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Business News/ Money / Personal-finance/  The invisible bills in buying property: read the fineprint
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The invisible bills in buying property: read the fineprint

The agreement value is a key figure to note when you book your apartment, as all subsequent charges would be calculated based on this figure

While booking the apartment, obtain a clear break-up of the total bill that you will have to settle at the time of possession. Photo: MintPremium
While booking the apartment, obtain a clear break-up of the total bill that you will have to settle at the time of possession. Photo: Mint

You may have come across a real estate project advertisement sporting an attractive price tag. But pause for a second and notice the asterisk mark a little further down. This denotes the slew of hidden costs that are not apparent at first glance. Most people get carried away by the flat cost, which they often confuse with the total, final bill that they would end up footing. You may have to shell out 15-20% of the agreement value from on your own pocket. The share may rise to as high as 40%, based on the agreement clauses, maintenance fees and interior decoration costs. The agreement value is a key figure to note when you book your apartment, as all subsequent charges would be calculated based on this figure. The bank also sanctions your loan based on this very number. So, while booking the apartment, obtain a clear break-up of the total bill that you will have to settle at the time of possession.

Usually, the stamp duty varies between 5% and 8% of your agreement value and is also based on the city/state where the property is located. Registration and document charges are separate.

There are two points to note here. One, from 2012, the Reserve Bank of India asked banks to exclude the above charges from the loan amount. Two, quite a few real estate projects today claim to waive off the stamp duty and registration fees. However, this merely means that the builder is stepping in your stead to pay the government. In such a situation, secure the relevant receipts for these payments made on your behalf by the builder.

The government imposed these taxes in 2012, pursuant to certain Supreme Court rulings. Thus, buyers who had booked their flats prior to 2012 need to a pay a huge lump sum at the time of possession, towards these levies. Under-construction apartments attract a service tax rate of 3.09%, as this is not based on the entire agreement value. Similarly, under-construction apartments attract a value added tax (VAT) of 1%. Interestingly, ready-to-occupy apartments do not attract these two levies as the construction and actual sale happens at different stages. Service tax rates may also vary, based on the size of the flat and the value.

These include charges such as the cost incurred on franking/stamping the loan agreement and insurance policies on the property as well as the loan. Franking establishes the title to the property and creates an equitable mortgage. The charges amount to 0.2% of the loan amount, provided the title is clear. In case title issues arise, or if you have to transfer the title (as with resale properties), you will also need to pay the lawyer or legal adviser the requisite fees.

Insurance is another area of common confusion. While a property insurance cover protects your apartment against sudden calamities, a home loan insurance cover takes care of loan repayment in the event of death of the principal borrower. A home loan cover is often an accompaniment to the loan amount sanctioned, while property insurance is provided separately. Some banks also make a property cover mandatory, prior to loan disbursal.

If the project is delayed inordinately—could be for a variety of reasons, delay in obtaining clearances, labour issues, and others—then you are at a disadvantage on two counts. One, you will not be able to claim exemption on the interest that you pay to the bank, until you get possession. And two, you end up paying more in the form of pre-EMI (equated monthly instalment) interest.

Once the possession date nears, and you have cleared all the dues, there is a chance that the builder may not handover the key just yet. Between the key and your grasp lie some minor, but nonetheless crucial charges.

Clubhouse fees: What was once an aspirational amenity, is now a fixture in most real estate projects, and one that you cannot avoid. Running into a few lakhs, or even tens of lakhs, depending on the project size, clubhouse fees are usually charged outside of the agreement value. However, some developers may choose to bundle the amount into the agreement value, which may inflate the actual cost, and make it a time-bound payment.

Maintenance and electricity meter charges: These are more regular in nature and non-negotiable. However, if you are paying the (annual) maintenance in advance, ensure that it is for a short time period (1-2 years) and not lump sum as a deposit, as the developer may then delay the handover of maintenance activities (even if the society is formed).

The bills will continue even after you have walked into your home. Firstly, you are sure to spend a decent sum on sprucing up the interiors. Secondly, the monthly maintenance outgo (which depends on the size of your apartment) will commence once a co-operative housing society is formed.

In all, make sure that you have a wallet that fits the bill.

The writer is director, Crisil Research.

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Published: 15 Dec 2014, 12:00 AM IST
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