Cost of Owning a Home
20 Jul, 2012 7:45a.m.
Its important to understand the cost of owning a home as it is not simple the sqft rate multiplied by the area. The buyer has to understand all the associated cost to mobilise the amount. The various components are given below
First and foremost, it is the area over which the buyer is charged.
Typically, one does not get the area for which he/she pays for. If one is
looking at buying, say a 1,500 sq ft apartment, the useable area could vary
anywhere between 750 sq ft to 1,200 sq ft depending on the loading done by the
builder. Thus the actual livable area, or the carpet area, one gets is around
50-75 % of the super built-up area.
The difference in the area is accounted for by utilities and common
areas like staircase, lobby, lift, society office, clubhouse and swimming pool
among others. Loading is a double-edged sword. It not only reduces the useable
area, but also pushes up the effective price. In a project with 50% loading —
not uncommon in many parts of Mumbai now — the actual cost of the leviable
areas is double that of the sticker price.
This practice is more pronounced in new projects that were mostly sold
on their USPs of providing ever greater number of amenities, such as swimming
pool, club house, gym, common party halls, society office and lobbies among
But every additional amenity adds to the building's super-built-up area
and cuts in the apartment's carpet area. In fact, some developers misguide
buyers by selling on the basis of super built-up area only, without clearly
mentioning how much is the carpet area. This is despite the fact that most
states have laws that say that flats should be sold only on the basis of carpet
About 5% of the value of the property is paid towards stamp duty and
registration charges, though it could vary across states. These are mandatory
fees that need to be paid. In the above case, it would be Rs 1.40 lakh.
Value-added tax (VAT) is another recent addition to the already long list of
taxes to be paid. In Maharashtra, VAT is charged at 1% on the contract price of
a flat as disclosed in the sales agreement. Brokerage charges could vary from
The processing fee for taking a loan, though, depends on the loan
amount, typically ranges between 0.35% and 2%. According to the Budget
proposal, real estate developers might have to pay a service tax on
transactions or sales, where the booking amount is collected from prospective
buyers before the project is completed. This means, a tax of 10.3% would be
applicable on one-third (33%) of the price of the apartment, which will be
passed on to customers.
Taking an example, a property costs Rs 2,800 per sq ft as a basic rate.
The buyer is interested in buying an apartment of 995 sq ft. So the value of
the apartment stands to be Rs 27.86 lakh. But this does not include the parking
charges and maintenance charges. The price calculated does not include the
preferential location charges (PLC) either. A specific floor will be charged
anywhere between Rs 10 to Rs 100 per sq ft of the basic area. A park facing
view or a swimming pool view would be charged additional PLC. This charge
ranges between 5% and 10% of the basic cost. As per our example, if you take
external development costs (EDC) at 5% of the basic price, it adds Rs 1.39 lakh
to the basic cost. If you own a car, you will need to pay one-time parking
charges. For each parking space, you have to pay 5-10 % of the basic cost of
the house. As per the above example, if you have one car, your basic cost goes
up by Rs 1.39 lakh.
Other than these costs, you need to pay for power and water connections
and other such charges. Normally, these costs do not exceed Rs 20,000-Rs
25,000. For our case, we may take Rs 20,000 as a cost against utility
AND ADMINISTRATION COSTS
There are costs that you will incur towards maintenance of the
society/locality, such as payments to the guard and sweepers, and for repairs.
Before the flat is allotted, you will need to pay a security deposit that will
be used to meet these costs in the future. Club membership, maintenance
charges and other such charges are like 15 % over the basic cost of the house. As
per our example, taking 5% each towards the charges against club membership and
security deposit for maintenance cost, your budget goes up by approximately Rs
Legal fees need to be paid to the lawyer to verify the legal title of
the property and that the ownership of the property is not in dispute. One may
have to pay conveyance costs to the lawyers for transferring property from one
person to another. Inspection fees might have to be paid to a surveyor to get
the property inspected for the purpose of availing a home loan.
Thus, if one adds up all the additional incidental costs, the actual
price of the house may turn out to be much higher than the one suggested by the
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