Buying a house – know your purchase cost

SMS comes to your mobile – “2BHK flat, with swimming pool, gym, club and parking facilities available on NH8, just 5 minute distance from metro station”.  If you are in search of your dream home, looking at the facilities available, your temptation to know the cost of house will rise. But when you do the homework, the picture is different. The cost overshoots your housing budget.

SMS like this will never mention the hidden cost which you have to bear while purchasing a property. These costs are most of the time overlooked by the buyer as the focus is more on the total sum to be paid. But if you look at the cost individually, there are options available to a buyer by which the initial costs can be reduced with a little smart planning.

1.       Stamp Duty: Stamp duty is the charge paid on the documents and varies from state to state.It gives you the legal right to the property and the charges increase as the value of the property increases. These charges are approximately 5% of the value of the property.

2.       Brokerage: If you are buying the property with the help of a real estate broker, you have to pay charges in form of brokerage. The cost in the range of 1-2% of purchase value.

3.       Maintenance: Most of the new constructions today offer amenities like lifts,swimming pool,gym, parking space and 24 hours security connected with intercom.Cost of all these facilities are built in the monthly maintenance.

4.       Utility charges: When you purchase a house, you need to buy electricity and water connection, the charges of which you have to bear.

5.       Taxes: You own a property now and so the local municipal authority will ask you to pay property tax. In no circumstance,can you avoid paying this.

6.       Loan processing and surveyor charge: If you are financing your house purchase and if it is a second sale, the lender will inspect the house. In that case, you will have to bear the survey cost. Also, on the loan you avail, you have to pay processing fee which is in the range of 0.5-1% on the lower side.

7.       Furnishing or renovation cost: Sometimes builders offer fully furnished flats, the cost of which is built in the price.But if you have bought a resale house, then you might have to go for renovation.

8.       Insurance: Although not many buyers today think of buying a home insurance,increased liabilities and insecurity of the future is forcing consumer to think. Generally when you are financing your house, the company itself forces you to buy a home insurance, the cost of which is built in the loan.

9.       Legal charges: Before buying a house, you want to confirm the title deed and bonafide regarding the property. For this you have to hire a lawyer and bear the legal charges.

10.   Shifting charges: Sometimes you have to relocate yourself for some reason.In that case you have to consider shipping charges,custom clearance and all other charges which you have to pay at the time of shifting.

11.   Other charges:Today the builders have some extra charges like preferential location charges and external development charges. These are in the range of 10-15% for location and 5-10% for external development.In any circumstances, if the location is preferred by you, you have to bear these charges.

Let’s take an example. You have decided to purchase a flat (1000 sq. ft.) costing Rs.35 lakh (basic cost is Rs.3,500 per square feet). The attraction is the location, which is in your preferred list.So, you are charged location preference and development charges of Rs.1.83 lakh. Add one-time car parking charges (Rs. 1.25 lakh),utility charges (Rs.25,000), membership charges (Rs.1.0 lakh) and Stamp Duty (5%). You end up paying Rs.6.08 lakh additional for your house.

Here is how your total cost rises when you go for financing:

Amount (Rs.)
Additional cost6,08,000
Loan processing fee15,000
Shifting charges (assumed)10,000
Miscellaneous cost15,000
Total additional cost of purchase6,48,000

Thus, your purchase cost is Rs. 41.08 lakh and not Rs.35 lakh. Although, these charges will vary with location and facilities available, these are mostly fixed charges in all probability.Additionally, you pay interest on housing loan which is also a cost for you.

Buying a house today is a very costly proposition especially when you have a preferred location.It is very important that you do your homework so that it does not stretch your financial budget too much. There are costs like renovation and home furnishing which can be deferred for certain period if your budget does not allow. Lastly,make sure you do a thorough research and are aware of costs you have to incur before you take that dream home buying decision.