Buying a new home can be an exciting decision and for most Indians a cherished dream. However, this decision cannot be made impulsively. There is nothing as stressful as committing to buying a home that has several hidden costs. These costs could easily force you to overshoot your budget by 10%-20%.
The market is flooded with several projects, all of them boasting of world-class amenities, great discounts or added goodies. How do you spot the ones with sneaky hidden costs that increase your expenditure?
Here are some factors that you will need to be aware of before buying a new home:
- External Development Charges (EDC): EDC is levied by the builder and includes maintenance of streetlights, sewage, roads, electrical supply, drains etc. This includes 10% of the base cost.
- Infrastructure Development Charges (IDC): IDC is charged anywhere between Rs. 37.50 and Rs. 100 per sq. ft., and is levied by the government on builders. IDC is levied to cover the development and maintenance of infrastructure surrounding the project.
- Preferential Location Charges (PLC): PLC varies with different cities. For example, if you buy a flat in Delhi, you will pay more for a flat closer to the ground. PLC can be charged between Rs. 25 to Rs. 100 per sq. ft and this amount is added to the total cost of the flat.
- Maintenance Charges: Builders charge customers to maintain the roads, streetlights, parks and other facilities within the society. Electricity backup generators and water charges are also included. These are recurrent charges and buyers will be given the option to pay these charges in monthly, quarterly or yearly payments.
- Utility Charges: Societies with amenities such as clubhouse, swimming pools, amphitheatre, covered parking etc., will be chargeable anywhere between Rs. 50,000 to Rs. 1 lakh per facility. Over the recent years, builders charge an extra amount of 1-2 lakhs for a parking spot.
- Security Charges: These charges are levied towards the deployment of security personnel, installation of CCTVs etc. Homeowners will need to pay these charges on a monthly basis.
- Stamp Duty and Registration Charges: Stamp Duty and Registration Charges are levied by the state government and need to be paid by every buyer during the property registration. These charges vary with every state and are usually in the range of 5-7%. Some states even provide special charges for women.
- Registration Fee: Buyers will also need to pay a registration fee in addition to the stamp duty and registration charge. This amount relates to 1-2% of the cost of the property and will cover charges for notary, broker or lawyer.
- Service Tax: A property under-construction will incur 14.5% service tax.
- Value Added Tax (VAT): VAT is only charged for properties under-construction. VAT is charged at 1% of the “agreement value” in Mumbai and Pune, and 5% in Bangalore. However, VAT is not charged in Chennai, Kolkata and Noida-NCR.
These hidden costs are not only for new homes. For a resale property you will need to also look into, Brokerage, Fixed Costs and Recurring Costs, Extra Charges (for example, pre-existing home loan, property tax, water or electricity bills) and stamp duty charges.
Make sure your research unveils hidden costs before you invest in a new home!