Cost of Owning a Home

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

LOADING

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 others.

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 area.

TAXES

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 1-4 %.

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.

INFRASTRUCTURE COSTS

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 connections.

SOCIAL 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 2 lakh.

OTHER CHARGES

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 sticker price.