A comprehensive breakdown of the total cost of property in India

Buying a property is one of the most significant financial decisions. In India, the total cost of a property extends far beyond the Basic Selling Price (BSP) advertised by developers. Homebuyers must factor in additional expenses that contribute to the overall property ownership cost. This detailed guide will break down these costs, covering everything from the base price to government taxes, so you can make a well-informed financial decision when purchasing a property.

What is included in the total cost of a property?

The cost of a property in India can be divided into two main categories: direct costs (those paid to the developer or government) and indirect costs (additional financial obligations that come with property ownership). While the BSP is often the primary cost, several other expenses contribute to the final amount you will pay as a homebuyer. These include preferential location charges, parking charges, club memberships, government taxes, etc.

Basic selling price (BSP)

At the heart of any property transaction is the Basic Selling Price (BSP). The BSP is the base cost of the property and typically covers two major components:

1. Undivided share (UDS) of land: This refers to the portion of land assigned to the apartment you are purchasing. In a housing society, the UDS is shared among all residents, and it is an essential part of your property’s value. 
2. Cost of construction and materials: This includes the cost of building the apartment, which covers labour, raw materials, and construction overheads.

The BSP does not include additional charges such as taxes, registration fees, and maintenance deposits, which all contribute to the overall cost of the property.

Additional costs charged by the developer

Beyond the BSP, developers often add several other charges. These are generally levied for specific benefits or requirements that enhance the property’s value or improve the buyer’s living experience.

1. Preferential location charges (PLC)

Preferential location charges (PLC) are fees for properties occupying more desirable development positions. For instance, a corner flat or an apartment with a park-facing view will be priced higher than one in a less desirable location. In certain cities like Delhi NCR, ground-floor apartments can command a higher price, while higher floors are more expensive in cities like Mumbai. The PLC is typically calculated per square foot and can be mentioned in the initial price quote.

2. Parking charges

Parking spaces are often priced separately, especially in urban areas where parking is scarce. Depending on the developer and location, parking charges can range from ₹2 lakh to ₹5 lakh per space. Some developers include parking fees within the total cost, while others add them to the BSP. If you need additional parking spots, the price may increase accordingly.

3. Maintenance deposits and monthly charges

Most housing societies in India charge a maintenance deposit when you buy an apartment. Typically paid for one year in advance, this deposit covers the upkeep of common areas and facilities like elevators, security, and landscaping. Additionally, homeowners pay monthly maintenance charges based on the size of the apartment and the amenities provided.

If your monthly maintenance charges exceed ₹7,500, an 18% GST is applicable. For example, no GST is levied if you pay ₹4,000 for maintenance per flat. However, the total charges could exceed the GST threshold if you have multiple properties, attracting additional tax.

4. Club membership

Many modern housing societies offer gyms, swimming pools, and clubhouses. However, access to these facilities typically includes a one-time club membership fee. The amount varies depending on the society and the range of amenities offered. The membership fee could range from ₹50,000 to ₹1 lakh, with additional recurring costs for using the facilities.

5. Charges for civic amenities

Civic amenities, such as water supply, fire safety, and electricity backup, are often included in the total cost of the property. Developers charge for these amenities, and the fees are added to the home’s overall price. Additionally, external electrification and fire-fighting equipment charges are levied to ensure essential services are in place.

6. External development charges (EDC) and infrastructure development charges (IDC)

Developers must pay external development charges (EDC) and infrastructure development charges (IDC) to the state government to improve the project’s infrastructure. These charges cover developing roads, sewage systems, and other basic infrastructure costs. Typically, these costs are passed on to buyers as part of the total property price.

Additional costs paid to the government

Apart from the costs the developer charges, several government-imposed charges contribute to the total cost of purchasing a property.

1. Goods and services tax (GST)

The GST on under-construction properties is a significant cost component to consider. For properties priced above ₹45 lakh, GST is charged at 5% without the Input Tax Credit (ITC). On affordable properties (those costing ₹45 lakh or less), GST is levied at 1%. The GST applies only to under-construction properties and does not apply to ready-to-move-in homes.

2. Stamp duty and registration charges

One of the most significant expenses in property transactions is the stamp duty and registration charges. Stamp duty is a tax the state government imposes and varies from state to state. Typically, stamp duty ranges between 4% to 8% of the property’s value. In some states, stamp duty may be reduced for women buyers or properties in rural areas.

In addition to stamp duty, you must also pay registration charges to register the property under your name. These charges typically range from 1% to 3% of the property’s market value or the ready reckoner value (the minimum value set by the government for registration purposes).

Hidden costs in property transactions: Estimating the total cost of home ownership

In addition to the listed sale price of a property, buyers must consider several hidden costs before making a purchase. These often-overlooked costs can add up quickly and significantly impact the overall affordability of a property. Here’s an expanded look at the hidden costs involved in property transactions:

1. Hidden costs in stamp duty and registration fees

Stamp duty is one of the most significant hidden costs in property transactions. Some states also impose an additional registration fee, typically around 1% of the property value.

• Additional costs: In certain states, buyers may also be required to pay cess or surcharge on stamp duty, which adds to the overall cost. 
• Exemptions: Some states offer exemptions or reduced stamp duty rates for specific categories, such as women buyers or first-time homebuyers.

2. Legal and documentation fees

Legal fees can increase quickly, especially if you hire a lawyer to verify the property’s legality. The legal aspects of property purchases, including title verification, agreement drafting, and due diligence, often incur fees that are only sometimes transparent.

• Title verification costs: You may need to hire professionals to verify that the property has a clear title and is free of disputes or encumbrances. These fees can range from ₹10,000 to ₹50,000 or more, depending on the property’s complexity. 
• Document charges: Some property transactions require additional charges for document verification, translation (if in a different language), or registration.

3. Home loan processing and charges

Most buyers rely on home loans to finance property purchases, and the associated costs can be significant:

• Processing fees: Banks charge a processing fee for the loan application, typically between 0.5% to 1% of the loan amount. This can run into several thousand rupees, depending on the loan size. 
• Prepayment penalties: Specific lenders may charge a penalty fee if you plan to prepay your loan, in part or whole. While some banks have waived these fees for home loans with floating rates, it’s essential to check before taking out the loan. 
• Legal fees for loan documentation: Banks often charge for legal documentation when processing the loan agreement, which may also involve preparing an indemnity bond, notary charges, etc.

4. Inspection and valuation costs

Before finalising the purchase, buyers may want to hire professionals to inspect the property for any potential defects or structural issues.

• Home Inspection Costs: This includes checking the structural integrity, plumbing, electrical systems, pest control, and other aspects of the home. Costs can vary but typically range from ₹5,000 to ₹20,000 or more, depending on the size and complexity of the property. 
• Valuation Fees: If the bank requires a property valuation to sanction the loan, buyers must pay the valuation fee, which can vary depending on the property’s size and location but maybe a few thousand rupees.

5. Hidden costs in maintenance and society charges

If you’re buying a flat or apartment, be prepared for society charges or maintenance fees, typically collected monthly by the residents’ association or developer. These charges are levied to maintain common areas like elevators, security, landscaping, and other shared amenities.

• Upfront Maintenance Fees: Some developers charge a one-time maintenance fee at the time of possession, which can range from ₹10,000 to ₹50,000, depending on the size of the unit and the amenities offered. 
• Increase in Maintenance Fees: Maintenance fees can increase over time, especially in newly developed projects where initial charges may be subsidised for the first few years.

6. Brokerage fees

If you are using a real estate agent or broker to help you find a property, brokerage fees will be associated with the transaction. While the fee structure can vary, it is typically between 1% to 2% of the property value but can go higher for high-value properties.

• Broker Fees for Sellers vs Buyers: Sometimes, the seller may pay the brokerage, but clarifying this upfront is essential. In certain regions, buyers may also be required to pay the brokerage, which can lead to unexpected costs.

7. Renovation and customisation costs

Many buyers, especially those purchasing under-construction properties, often need to pay more attention to the cost of renovating or customising the space. This can include expenses for interior decoration, flooring, kitchen fittings, and bathroom upgrades.

• Basic renovations: Costs for essential modifications like repainting or replacing old fittings can range from ₹20,000 to ₹1 lakh, depending on the scale of work. 
• Luxury customisations: High-end homebuyers may invest in expensive customisation options, such as modular kitchens, smart home installations, or imported fixtures, which can push costs higher.

8. Utility and connection fees

When moving into a new property, you must set up various utility connections, such as electricity, water, gas, and internet. Some services may have installation charges, security deposits, and service fees.

• Utility Deposits: Depending on the utility provider, you may need to pay deposits ranging from ₹2,000 to ₹10,000 for electricity and water services. 
• Installation Costs: Setting up internet, cable, or other services may incur additional installation charges of ₹500 to ₹5,000, depending on the service provider.

9. Capital gains tax (if selling a property)

If you are selling an existing property to fund the purchase of a new one, you may be subject to Capital Gains Tax on the profit made from the sale. This tax is classified into short-term (for properties held less than two years) and long-term (for properties held longer than two years) capital gains, with varying tax rates.

• Exemptions and Deductions: You may sometimes qualify for exemptions, such as reinvestment in another property (Section 54 of the Income Tax Act). Consult with a tax professional to understand your liability better.

10. Transfer fees

When purchasing a property, particularly from a previous owner or in a secondary market, transfer fees may apply for transferring the ownership documents and making the property officially yours.

• Municipal transfer fees: These fees are levied by municipal corporations for transferring the property title and may vary from ₹1,000 to ₹5,000 or more depending on the location and type of property.

11. Insurance costs

While not strictly mandatory, many homeowners opt for property insurance to protect against damages from fire, natural disasters, or theft. Home insurance premiums depend on the property value and can range from ₹5,000 to ₹25,000 annually.

Housing.com POV

The total cost of a property in India is much more than the price quoted by the developer. Buyers must account for additional expenses, including developer charges, government taxes, maintenance fees, and financing costs. A thorough understanding of these components will allow homebuyers to make better financial decisions, ensuring they can comfortably afford both the initial cost and the ongoing expenses associated with homeownership.

By carefully considering all aspects of the property transaction, including the potential for price escalation due to construction delays and inflation, you will have a clearer picture of the financial commitment required for homeownership in India. Always ensure you have factored in all costs to avoid surprises later.

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