (in the event you are unable to pay off the loan in the future). Once the loan is paid off, you will need to amend the title to the property to discharge the mortgage (for a fee).
When you acquire a new property, you will incur costs in relocating from your existing place to your new property (some of these costs are incurred for investment properties too). You will need to transfer your belongings, furniture and other personal items. You may also need to reregister vehicles, update permits and approvals, notify service providers of updated address information, terminate a rental agreement early, enroll children in schools, travel a different route to work, and much more. All of these relocation costs add up and should be assessed prior to the move.
- Utilities, rates and levies
Your new property will have utilities, rates and levies payable. Common outgoings include water supply and usage charges, electricity supply and usage charges, gas supply and usage charges, local council rates, home and contents insurance, telephone and internet connection service fees, land tax (if the property is for investment purposes or satisfies other criteria), owners’ corporation fees, parking permits, and other costs that will be unique to the property. Make sure you are aware of the annualized rate for each fee.
- Financial advisor
Purchasing a property does require sound financial advice to ensure that you do not underestimate your purchasing capability. You will need to review your finances so that you consider both your current and future circumstances. A financial advisor can assist to review your financial situation and advise on the upper house value limit that will avoid any financial distress down the line. You will need to consider your job situation, children expenses, health expenses and other outgoings that may vary in the future.
- Title transfer fees
Transferring title to the property comes at a cost. As the buyer, you will incur this cost that is payable to Land Use Victoria. This is a cost that cannot be avoided and covers the administration fee of transferring the title from the vendor to the purchaser in a secure and legally compliant manner. Obtaining title to the property is important as it notifies the public that you are the owner of a particular parcel of land in accordance with the planning certificate that is referenced on the title.
- Improvements and modifications
While the property might be habitable, it is rare to find a property (especially used properties) that satisfies your exact needs. Most people consider making improvements and modifications so that the property is adjusted to their requirements. Consider these costs before you commit to buy so that you understand the true cost of the property. For example, you may need to install sheds, change the lock barrels, install an alarm system, build a front fence, add an extra bathroom or toilet, upgrade the kitchen appliances, etc. Knowing this in advance will help you to estimate the value of the house.
At Besser and Co., we manage a wide range of properties that are available for sale. Whether you are purchasing a property to live in or as an investment, we can help guide you to consider a property that might satisfy your needs and requirements. If you cannot find a property that you like on our online website, do not hesitate to contact us so that we can take down your details, note your preferences and let you know when the property of your dreams becomes available for sale.
What other costs did you incur when you purchased a house in Melbourne? Share these in the comments section below.