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Planning to buy a house this festive season? 7 major costs first-time buyers must be aware of

With onset of the festive season in India, there is an increase in demand for houses. This period is considered as ideal buying opportunity due to positive religious sentiment. Also, developers offer attractive discounts to buyers to increase their sales.

But, before buying a home you need to know there are several costs attached to it.

Santhosh Kumar, Vice Chairman, ANAROCK Property Consultants explained, “The overall property costs are broadly divided into two parts – one that is to be paid to the builder/seller and the other is the statutory and legal cost to be paid to the government. And, within these categories itself there are few hidden costs which a prospective buyer must be aware of.” While the former category roughly comprises of 80-85% of the overall property cost, the remaining goes to the government coffers.

This include basic cost (carpet area multiplied with per sq. feet price), parking charges, infrastructure development charges like local water and electricity, maintenance & amenities charges and preferential location charges (premium view or floor-rise charges etc.).

Kumar said, “Interestingly, floor rise premium varies from city to city based on the climatic conditions.” For instance, in Delhi NCR, due to excessive heat, one has to shell out more money for living in the floors closer to the ground. While in cities like Mumbai and Bangalore, the higher one goes the more he has to pay. Preferential location charges (PLC) may range anywhere between Rs 25 to Rs 100 per sq. ft. or more and are added to the total cost of the apartment.

Goods and Service Tax (GST)
GST is charged over and above cost sheet provided by developers for under construction property. Ankur Dhawan, Chief Investment Officer, PropTiger.com explained: “Typically GST is charged at 12% of basic sales price of property for most of the under construction properties except affordable homes where GST is charged at 8%. GST is charged at 18% for other cost items such as clubhouse, PLC, floor rise etc.”

Brokerage charges
Mostly while searching a property, buyers tend to consult property brokers (real estate agent) who recommend the right property to the buyers and also handles negotiations and transactions on behalf of the buyers.

Arvind Hali, MD and CEO, ART Affordable Housing Finance said, “While they provide this service to their clients, they charge a commission fee, which is generally some percentage of the total value of the finalised property. So, it is advisable to home buyers to take an account of this fee while calculating the complete budget of 1st home.”

Property taxes
Buying your first home is already an expensive deal, and property tax adds to the total cost. Property tax is to be paid on real estate property which includes land or any immovable property on that land.

Hali added, “Property tax depends on the locality of the property, base value, build-up area, age factor and few more. Paying property taxes can be made online also, depending on the municipal authority where a buyer is buying the property.”

Stamp Duty and Registration Charges
Stamp duty and registration charges have to be paid by buyer at time of registration of property. Dhawan explained, “Stamp duty, registration charges, cess and other surcharges vary across states and are in the range of 5% to 10%. Rules of when to pay stamp duty and registration charges as well as how to calculate property price for stamp duty also vary across states.”

For example, in Mumbai stamp duty has to be paid when buyer has paid 20% of the agreement value and is larger of agreement value or ready reckoner rate of the area. Whereas, in Bengaluru, property is registered on the completion and stamp duty is calculated at the agreement price of the property and not on ready reckoner rate. Along with this, a buyer has to pay the fee to the lawyer and notary who will inspect all the necessary paperwork.

Property Insurance
Hali explained, “Although it might not be necessary to insure the property but it is always advisable for buyers to buy property insurance as it covers possible damages to the buyer’s house including fire. While financing your property through any bank or NBFC, keep in mind that property insurance is different from home loan insurance.”

While property insurance secures risk of physical damages to property and covers expenses due to physical damages like fire, your home loan insurance covers the loan amount that the buyer has availed.

Other miscellaneous charges
Kumar added, “Besides these, there are several other charges like tax deducted at source (TDS) which is 1% for properties over Rs 50 lakhs, Khata assessment and legal advisory charges ranging from 0.3% to 0.5% of the total property costs.” Buyers opting for a loan on their house also have to shell out the loan processing fee and documentation charges ranging between Rs 7,000-10,000 or up to one per cent of the total loan value depending on the bank.