Owning a home is everyone’s dream. It not only gives a sense of security but also a feeling of freedom and pride. Buying a house is generally the biggest purchase of one’s lifetime and it often can’t be done without detailed financial planning.
The first step in buying a house needs to be understanding and evaluating the actual cost of ownership of the house. Contrary to expectations, there will be a difference between the cost of ownership projected by the builder or seller and the actual cost of ownership. This is because there would always be hidden charges and additional expenses that you might end up having to pay for. If you fail to make provision for these, then the actual costs will typically inflate at the time of purchase, and this can derail your financial planning till date.
Here are the top 5 important additional costs you need to be aware of before you buy your dream house so that you can plan your finances better and avoid unnecessary shocks at the last minute.
1. Stamp Duty
Stamp duty is a mandatory tax levied by the government on property transactions. This authenticates the sale agreement and acts as evidence of a sale or purchase of a property. The stamp duty charges can vary between 4% and 7% of the property value depending on the state where you are buying a house. For instance, if the value of the house you are buying is, say, Rs 50 lakh; you will have to shell out Rs 2 lakh to Rs 3.5 lakh extra as stamp duty, which will add on the price.
Note that stamp duty rates are decided by the state governments and may vary across states as well as urban and rural areas within the state itself. Several states also offer rebates of up to 1% to women houseowners and people buying affordable homes. So, there can be a significant variation in stamp duty charges even within a single state.
2. Registration Fee
This is another mandatory cost levied by the government at the time of purchase towards registering the property in the buyer’s name and updating records of the property ownership. In most states, the registration cost is 1% of the value of the home. So, for a house which is valued at Rs 50 lakh, you would need to pay Rs 50,000 as registration charges. The registration charges are over and above the stamp duty you need to pay.
3. Goods and Services Tax (GST)
In case you are purchasing an under-construction property, you will also be liable to pay GST on it. The GST is calculated at 1% of the value of the house if the property falls within the definition of affordable housing. If not, the GST will be charged at 5% of the property value. An affordable property is defined as a house whose value is less than Rs 45 lakh and area is less than 60 square meters in metros and 90 square meters in other locations. So, if the value of an under-construction affordable property is Rs 40 lakh, the GST to be borne by the buyer will be Rs 40,000. If the value is Rs 50 lakh, the GST to be paid will be Rs 2.5 lakh. However, there is no GST on completed (ready-to-own) properties or resale of an old property.
4. Advance Maintenance Charges
Property maintenance charges can significantly impact the cost of the house. Builders may collect these in advance for a year or two, and this amount could run into lakhs depending on the size and location of the property and apartment complex. Typically, maintenance charges include security of the building, lift charges, fees for maintenance of the property, and common water and electric charges, among others.
5. Parking Charges
Several home buyers think that once they are in their new house, they won’t have to pay the parking charges for their vehicles. This is not true. Housing societies or the builders levy parking charges for dedicated parking space. In case you have more than one vehicle, you may have to pay extra money to buy additional parking space. Depending on the society, you may be charged one-time or annual parking charges that may run into several thousands to even lakhs.
In addition to these, in case of a resale transaction, you may also have to pay Transfer of Memorandum (TM) charges to the local body or transfer charges to the association for transfer of property ownership. The builder may also charge you Preferential Location Charges (PLC) and floor rise for unit in a better location within the complex. These aren’t fixed and vary from builder to builder. You may also have to shell out additional money to get the interiors done, especially if you want it as per your specification.
In conclusion, all these extra costs put together can push up your house’s actual cost by 10-15%. What is worth mentioning is the fact that if you are considering a home loan for purchasing property, the lender will not take these costs into account while finalising the loan amount. The sanctioned amount will depend solely on the value of the property, and all these costs would be out-of-pocket expenses for you. So, you need to account for all these additional expenses while estimating the overall cost of the house and make provision for them right from the time you start your planning. That will make your house purchase much easier.
(The writer is CEO, BankBazaar.com)