While buying property is considered one of the best investments in India. There are certain things which need to be kept in mind also. The laws in India which regulate the buying and selling of property are – The Transfer of Property Act, 1882, Indian Stamp Act, 1899, The Registration Act, 1908, the Real Estate (Regulation and Development) Act, 2016, Income Tax Act, 1961, Goods and Services Tax Act. Section 54 of the Transfer of Property Act, 1882 provides the legal provision for the sale of immovable property. Property buying is something that is very capital extensive and which needs to be bought after careful consideration. While buying a Property, the factors like the place of the property, the price of the property, and the reputation of the developer are all considered. The buyer would also like to consider whether he wants to buy an under-construction property or a ready-to-move property as the risk associated with an under-construction property is slightly higher than a ready-to-move property and the price is relatively lower than a ready-to-move property. On the other hand, the price of a ready-to-move property is slightly higher than an under-construction property. The buyer would need to weigh the risk with the benefit of whether to buy the under-construction property or a ready-to-move property. However, it is to be kept in mind that if the property is priced at Rs. 2 crores, then easily the total cost to the buyer for buying that property would be around Rs. 3 crores. This is due to the fact that there are certain hidden charges which are associated with buying the property which were not revealed earlier. In this article, we will discuss the hidden charges of buying a property.
This is the basic rate quoted by the developer for selling a property. The basic rate is expressed either as a carpet area or a super built-up area. As per RERA, the Carpet Area is measured by adding the area of the bedroom, living room, kitchen, Balconies, Toilets, and the thickness of the internal partition walls. While the built-up area is the total of the Carpet Area plus the External Wall Area, Terrace, or Balcony but not including the Lobby, Lift, Swimming Pool, and Garden. And the super built-up area is the sum of the exclusive built-up area, and common areas including the lift, corridors, staircase, clubhouse, and other amenities like a Lobby, Lift, Swimming Pool, and Garden. However, with the origin of RERA mostly the Carpet area is used for advertising and selling a property. For example, the basic rate is expressed as Rs. 3,500/- per square foot.
Preferential Location Charges:
There is an additional cost for buying a property that is in a prized location. For example, Ground floor apartment in Delhi is a Preferential location, whereas Top floor apartments in Mumbai are more in demand. Similarly, an apartment facing a lake is also in demand. So, to get that property in your preferential location you have to burn some extra cash.
Generally, the developer will take an additional amount as Parking Charges. This is taken as a lump sum or 4-6% of the basic charges.
Infrastructure Development Charges:
Generally, the developer also takes charge of Infrastructure Development. This charge is for the Internal Infrastructure development which is within the complex. It is also taken as a lump sum or some percentage of the basic.
External Development Charges:
This charge is paid by the developer to the municipal authorities for the maintenance of civic amenities within the project. This charge is also recovered from the Property buyer. It is for the development of infrastructure outside the complex.
The developer will also take a certain sum of money as a lump sum for the maintenance of the property. This sum of money taken is also known as Interest-Free Maintenance Security. It is different from the regular monthly maintenance.
Power Backup Charges:
The power Backup charge is also taken from Property Buyer. It is also taken as a lump sum from the buyer. The power backup generally given is 3KVA to 5KVA.
Clubs and Amenities Charges:
Clubs and Amenities Charges are also taken from the property buyer. This is also taken as a lump sum for the facility of clubs and other amenities like a swimming pool, gym, etc.
This is not exactly a hidden fee. There are the fees paid to the broker or middleman for buying a property if the buyer is through the broker or middleman. The brokerage fee is generally 1 – 2% of the property value. That means, if the total Property value is Rs. 5 crores, the brokerage fee will add another Rs. 5 Lakhs. Some broker charges more than 1 – 2% also, so it is better to keep this factor in mind also and find the best one. However, with the advent of the RERA, brokers, and agents need to comply with the Act and it made the broking service a professional one.
For buying a property, there is another expense in the form of legal fees. A Legal fee includes fees for searching title, documentation and making the conveyance deed.
Goods and Services Tax:
Goods and Services Tax is also paid for the purchase of an under-construction House project. The GST is to be paid on the total value of the property i.e., by including the basic charges and all the above-mentioned charges. The GST on the under-construction property is 5% while the affordable housing projects attract only 1%. However, if the under-construction property is bought before the Goods and Services came into force, then no GST will be charged, however, the erstwhile GST era charge i.e., the Services Tax will be levied. However, if the house is complete and is ready to move i.e., the house contains a completion certificate, then no GST is applicable on such house property purchase.
Registration fees and Stamp Duty:
Registration fee is paid in accordance with the Registration Act, 1908. Section 17 of the Registration Act, of 1908 made it compulsory for payment of Registration fees in case of transfer of immovable property. Stamp Duty is paid in accordance with Section 3 of The Indian Stamp Act, 1899. It is a compulsory payment to be paid to the State Government. Paying Stamp Duty and Registration Fees is conclusive proof of changing ownership of the property. The rate of Stamp Duty varies from state to state. The rate of stamp duty is generally from 5% to 10%. While the Registration fee also varies from State to State, it is generally 1 % in most of the States in India. The Stamp Duty and Registration fee is calculated on the total property value. Without payment of Stamp Duty, a property transfer is not possible. While the rate of Stamp Duty and Registration Fee may seem small in number, this is not so, as it will add substantially to the cost of the Property.
While buying a property is considered one of the best strategic and investment-friendly decisions, certain hidden costs in it will increase the cost of the property significantly from the initial quote. The potential property buyer must consider these costs and factors before buying the property to ensure whether the decision would be fruitful or not.