What are the additional charges to consider, other than builder quoted price – 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.
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, and the list is endless. This cost can easily go up to Rs <10> lakh, even after sacrificing and cutting down quite a bit. It might save you some money if you go shop online for furniture, but the cost of interiors is a minimum of Rs 20 - Rs 25 lakh, if you change everything and Rs 15 - Rs 20 lakh if the basic interiors are already done.
6) Goods & Services Tax (GST):
Any under-construction property that is purchased in India is charged with Goods 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.
Cost incurred while buying a property other than builder charges:
This is the amount paid to various scenarios and it is considered in the cost of the property. It can be divided as follows:
- Agent Commissions - If you’re using a real estate agent, you may or may not have a commission charge to cover. The sellers often pay these fees, but in some cases, the fee comes out of your pocket. Make sure you understand your agent’s commission structure before signing any contract. Most real estate transactions require a commission of 6% or around 3% for each agent.
- Basic Cost – The rate per sq. ft. multiplied with the super built-up area of the unit gives the basic cost of the property. This comprises about 70-80 percent of the total amount. This amount is paid to the builder directly, in instalments at different stages, as per the agreement. The builder generally charges a fixed amount or a percentage of the total cost as booking amount and the remaining amount to be paid depends on the construction stage of the project.
- Infrastructure Development Charges (IDC) – This is also known as Internal Development Charge and it is usually charged at a per sq. ft. rate. This cost is levied by the government on the builder and is passed on to the buyer by the builder. It includes charges to be paid to different utility organisations like the electricity board, the water board, etc. This varies based on developers and cities.
- Maintenance charges – Once the building is ready for possession and handed over to the buyer, some builders may continue to maintain the property for a year or <two>. They charge this cost upfront before registration, as maintenance deposits, security charges, and society formation charges, to name a few. After the stipulated maintenance period is over, the Corpus Fund collected by each unit in the project is handed over to the new association formed. Thereafter, the association fixes a maintenance charge for the project which has to be paid by the house owner.
- Parking space charge – Parking charges are taken by the builder separately from the basic cost and it is mandatory, irrespective of whether it is used or not. It can vary from Rs 2 lakh to a lot more, depending on the builder. Some high-end luxury units also provide multiple parking spaces at an additional cost.
- Amenities charges – These are charged by the developers for amenities like gymnasium, clubhouse, swimming pool, etc. While some builders charge a per sq. ft. rate, others take a fixed price.
- Preferential location charge – PLC is a premium charge that the builder charges for a specific choice of apartment. It includes things like sea-facing view, swimming pool view, vaastu compliance etc. Also added to these is floor rise charge, which is paid by buyers for apartments on higher floors.
- External Development Charges (EDC) – This is currently levied only in few cities in India like Gurgaon, among others. It includes maintenance of infrastructure such as roads, sewerage, water and electricity supply outside the project.
- Parking space:
Parking is a vital element, and your own closed parking space increases the value of your house during resale. Although this ‘additional’ expense is not a hidden cost any more, many people still assume their property comes with free parking. Depending upon the type of the property, location and other factors, developers can charge you anywhere between Rs 1 to Rs 5 lakh for a parking space.
What are statutory and legal charges?
These are paid to the government at the time of property registration and mainly consists of 3 major components:
- Registration charges – This is paid to the government at the time of property registration. The guideline value at which properties are to be registered is decided by state governments. In the case of multi-storied apartments, the registration charges are calculated based on the super built-up area. For plots, the total square feet area of the plot is multiplied by the guideline value of the area. For independent houses, the total constructed area is considered for calculating the total property value.
- Stamp duty charges – Stamp duty is the amount charged by the government for the legal verification of documents related to property buying. The stamp charges vary from state to state. The stamp duty also has additional cess and surcharge attached to it.
- Service Tax and VAT – These two components are applicable only to the under-construction properties. Service Tax is decided by the central government while the VAT varies from state to state. Given that service tax is charged only on the construction cost, the effective rate on the entire value of a property costing below Rs 1 crore is 3.75% (i.e., 15% * 25% of the property value), and for a property above Rs 1 crore, the effective rate is 4.5% (15% * 30% of the property value).
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.
- 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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