Maintenance charges that buyers need to be aware of


Before purchasing a house, buyers should ascertain the maintenance charges that will be applicable on the property in the future, as it could amount to a substantial sum

As the purchase of a property involves a large amount of money, home buyers need to undertake a thorough analysis, to avoid a wrong decision. This analysis should not only involve the cost of the property, but also future expenses. Maintenance charge is one such expense, which can significantly impact the property buying decision of end-users and investors alike, while buying an under-construction or a ready-to-move-in property. The monthly outgo on maintenance charges, can make a big difference to your personal finance and saving money on this can help you accumulate a significant amount in the long-term. This can be particularly useful during challenging times like now, when the world is passing through the Coronavirus pandemic.

 

What does maintenance charge include?

“Flat maintenance charges vary but the Cooperative Housing Societies Act lists out the following charges:

  • Property taxes
  • Water charges
  • Common electricity charges
  • Contribution to the repair and maintenance fund
  • Expenses on repair and maintenance of the lift of the society, including charges for running the lift
  • Contribution to the sinking fund
  • Service charges
  • Car parking charges
  • Non-occupancy charges
  • Insurance charges
  • Leases rent
  • Non-agriculture tax
  • Education and training fund
  • Election fund
  • Any other charges

It may also include salaries of office staff, liftmen, watchmen, etc., society office property tax, electricity, water charges, printing, stationery and postage, travelling allowance of staff of members, subscription to education fund and other charges,” explains Rituraj Verma, partner at Nisus Finance.

 

How maintenance charge impacts you financially?

Society maintenance charges rules have a direct bearing on the life cycle cost of a property, says Col GK Grover, professor emeritus, School of Real Estate – RICS School of Built Environment, Amity University. “While investors, particularly in the case of commercial property, understand maintenance charges meaning, end-users may not have the same degree of comprehension of its impact. Multi-national and large companies understand its significance and thus, for commercial properties, maintenance charges have a big impact on the buying decision. In most commercial property cases, the maintenance charges are based on actual expenditure plus a certain percentage over the same,” Grover explains. Maintenance charges are higher in commercial properties than in residential ones, as the former will have components such as central air conditioning and larger common areas.

In the case of home buyers, the impact of maintenance charges on flats is neither understood well by many, nor do the developers care to highlight its impact. Experts point out that in under-construction projects, the maintenance charges may not be demanded initially and may not be discussed in detail. However, for a ready-to-move-in property, all the charges, including society maintenance charges and various deposits, are required to be paid upfront and hence, the home buyer learns about it. This has a bearing on the buyer’s decision.

 

Maintenance charges that buyers need to be aware of

 

GST on maintenance charges

Usually, ambiguity over maintenance charges exists, for the first two to three years following the formation of the housing society. This is also the period when residents start occupying the building and fit-out work is in progress. “With the promulgation of Apartment Acts, it is now mandatory for developers to hand over both, commercial and residential properties, to the apartment owner’s association. This bodes well for home buyers, as they would themselves be setting the standards and deciding on the common area maintenance charges in the short-term and long-term,” points out Nimish Gupta, MD, RICS South Asia. “Flat owners also have to pay GST at 18%, if their monthly contribution to the residents’ welfare association (RWA) exceeds Rs 7,500, as per the Finance Ministry’s orders dated July 22, 2019. As per the rules, RWAs are required to collect the GST on monthly subscription/contribution charged from its members, if such payment is more than Rs 7,500 per flat per month and the annual turnover of the RWA by way of supply of services and goods exceeds Rs 20 lakhs,” he adds.

 

Regulation of maintenance charges under RERA

The Real Estate (Regulation and Development) Act, 2016 (RERA) mandates, under Sec (4) (d), that the developer will be responsible for providing and maintaining the essential services, on reasonable charges, till the taking over of the maintenance of the project by the association of the allottees.
Section 6 of the RERA also states that: Every allottee, who has entered into an agreement for sale, to take an apartment, plot or building as the case may be, under Section 13, shall be responsible to make necessary payments in the manner and within the time as specified in the said agreement for sale and shall pay at the proper time and place, the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent and other charges, if any.

 

The flat maintenance charges law under RERA, stipulates that it is the duty of the developer to pay all maintenance charges, until the day he hands over the possession to the buyers, says Verma. “Thereafter, he has to ensure that the building remains without any leakages for five years beyond the date of hand over to the society. Builders usually charge a one or two-year maintenance charge as an advance, as part of the sale agreement and they have to inform buyers of all costs estimated at the time of the sale,” elaborates Verma.

 

Criteria for charging maintenance

Type of maintenance chargeApplicability
Expenses on repair and maintenance of the building0.75% per annum of the construction cost of each flat
Service charges (housekeeping, security, electricity for common areas, equipment, etc.)Equally divided among the flats
Expenses on repair and maintenance of elevatorsEqually divided among the flats
Sinking fundMinimum of 0.25% per annum of the construction cost of each flat
Non-occupancy chargesFor flats which are rented, calculated at 10% of service charges
Parking chargesBy number of parking slots of each member
Property tax and water chargesActual consumption of each flat, or number of water inlets

Information provided by RICS South Asia

 

Key words

Non-occupancy charge: Levied when a ready-to-move-in property remains vacant.

Sinking fund: Payment towards replacement of depreciating assets.

Property tax: Tax paid to the local government authority.

 

FAQs

Is GST applicable on maintenance charges?

Apartment owners have to pay GST at the rate of 18%, if their monthly maintenance charges exceed Rs 7,500.

What is non-occupancy charges?

The residents’ welfare association can levy a charge on flats that are rented out, up to a maximum amount of 10% of the service charges.

 

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