'A 2-BHK (1,000 sq. ft.) flat, with all the modern facilities; just 15-minute drive from the heart of the city at Rs 2,500 per sq. ft; Book Now.' Tempted by such messages on your cell phone?
However, before you take the plunge, do consider a host of hidden costs, which may give you a headache later.
"Buying a property is full of hidden costs, other than the purchase price. It is vital to take the other costs involved into consideration when setting your budget," says Shakti Nath, chairman and MD, Logix Group, an NCR-based real estate developer.
Going by the above advertisement, you would assume that you need to budget for Rs 25 lakh (Rs 2.5 million); and pay Rs 5 lakh (Rs 500,000) as down payment (20 per cent of the basic cost, in case you are planning to take a home loan).
However, the basic purchase price is not the only thing that you have to account for. There are other unavoidable costs. We take a look at them:
Infrastructure costs. Want a house with a park view? Then, shell out more. These costs are known as preferential location charges (PLC).
"This charge ranges between Rs 10-Rs 100 per sq. ft. of the basic sale price," says Pankaj Kapoor, managing director, Liases Foras, a Mumbai-based property research firm. (See table below)
As per the above example, if you take PLC at Rs 10 per sq. ft, it adds Rs 10,000 to basic cost of house. The developer may also charge you extra if the society has gardens, playgrounds or a swimming pool.
This charge ranges between 5-10 per cent of the basic cost. As per our example, if you take external development costs (EDC) at 5 per cent of the basic price, it add Rs 1.25 lakh (Rs 125,000) to the basic cost.
If you own a car, you will need to pay one-time parking charges. For each parking space, you have to pay 5-10 per cent of the basic cost of the house. As per the above example, if you have one car, your basic cost goes up by Rs 1.25 lakh (at 5 per cent).
Other than these costs, you need to pay for power and water connections, and other such charges. Normally, these costs do not exceed Rs 20,000-Rs 25,000. As per our example, you may take Rs 20,000 as a cost against utility connections.
Social and administration costs. There are costs that you will incur towards maintenance of the society/locality, such as payments to the guard and sweepers, and for repairs. Before the flat is allotted, you will need to pay a security deposit that will be used to meet these costs in the future.
Nath says: "Car parking charges, club membership, maintenance charges and other such charges are 18-20 per cent over of basic cost of the house." As per our example, taking 5 per cent each towards the charges against club membership and security deposit for maintenance cost, your budget goes up by Rs 2.5 lakh (Rs 250,000).
Mortgage Costs. Apart from interest, you incur other costs such as processing fee towards the loan, administrative fee and documentation charges.
The processing fee varies across lenders and also depends on the loan amount. The processing fee typically ranges between 0.35 per cent and 2 per cent of the loan amount.
The Real Cost of Housing
The basic cost of the house is not the final cost of acquisition. In fact, a host of other expenses can increase the acquisition cost of a Rs 25 lakh home by as much as Rs 6.81 lakh. Let's take a look at them
|
Particulars |
Amount (Rs) |
|
1. Infrastructure Cost |
|
|
a) Preferential location charges* (assumed Rs 10 per sq. ft.)*** |
10,000 |
|
b) EDC (external development charges) assumed to be 5 per cent of the basic cost*** |
1,25,000 |
|
c) One-time parking charges * |
1,25,000 |
|
d) Utility connection chargeselectricity, water** |
20,000 |
|
2. Social and Administration Related Cost (One-Time Charges) |
|
|
a) Membership chargesclub, society or association, etc |
1,25,000 |
|
b) Maintenance charges (security deposit) |
1,25,000 |
|
3. Paper and Service Provider Related Cost |
|
|
a) Stamp duty and registration fees (@ 5 % of gross total)** |
1,51,500 |
|
TOTAL COST OVER BASIC COST |
6,81,500 |
|
4. Break-Up of Cost of Acquisition in case of Home Loan |
|
|
a) Down-payment (20 per cent of Rs 31,81,500) |
6,36,300 |
|
b) Loan amount required (80 per cent of Rs 31,81,500) |
25,45,200 |
|
5. Mortage Cost# |
|
|
a) Loan processing fee (lowest available home loan processing fee) |
7,000 |
|
6. Transfer and Relocation Cost |
|
|
a) Shifting charges |
5,000 |
|
7. Other Costs |
1,00,000 |
|
INITIAL EXPENSES (4A+5+6+7) |
7,48,300 |
Note: *costs if you choose **varies across states ***Basic Cost (i.e., 1,000 sq. ft @ Rs 2,500 = Rs 25,00,000), # if you take a loan shifting cost depends upon the distance, volume and nature of articles Other costs include consulting fees for interior decorators, vaastu designer, furniture and fi xtures. The interest that you pay on the loan and premium towards insurance of your house and home loan is also a cost. These have not been included in table as you will need to service the home loan on a monthly basis. This list is not exhaustive.
Lending institutions have an upper limit for processing fee. For example, Bank of Baroda charges a maximum amount of Rs 15,000 as processing fee. Bank of India charges Rs 10,000 for loans up to 30 lakh (Rs 3 million). For loans between Rs 30 lakh and Rs 50 lakh (Rs 5 million), the maximum amount is Rs 15,000.
State Bank of India charges a maximum processing fee of Rs 5,000 for loans between Rs 10 lakh and Rs 20 lakh (Rs 2 million). For loans between 20 lakh and Rs 50 lakh, the amount is Rs 7,000. So, to begin with, you were considering Rs 5 lakh as the down payment.
After taking into account other costs, you would find that you now need to pay Rs 6.36 lakh (20 per cent of Rs 31,81,500, which includes basic, infrastructure, social and paper costs) as down-payment. That is, you need to shell out Rs 1.36 lakh (Rs 136,000) more.
Continuing with our example, you need to pay Rs 7,000 for loan processing fees.
Paper work. Scrutinising property-related papers, to ensure that the project is developed on the land that is free from any encumbrances and the developer has the necessary approvals, is not an easy task. It is advisable to get the papers checked by a lawyer.
Most housing finance companies assist you with a lawyer at a nominal cost. Companies charge Rs 700-3,000 for this verification.
Once you have bought the house, you will need to pay stamp duty and registration costs to the state, which will make you the legal owner of the house. This cost varies across states.
Also, in states like Delhi, the rates are different for male and female buyers. For men, the stamp duty is 5 per cent. For women, its 3 per cent of property value. As per the above example, the total of the basic cost and other costs (infrastructure and social) of the house comes to Rs 30.30 lakh (Rs 3.03 million).
Add to this, stamp duty at 5 per cent, which is Rs 1.51 lakh (Rs 151,000). If you purchase the property from the secondary market, you will need to pay brokerage fees to the broker, which varies between 1-2 per cent of the cost of the house. If you buy a property of say Rs 50 lakh, you need to pay Rs 50,000 as brokerage at 1 per cent.
Transfer and relocation cost. Moving into the house incurs costs of shifting, loading and unloading.
Other costs. If you want to avail the services of an interior decorator and a vaastu advisor, you will need to spend extra. Expenditures such as furniture and fixtures need to be considered as well.
