Buying a new home to live in is a necessary thing for everyone in Cambodia, especially in Phnom Penh as most of them are renting but considering buying one for their family. However, buying a new home does not mean that you spend only on the base price of the property - you also have to spend on additional costs associated with the property. Therefore, it is vital that you be aware of extra costs associated with property purchase in order not to have any unpleasant surprises.
Below are several necessary tips on “additional costs” to help you first-time home buyer manage your budget plan for a new property in the event that you are unaware of it. Those additional costs include: home loan application and legal fees, ownership transfer tax fee, home insurance fee, real estate agent’s fee, Interest on home loan, application for registration and title verification fee, property tax fee, and ongoing costs.
Home Loan application and Legal fees
When purchasing a home, most buyers in Cambodia usually do not have enough money to pay outright. Therefore, they will look for home loan options either with company project or banks to buy one. However, If you choose a bank loan, you usually get 70% of home value you are going to buy.
Nhoep Nimol, senior housing loan officer at Canadia Bank, said: “If a homebuyer applies for a home loan, he/she will be charged some fees to cover the charges incurred for valuation and processing of the loan. Then he or she has to pay 1 percent of total loan to the banks.”
Ms. Nhoep added: “in the meantime, homebuyers will also have to pay $250 dollars to lawyer for legal service which includes loan operation, legal advice, property check, and legal processing.”
interest on home loan:
If you do not have enough money to buy a home and rely on a bank for home loan, remember that you have to pay the interest on home loan every year until the end of the contract. Bank loan terms can range up to 20 years, depending on the decision between homebuyers and the banks.
Ms. Nhoep explained that if customers decide to get a bank loan, they need to pay for interest which ranges from 8% to 10% per annum. Furthermore, homebuyers are required to submit collateral, hard title, and an income confirmation letter to the banks before qualifying for a home loan.
Ownership Transfer tax fee:
It is mandatory that homeowners pay ownership transfer tax during the transaction. If you choose to buy a home in Borey project, you will find it easy as the company has a master hard title to be issued to each homeowner. But homeowners have to pay 4% for this ownership transfer tax.
Mr. Seng Sopheak, Chief Operating Officer at cplagent.com, said: “you need to pay 4% for ownership transfer tax. In addition to the 4% transfer cost, buyers also need to spend about $1,000 to cadastral office which is tasked with the overall operational processing of issuing the title.”
“usually, it takes around 12 weeks to complete the transfer of hard titles done at the cadastral office. A hard title, an ownership certificate issued by the Cadastral office, is the most secure form of ownership and recognized at the national ministerial level as well as at the sangkat and district level,” added Mr. Seng.
Home insurance fee:
Although a relatively new concept in Cambodia compared to other Asean nations such as Singapore, Malaysia and Thailand, home insurance is gradually spreading in Cambodia with more and more insurance firms starting their operation in the kingdom.
In Cambodia, home insurance is not obligatory for homebuyers. But some developers such as Borey Peng Hout require their customers to buy a home insurance when they buy a home from their project.
Commenting on this, Mr. Seng explained that home insurance is crucial to every home buyer in Cambodia as he or she will not have to keep a lot of reserves for all types of risks possibly affecting his or her property. For home insurance fee, it depends on the size and value of the home: If the home price is above $100,000, homeowner must pay $100 or higher per year and If the price is under $100,000, homeowner must pay less than $100 per year.
In any case, if you get a loan from the bank, Cambodia’s ministry of finance and economy cooperates with banks and requires home buyers to buy home insurance of at least $70 per year.
Application for Registration and Title Verification Fee:
Done at the District Land Office of the Ministry of Land Management, Urban Planning & Construction, you must pay a cadastral transfer fee of KHR 600,000 in order to insert the name of the new owner on the legal documents. Moreover, you also have to pay for the title verification fee. According to Prakas 995 dated December 28th, 2012, checking for potential liens or encumbrances under a title will cost you around $12.50.
Like other countries, all the immovable properties in Cambodia need to be paid annual tax; however, it will only apply to the properties with a value of $25,000 and above. According to the Prakas of the Ministry of Economy and Finance, the property tax is collected annually at a rate of 0.1% of the value of the property.
To know how much you have to pay for your property tax, there is a clear formula for calculation on it. The property tax is computed by taking 80 percent of the property’s total value, subtracting $25,000, and then multiplying that by 0.1 percent.
The property’s value is obtained through a government valuation, depending on several factors such as data collection on relative properties in the market, quality and location. This tax equally applies to both Cambodian and foreign national who owns the property in Cambodia.
Real estate agent’s fee
Normally, it is the fee seller has to pay to real estate agency for home transaction. However, sometimes it is buyer who has to pay this fee to real estate agency.
Mr. Seng explained that in Cambodia real estate agency charges commission fee of 3% from seller not buyer for the home transaction. But in some cases, buyers also have to pay the commission fee of 3% when they want to buy property from someone. This occurs when seller is unwilling to sell the property, but buyer is willing to buy and asks for agency to persuade seller to sell their property.
On going costs:
Those ongoing costs are usually paid monthly to support daily living including maintenance fees, repair costs, and bills such as internet, electricity, and water. Maintenance fees are paid by home owners for the upkeep of the building. This fee varies between borey home and condo.
Mr. Seng said: “for borey home, the maintenance fee includes cleaner, security guard, and public light in the project area. It will be charged between $20 and $50 per month. For condo, the fee ranges from $0.50 to $2 per square meter. In addition, living in condo requires you to pay for parking space which ranges from $50 to $60 per month. Furniture and any future renovations can also be regarded as ongoing costs.”