Home purchase: Factor in the add-ons

Real estate is by far,the biggest investment that the average person takes up and in most cases is at the upper scale of the limit of his financial capabilities.

Written by Adhil Shetty | Published:July 21, 2012 2:55 am

Real estate is by far,the biggest investment that the average person takes up and in most cases is at the upper scale of the limit of his financial capabilities. Therefore,encountering surprises in terms of new and hidden costs becomes extremely difficult to handle or cater for.

The initial costs as described by the real estate agent does not include a host of add-ons which one has to pay for,ultimately raising the budget by almost 25 per cent. One should be aware of this,and be prepared for this additional expenditure that will come your way when buying real estate.

Registration Costs

It has to be kept in mind that the registration cost forms a substantial amount depending on the total worth of the property. In most states the entire legal charges in terms of stamp duty and registration fees add up about 7-10 per cent of the property cost.

Typically the stamp duty is about 5-7 per cent,which means that if one has to buy a property worth Rs 50 lakh then stamp paper worth Rs 3.6 lakh has to be purchased for typing the sale deed on it.

In addition,there is a registration fee payable to the court,which amounts to 1-2 per cent of the property cost. Over and above these costs,which have to be exclusively borne by the buyer,there are miscellaneous expenses such as the fees of the notary and lawyers who get the job done in the court. The legal counsel assisting in verification and registration of the property also charge about 1 per cent of the property cost which has to be taken into account while planning your budget.

Parking Space

It had been the trend over the last decade to charge an additional upfront payment for exclusive parking spaces in large residential complexes.

This amount could vary from Rs 2-5 lakh depending on the type of property,locality and type of parking space being provided. This has been a cause of heartache for many buyers. After March,2012 as per a Supreme Court ruling,no additional charges can be levied for parking within a residential complex. However most developers try to bypass this provision by adding an extra amount to the property cost.

Interiors

After acquiring a property,one has to invariably spend some amount in getting the interiors done up as per individual preferences and requirements. This expenditure is generally not planned at the initial stages and can cost quite a fortune depending on the exact nature of interior work being undertaken. However on an average it can be safely assumed to be a minimum of 1 per cent of the entire cost of the property.

Interest,Rental and Tax Rebate Loss

Delays in project completion are a common phenomenon in India due to a host of reasons. These delays not only result in price escalation but also incur additional losses in terms of extra interest paid to the lender of home loans.

A delay in completion by six months to one year is normal and must be factored in,as it will imply extra interest on the borrowing amounting to a substantial value.

Additionally these delays will also deprive the owner of the rental earnings for the period. The tax rebates applicable on home loans cannot be availed unless the property is complete and handed over. The above three elements add up to a huge value when reviewed under the financial circumstances of the buyer who is at the limit of his capabilities.

Maintenance Deposits

The latest projects have a trend of charging upfront maintenance deposits for a longer period like 10 years instead of the conventional periodic charges.

This is to the disadvantage of the buyer as he will have to pay a lump sum amount initially for which he will pay interest on the borrowings. Given the current trend of inflation,this amount is likely to run out earlier than anticipated and again another deposit of maintenance funds has to be made. Most developers are insisting on it as it gives them a greater capital initially to play around with.

There can be several other hidden costs such as unapproved plans,unpaid civic authority dues etc. which can further aggravate the situation,unless one is financially prepared. Do factor them before signing on the dotted line.

— The author is CEO,BankBazaar.com

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