SMART SOCHO: Pssst Always read the fine print

With developers leaving no stone unturned to promote their projects via special offers, subvention payment schemes, freebies and what not, buyers would be well advised not to get carried away and always read the fine print before finalizing the deal, writes RAJESH KULKARNI.  

Full-page colour advertisements in national dailies, massive hoardings and billboards at prominent locations, catchy jingles on the radio, celebrity endorsements on the telly, we all have seen and heard them all. Each one of them screams the same message. Special Offer, Festival Discount, Limited time only, get more psf for less, modern homes for under INR50lakhs, buy a home today get a modular kitchen free etc.

Loud, catchy and sometimes tempting too. But don’t be fooled. As the saying goes, if it sounds too good to be true, it generally is. As with most kinds of discounts and special offers, there are always terms and conditions that apply but are not always visible to the gullible buyer.

A hoarding that says buy a home here for just INR 50 lakhs does not imply that a buyer has to pay only that much to fulfill his long cherished dream of owning a home in the city. There is always a long list of hidden costs involved, potent enough to increase the final price by 20-30 percent, sometime even more.   

So let’s take a closer look at some of these ‘hidden costs’ involved in buying a new property that need to be considered by a potential buyer before taking the plunge.

Stamp Duty & Registration: Applicable on all new property transactions including those transferred via a gift deed, these mandatory charges are paid to the state government at the time of registering the property.  Rates vary from state to state but are usually in the range of approx 5-7percent. 

External Development Charge: Usually in the range of approx 10 percent of the base cost, this charge is levied by developers on a buyer towards the upkeep and maintenance of the project’s amenities and infrastructure facilities like sewerage plant, water supply, roads, water supply and external lighting facilities among others.

Utility charges: A frequent ‘extra’ in most premium and ultra-luxury residential projects, buyers have to pay upfront for utilizing the expensive facilities such as a club membership, use of the Olympic-sized swimming pool  and even the parking space for their vehicle inside the project. While club membership and other recreational charges could be paid in the form of an annual fee or one-time charge, the money for the much sought-after parking slots are known to command a huge premium depending on the project.

Preferential Location Charges (PLC): A premium charge applicable to those wanting an apartment at a specific floor or one overlooking the wide expanse of the ocean for example.  Calculated by the developer as per the size, price and location of the apartment, PLC charges on higher floors may vary depending on external factors like the climate conditions. Usually charged in the INR20-100psf range.

Registration Fee: This one is in addition to the stamp duty & registration charges paid to the state government and relates to the expenses on account of brokers commission and services of the notary and lawyer accounting for approx 1-3 percent of the cost of the property.

Security Charges: Payable by the property owner on a monthly basis for costs incurred on hiring security personnel for the complex and the installation and upkeep of additional security features like CCTV, intercom, video door phones and so on.


Maintenance Charges: These charges relate to the costs incurred by the developer towards the maintenance of common facilities at the project like the street lights, internal roads, gardens & parks, jogging tracks and so on. Charges for water and electricity back up facilities (if any) are also usually included in the bill, payable on a monthly, quarterly or yearly basis.

Service Tax: As per the recent changes in the Service Tax rates applicable in the Budget, under-construction property is now charged a 14 percent service tax (up from 12.36 percent) on approx 25 per cent of the gross value of the property.  Accounts for approx 4-6percent of the final costs of the property.

Value Added Tax (VAT): Chargeable only on under-construction property, VAT charges vary from state to state, but is said to be broadly in the region of approx 3-5percent of the total cost of the construction-value of the property.

While the above-mentioned charges may be applicable in transactions for buying new or under-construction properties, buying a resale property from the secondary market also comes with its own set of challenges for a buyer.

..For those Buying a Re-sale Property:
Typically buyers in the secondary property market have to make a fund allocation for several extra charges over and above the sale price paid to the existing property owner. Buying a resale flat normally entails hiring the services of a broker or estate agent, who scouts for available options matching the buyers requirements in terms of their location, configuration and price range.

Upon short listing a few properties, the client or buyer is then given a guided tour and tips on the pros and cons of each property, before the buyer makes his selection and pays the token or part payment.  Brokers are also expected to help the buyer through the maze of mandatory procedures for the transfer of ownership that usually accompanies such transactions.

Not surprisingly then, brokers charge a hefty commission for services rendered. While brokers active in the primary market get their brokerage directly from the concerned developer for selling flats in his project, in the case of resale flats the charges which amount to approx 1-2 percent of the property cost are borne by the buyer.

Some of the key additional charges to be borne by a buyer in the secondary property market include stamp duty & registration charges levied by the government for executing the change of ownership details in government records.

Buyers also have to sometimes bear the brunt of unexpected costs like paying unpaid property taxes, water and electricity bills and maintenance dues of the previous owner. Hence it is always advisable to ask for the latest payment receipts for all of the above to avoid unnecessary hassles post purchase.

Those on the lookout to purchase a standalone home also need to be aware of incremental costs   incurred towards the payment of statutory charges like payment of property tax and permissions needed for expansion.

In the case of individual layouts, buyers usually pay a premium for homes that are built in accordance with the principles of Vastu and corner homes that are believed to be excellent for commercial purposes.
(all costs mentioned herein are purely indicative.)