Owning a home is everyone’s dream. This not only gives a sense of security, but also a sense of freedom and pride. Buying a home is usually the biggest purchase of a lifetime and often cannot be done without detailed financial planning.
The first step in buying a home should be to understand and assess the true cost of owning the home. 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 fees and additional expenses that you might have to pay. If you can’t predict them, the actual costs will usually increase at the time of purchase, which can derail your financial planning to date.
Here are the top 5 significant additional costs you should be aware of before buying your dream home so that you can better plan your finances and avoid unnecessary last minute shocks.
1. Stamp duty
Stamp duty is a mandatory tax levied by the government on real estate transactions. This authenticates the sales agreement and serves as proof of the sale or purchase of a good. Stamp duty can vary between 4% and 7% of the value of the property depending on the state where you buy a home. For example, if the value of the house you are buying is, say, Rs 50 lakh; you will have to pay Rs 2 lakh to Rs 3.5 lakh additional as stamp duty, which will increase the price.
Note that stamp duty rates are decided by state governments and may vary from state to state as well as in urban and rural areas of the state itself. Several states also offer discounts of up to 1% to female homeowners and people who buy affordable homes. Thus, there can be a significant variation in stamp duties even within the same state.
2. Registration fees
This is another mandatory cost collected by the government at the time of purchase for registering property in the buyer’s name and updating property records. In most states, the cost of registration is 1% of the value of the home. So, for a house valued at Rs 50 lakh, you will have to pay Rs 50,000 as a registration fee. The registration fee is in addition to the stamp duty you have to pay.
3. Goods and Services Tax (GST)
If you buy a property under construction, you will also be required to pay GST on it. GST is calculated at 1% of the value of the home if the property meets the definition of affordable housing. Otherwise, GST will be charged at 5% of the value of the property. Affordable property is defined as a house that is less than Rs 45 lakh in value and less than 60 square meters in subways and 90 square meters in other places. Thus, if the value of an affordable property under construction is Rs 40 lakh, the GST payable by the buyer will be Rs 40,000. If the value is Rs 50 lakh, the GST payable will be Rs 2 , 5 lakh. However, there is no GST on completed (ready to own) properties or on the resale of an old property.
4. Anticipated maintenance costs
The cost of maintaining the property can have a significant impact on the cost of the home. Builders can collect them in advance for a year or two, and this amount can run into the thousands of dollars depending on the size and location of the property and apartment complex. Typically, maintenance costs include building security, elevator costs, property maintenance costs, and common water and electricity charges, among others.
5. Parking fees
Many buyers believe that once in their new home, they will not have to pay the cost of parking their vehicle. This is not true. Housing companies or builders charge parking fees for a dedicated parking space. If you have more than one vehicle, you may need to pay extra to purchase additional parking space. Depending on the company, you may be charged a one-time or annual parking fee, which can be as high as several thousand or even several lakhs.
In addition to these, in the event of a resale transaction, you may also need to pay a Memorandum Transfer Fee (TM) to the local body or a transfer fee to the Association for the transfer of ownership. The builder may also charge you a Preferred Location Fee (PLC) and a floor increase for the unit in a better location in the complex. These are not fixed and vary from one manufacturer to another. You may also need to fork out some extra money to make the interiors, especially if you want them to your specifications.
In conclusion, all of these additional costs put together can increase the actual cost of your home by 10-15%. What is worth mentioning is that if you are considering a home loan for the purchase of real estate, the lender will not take these fees into account when finalizing the loan amount. The amount sanctioned will depend solely on the value of the property, and all of these costs would be personal expenses for you. So, you need to factor in all of those extra expenses while estimating the overall cost of the home and plan for them early in your planning. This will greatly facilitate the purchase of your home.
(The author is CEO, BankBazaar.com)