After six month of house hunting, when Ashwij Patil, an entrepreneur, found a 1,000 sq. ft apartment in Thane, a distant suburb in Mumbai, worth about Rs42 lakh, his search was over. Though a tad over his budget, he was satisfied that the flat would be spacious enough for him and his wife.
Little did he realize then that the actual living space, carpet area in builder parlance, would be not more than 680 sq. ft, a scaling down of around 30% in terms of area. Three months into the project, when he took a closer look at the break-up of the space in the sale agreement, he discovered it added up to much less than what was published.
Why this discrepancy
Patil is not an isolated case. When buying a house, most people just look at the space advertised upfront by the builder. However, what builders advertise is the super built-up area, which includes common spaces such as lift lobby and parks within the apartment complex. Recently, builders have started mentioning the actual living space in the sale agreement but not in the advertisement as such.
“In any typical project, these areas do not tend to constitute more than 15-20% of the overall constructed space. Nevertheless, all that a buyer would really wish to pay for is the exact amount of space available for personal use in the property—in other words, the carpet area,” says Ashutosh Limaye, associate director (strategic consulting), Jones Lang La Salle, a property advisory firm.
Watch Out: When buying a house, you also need to pay for common spaces
The issue gains significance with the matter being currently debated by the Maharashtra government and the Maharashtra Chamber of Housing Industry (MCHI), representing real estate developers. While the government has been asking property firms to sell according to carpet area rates, MCHI has questioned the very concept of “carpet area”, which differs between cities and even between projects.
How much extra you pay
There is no contained space without walls, so the buyer also pays for the space these occupy. This space including the walls is known as built-up area. While paying that is unavoidable, paying for the super built-up area is also mandatory.
“In any project, it is implied that residents have to bear the costs for all the common areas that include elevators, lawn, pool or even the gymnasium that the builder offers,” says S.G. Maheshwari, a Mumbai-based property consultant.
However, what rankles most property buyers is the fact that other cost heads such as parking, club membership and maintenance are calculated according to the cost of the super built-up area.
In Patil’s case, the cost of the 1,000 sq. ft apartment is Rs42 lakh (Rs4,200 per sq. ft). However, if he was charged just for the area that he is actually getting—680 sq. ft—his cost would have come to around Rs26.56 lakh.
“The problem in real estate is of an increasing discrepancy in the ‘loading’ factor, which basically means how much extra charge has the builder loaded the customer with besides that for the carpet area offered,” says Samarjit Singh, managing director, Agni Group, a pan-India brokerage firm.
In India’s two most prominent property markets—Delhi and the National Capital Region (NCR)—projects have a loading of 25-30%, say property experts. In some projects, it could go up to 35%. Residential properties in Mumbai could have a loading of as much as 50% or more, experts say.
From the macro point of view, property analysts believe that when the real estate market rebounded in 2009 after the downturn, many developers refused to hike prices, fearing they would lose customers. At that point, developers increased the difference between the super built-up and carpet area, reducing the latter by a wider margin. “The last 20 months have seen a lot of developers tweaking the size as well as the price of homes to better their margins and retain buyers,” says a Delhi-based property consultant, who didn’t want to be named. “Interestingly, we have observed that the loading has increased the most in the premium or luxury sector, where the per sq. ft price is steep.”
An upscale residential project in Mumbai’s Lower Parel, where apartments are priced at Rs2 crore and above, there is 60% loading on the carpet area, says the consultant.
There is no standardized means of measuring the value of common spaces and the extra cost it implies to the end user. Moreover, there is no mechanism in place to determine how much cost the developer has incurred in terms of construction material and manpower.
“In markets such as Bangalore, there is a per sq. ft calculation in place of the total common area divided by the total sq. ft in a project. But in cities such as Mumbai, the buyer doesn’t really know what all he is paying for,” says Farook Mahmood, president, Bangalore Realtors’ Association.
Another problem is that the developer adds facilities (read common spaces) that the law does not require him to just to get the right ambience for his project. For example, the law requires a residential building to have only one parking place for a certain number of flats. However, almost all prospective buyers in a metropolitan city would own cars, so the developer provides more than what the law requires. “He offloads the enhanced cost on his clients, definitely charging them for more than they are getting,” says Limaye.
According to a Supreme Court ruling this year, at the time of sale, flat purchasers needn’t shell out extra money for parking, be it stilt (covered) or open. However, developers are still charging a fee, say property consultants.
What should you do?
Practically, there is really no way out as of now except to know what you are buying. Shveta Jain, director (residential services), Cushman and Wakefield India, a property advisory firm, says there is not much scope for change or negotiation of rates which a developer typically asks for. “So you are paying at least 20-25% above the value of your property,” she says.
The best you can do is to be aware about what you are paying for and what you will actually get. “The buyer should ask upfront what the exact carpet area is and what is he going to pay for. The best way to do it is to check the floor plan so that he can add up the exact area to assess the price he will pay per sq. ft,” says Singh.
If you find it difficult to understand the hidden costs, another way is to take the help of a professional. “Ask for the efficiency ratio to see what the difference between super built-up and carper area is,” says Jain. The efficiency ratio can be obtained through a professional real estate consultant. Even local property brokers not involved in the transaction can give it.
Jain suggests homebuyers should retain a copy of the detailed price list and the detailed amenities and apartment specifics to tally them at the time of possession or payment.