Trap ALERT – HIDDEN CHARGES

The visible piece of iceberg did not sink the Titanic. The killer was always hidden under the ocean. House purchase is a costly, long term decision. People always stretch while making this purchase. They like something, they make up their minds, and many times even when the hidden charges get added up after they have made the decision to buy, they just keep on stretching to buy their dream house rather than making a rational decision.

Builders often resort to Price Traps.

We addressed five such traps earlier,

  1. The Big Brand Builders
  2. Location
  3. Heavy Marketing Push
  4. Cosmetic Improvement in Design
  5. The Value Trap

Today we discuss about another one – HIDDEN CHARGES.

not find the total buying price then it wastes a lot of precious time.

The trick that tires us down!

Waste of timeBuyer settling for inapt purchase.

When an advertisement sells a 3 BHK at prime location in Gurgaon for 80 lakhs and it naturally gets a buyer interested only to realize that there is more to it than what meets the eyes.

Mostly the advertisements and sales literature do not contain the hidden charges which can easily enhance the buying price by at least 25% of the advertised price.

The problem with this approach is that initially during the research phase if one does not find the total buying price then it wastes a lot of precious time.

Such approach results in buyers settling for a purchase either not appropriate for their budget or which erodes value due to high purchase price. Usually these prices are headed under PLC, FFC, EDC+IDC, IFMS, VAT + Service Tax (now GST), Sale Deed Charges, Club Charges, etc.

These can be very confusing jargons for new buyers and given the nature of Real Estate, buyers mostly make only 2-3 purchases in their lifetime, hence the abbreviations can be intimidating.

Buyer Lost & confused with technical terms.

Buyer Lost & confused with technical terms.

Therefore, it is important that not only are these terms expanded and understood (google proves to be handy support system) they are also discovered by inquiry and questioning before getting into any contracts.

Usually these charges sum up to about 20-25% of the Basic Sale Price and hence can completely change the dynamics of the purchase. The cumulative effect can rather catch a buyer by surprise and a rather unpleasant one at that.

As a summary please verify from the person who is selling you to provide a full account of charges accruable to the property.

As a rough guide it should contain:

Guidelines to ask about prices

Guidelines to ask about prices

  1. BS(C)P – Basic Sale/Cost Price
  2. EDC + IDC – External Development Charge – Internal Development Charge
  3. PLCPreferential Location Charges
  4. Car Parking Charges – How many parking, what kind of parking (covered/open; Back to back/Parallel) etc. The dimensions of the parking should be asked for.
  5. Amenities Charges – To include Club Charges, common area charges, sports facility charges etc.
  6. EEC & FFC Charges – Electricity Meter Charges and Fire Fighting Charges
  7. Power Back up Charges – How much power back up is included in the basic price/cost and how much is required to be purchased in addition.
  8. Gas Pipeline Charges
  9. IFMS/IBMS – Interest Free/Bearing Maintenance security. (an amount which is supposed to be kept as a corpus for the upkeep of the residential society. This money belongs to the residents of the said development).
  10. Government Levies – GST, Registration costs, Stamp Duties at the time of conveying of property. (ask for the present rates if the property is under construction)
  11. Escalation Clauses
  12. Misc– Administrative costs, Transfer Fee, Commutation charges in case of purchase in resale

Some more important expenses which usually do not get budgeted for are as follows:

1. Brokerages & transaction fee/Search fee (Attorney’s fee)

Brokerages & transaction fee/Search fee (Attorney's fee)

Brokerages & transaction fee/Search fee (Attorney’s fee)

2. Home loan processing fee and paper work costs.

Home loan processing fee and paper work costs.

Home loan processing fee and paper work costs.

3. Fitting & Fixtures

To make a house liveable or rentable, the cost of fitting & fixtures (gadgets- geysers, exhaust fans, lights, fans, etc.; kitchen cabinets, wardrobes, bathroom cabinets, etc.). (This depends on the specifications from the builder and the level of furnishing being provided in the dwelling unit or the commercial space)

Fitting & Fixtures

Fitting & Fixtures

4. House welcome (Grih Pravesh)/House warming function and cost of similar such religious ceremony.

Grih Pravesh

Grih Pravesh

Now when one budgets all these expenses then the 3 BHK advertised at 80 lakhs starts touching 1.1 crore of rupees. Hence it is important and pertinent to get into the details of pricing and try and cater for as much unseen charges as possible.

The preferred method is repeated questioning the party selling, enter into agreements with clarities where schedule of charges, are clearly, mentioned and it is unequivocally established in writing that no more charges can be created after the dotted line.

Ignorance of this aspect can negatively impact the dimensions of the purchase, resulting in losses..

Ignorance of this aspect

Ignorance of this aspect

A due deliberation before signing the agreements and thorough detailing can help the investor save dear money and avoid the trap of Hidden Charges