Its festive season already with the ongoing Navratras and for many this might be the year after long wait when they have decided to make their big-ticket purchase of real estate. But as an essential premise, you should also be aware about the different hidden costs associated with the investment.
Simply put, experts from the industry classify real estate purchase charges primarily into two heads
1. Cost to be paid to the builder or seller
2. Statutory and legal cost to be paid out to the government.
And of these, the major chunk of your investment i.e. 80-85% undoubtedly goes to the seller of the property while the rest is paid to the government as different stamp duty and other charges.
Basic cost: This is the basic price to be borne by the buyer and is computed by multiplying carpet area with the per square feet price.
Other builder charges: Then in addition to it, there are other charges such as parking charges, infrastructure development charges including local water, electricity, maintenance and other amenities, power back up, preferential location charges in case of premium view or floor-rise costs etc. It is to be noted that preferential location charges (PLC) fall anywhere between Rs 25 to Rs 100 per sq. ft. or even higher and form the part of the total apartment cost.
Generally, floor rise premiums are dependent on the climatic conditions of the city. For instance, real estate investor in NCR region, needs to pay a premium price for flats close to the ground whereas it is just the opposite in Bengaluru or Mumbai, wherein the higher you go, more you need to shell out.
Brokerage: To arrive at the final budget of your much coveted property, you also need to account for the brokerage or commission fee that you might need to dole out to the property agent against his piece of consultation, negotiation and final transaction on your behalf. Generally, this fee is pegged at some percentage of the total deal amount.
Property tax: Based on the locality, build-up area, basic cost, age criteria etc., real estate investor is required to pay property tax. The liability to pay property tax becomes due on real estate property i.e. either land or any immovable property on that land. At present, real estate is not included in the new indirect GST regime though various proposals to this effect have been made.
Goods and Service Tax (GST): In case of under-construction projects, GST is charged over and above the cost implications put forth by the property developer. And currently, GST for such a property stands at 12% of basic sale price of property. For affordable housing , GST rate is 8%. Plus other cost heads associated with real estate investment attract 18% GST as in case of PLC, floor rise, clubhouse etc.
Registration and Stamp Duty: The buyer at the time of property registration needs to pay stamp duty and registration charges upfront. While stamp duty charges vary across states, registration charges plus other surcharges range between 5-10%.
Plus, there are other legal charges to be paid to the lawyer and notary who will be involved in the assessment of paper work during the real estate property purchase.
Insurance: Though not mandatory, securing insurance for your home may be a wise step as it will provide financial protection against any damage to your property on account of fire, natural calamity etc. Nonetheless to make it clear here, property insurance and home loan insurance are probably two different concepts. In home loan insurance, cover is provided for the home loan amount taken by the borrower.
Other miscellaneous charges: Besides the above mentioned costs per se property investment, investor cannot neglect other miscellaneous fees even if it is meager in comparison. One such charge is TDS of 1% for properties worth more than Rs. 50 lakhs. Plus there are other charges such as legal advisory , documentation charges, loan processing etc. i.e. to be borne by the buyer of the property.