7 Hidden Charges Apply on Under Construction Property

When buying a home, most people focus on the price of the house and what interest rate they can get on their Mortgage Loan. While knowing these costs is very important, they aren’t the only expenses you’ll encounter on your journey toward homeownership.

Some fees must be paid up front and require careful planning and budgeting before your home purchase. Other fees can be rolled into your Home Loan and paid as part of your mortgage payment. Understanding both sets of fees is critical to ensuring a successful, affordable home purchase.

Buying a property involves various costs. Thus, before taking the plunge, it is important to understand different costs and charges that have to be paid at various stages of construction.

In general, the overall property costs can be divided into two parts – one that is to be paid to the builder, while the other is the statutory and legal cost. These are again divided into multiple sub-headers. The breakups are explained below.

Below are the cost incurred while buying a house:

You look forward to affordable home prices, good housing loans and lower mortgage rates, etc. However, you miss out on many other pinches that are involved in this complicated process of buying a house. These hidden costs raise the quoted price of the property, and the buyer ends up shelling out a lot more money than planned. Many times buyers jump into a deal considering only the base price quoted by the builder or the seller, without thinking about the various hidden home charges, like stamp duty and registration charges, maintenance deposit, brokerage, parking space fee, interiors, service tax and preferential locality charge.

1) Stamp Duty and Registration fee:

Stamp duty is a compulsory fee that the buyer is supposed to pay the state government, to get the house registered under his/her name. These charges may differ from state to state, from 5-7%, and the house won’t be registered in your name unless the stamp duty is paid. Registration is the full and final legal agreement between the buyer and seller, indicating change of ownership; and the court charges a registration fee for it, which is generally 1-2%. This may seem like a small amount but sums up to a lot. Let’s say, for example, the base cost of the house is Rs 3.75 crore. In this case, the stamp duty will come up to Rs 18 lakh and the registration charges will be Rs 3.75 lakh. So the stamp duty and registration charges together will cost you around Rs 20-21 lakh.

2) Maintenance Deposit:

Builders charge an advance maintenance or maintenance deposit of up to 2 years; this usually comes under common amenities, parks and lightings. In existing buildings, it is charged as a deposit by society members, in case of any unforeseen damages that may occur in the future. This amount, the same way as other home charges, gets pretty big, depending on the number of amenities provided or on the existing maintenance fee. Sometimes, clubhouse membership is also included in this fee and the amount rises even more. This amount depends from society to society and area to area.

3) Brokerage Fee:

This is not exactly a hidden cost, but it is one of those home charges that slips out of your mind while buying a house. Brokerage is the fee charged by the broker – the person who is the middleman between the buyer and the seller. Most brokers charge a fee of 1-2% of the total house cost; however, some are expensive and may charge a higher fee. It is better to find out about the details and settle this with your broker at the onset itself. For example, in the case mentioned above, brokerage will add another Rs 3.75 lakhs to the base cost.

4) Parking space:

With such a shortage of space in our country, sadly, parking space is not included when you buy the house. Depending on the area you live in and the size of the available parking space, this fee can be higher or lower. This fee has to be paid to the seller and comes as a separate cost. If you do not pay this fee, the seller has all rights to sell it to another member of the society. Again, parking space comes at a price decided by the location of the project – it usually starts from Rs 1 lakh and can go up to Rs 4 to Rs 5 lakh, adding to the list of hidden home charges.

5) Interiors:

This is the biggest and the most important cost – an unavoidable cost because, without proper interiors, you cannot move in. This includes painting, plumbing, buying new furniture or getting furniture made, electric appliances, etc

6) Goods & Services Tax (GST):

Any under-construction property that is purchased in India is charged withGoods and Services Tax. Like stamp duty and registration charges, GST is also paid to the government. The GST on the under-construction property is 5% while the affordable housing projects attract only 1%. There is no GST on ready to move properties or on those projects which have got the completion certificate.

7) Preferential Locality Charge (PLC):

Preferential Location/Locality Charge (PLC) is the extra charge paid to book a unit, which is in a better location within a particular layout or complex. This differs from one builder to another, but generally, premium projects tend to have higher Preferential Location Charge. For example, penthouses built on top of buildings and villas with gardens or a lake view have very high PLCs. Unlike stamp duty and registration charges, service tax or VAT, this cost is not fixed and varies from builder to builder and also from time to time.

Other than the above, there may be other charges such as Khata Assessment and Legal Advisor charges, which usually range anywhere between 0.3-0.5% of the total property cost. Also, for buyers availing home loans, they have to keep in mind loan processing charges. Home finances are definitely not a simple and clear process as demonstrated and need to be carefully considered for various factors.

Key Takeaways

• When buying a home, the cost of the house and the interest rate on the mortgage aren't the only expenses to consider
• Other costs and fees can include the down payment, underwriting and application fees, inspections, escrow fees, mortgage insurance, and more
• Not all of these fees will always apply, and they may vary from state to state
• Asking for an updated loan estimate or preliminary closing disclosure can help you better understand your expected costs.

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