Buying a property is a dream for many people, but they are not aware of the hidden costs, and usually end up paying a lot more for the property than they would have actually paid if they would have acted smartly. When the real estate agent describes the initial costs, they do not include a host of add-ons a buyer will be required to pay, and these increase the budget by about 25%.
Therefore, it is advisable to be aware of those costs in advance, and be prepared for the additional expenditure that come their way when buying a property. Hidden costs can come in several ways, so a buyer has to keep their ear and eyes open. Some of the usual hidden costs often encountered by the buyers are discussed below:
Stamp Duty and Registration Fee: the state government charges stamp duty from the buyer. This is a compulsory fee that has to be paid, in order, to get the house registered under a particular name. These charges vary from state to state, and till the time buyer makes the stamp duty payment the house is not registered in his/ her name.
The full and final agreement that takes place between the buyer and seller – in which the change of ownership is indicated – is referred to as registration for which the court charges a registration fee, which is 1-2% in general. This might seem like a small amount, but it sums up to a lot.
In most of the states, the total of stamp duty and registration fees goes up to 5% to 14.7% of the property cost. Several miscellaneous expenses are also to be paid over and above these costs such as fees of the notary and the lawyers.
Maintenance Deposit: Buyers are required to pay advance maintenance or maintenance deposit of up to 2 years to the builders, and it is usually charged for the common amenities, parks and lightings.
The amount varies based on the number of amenities provided, and can be really big at times. At times, this fee can include clubhouse membership as well, raising the amount further up.
Brokerage Fee: Though not a hidden cost, but buyers usually forget to take it into consideration while purchasing a house. Brokerage is the fee that a broker charges from the buyer for their services as the middleman between the buyer and the seller.
Brokers in general charge a fee of 1-2% of the total house cost, but some of them are expensive and charge higher fees as well. For this reason, the buyers are advised to find out the details and finalize an amount with the broker at the onset itself.
Service Tax and Value Added Tax (VAT): VAT and service tax are chargeable on all under-construction property purchased within India. These are payable to the government just like the stamp duty and registration charges. These two taxes when clubbed together can cost the buyer about 8 to 10% of their property value.
Parking Space: There is a shortage of space in India, and for this reason, when a person buys the property (mainly a flat), then the parking space in not included, and a fee has to be paid separately for it to the seller. This fee varies from area to area, and depends on the size of the available parking space.
In case, a buyer refuses to pay this fee, then the seller has the right to sell it to some other member of the society. The location of the project and type of parking space provided are major determinants of the cost of parking space that usually starts from Rs. 1 lakh and can go up to Rs. 5 lakhs.
Preferential Location Charge (PLC): all the units are not the same, and so is their price. When a buyer wishes to book a unit in a better location within a particular layout or complex, then they are required to pay extra charges referred to as PLC.
In general, the Preferential Location Charge tends to be higher for premium projects. For example, the PLC tends to be higher for penthouses built on top of buildings and villas with gardens or a lake view.
Interiors Cost: once a buyer acquires a property he/she invariably has to incur some expenditure, in order, to get the interiors done as per their individual preferences and requirements. This cost is the biggest and the most important apart from being unavoidable because it is not possible for someone to move in a house without proper interiors.
The interiors of a house include several things such as paintings, new furniture, electric appliances, plumbing and many more things. The cost is very high, and in reality, has no limit how high it can go. Expenditure on interiors is usually unplanned at the initial stages.
Moving Costs: when a buyer moves to a location, they generally have to pay a moving company or rent a truck to transfer their belongings. And, sometimes buyers even had to make deposits to start utilities.
The crux of all this discussion is buying a property may cost the buyers more than what they think, but it can be controlled with proper checks beforehand. However, as long as someone buys what they can afford, plan for expected and unexpected expenses and also holds on to their property for at least seven to ten years, then making an investment in property is actually worth it.