Factoring in Hidden Costs: Why Property Purchases Could Be Pricier Than You Think

When purchasing property, it’s easy to focus on the listed price and forget about the additional costs that quickly add up. From stamp duties to registration fees, not to mention legal and administrative expenses, these hidden costs can increase the total cost of your property by as much as 12%.

Understanding and budgeting for these expenses is essential to avoid any unpleasant surprises, ensuring that your financial plans stay on track while making a significant investment.

Let’s take a look at the list of expenses involved in property purchases.

The Hidden Costs of Buying Property

• The Weight of Stamp Duty

Stamp duty is a tax levied by state governments on legal property documents, usually during the purchase, sale, or transfer of immovable property. In key metro cities, stamp duty rates on property transactions vary. In Mumbai and Delhi, the rate is 6% of the property value, while Bengaluru offers a slightly lower rate of 5%. Kolkata also levies 6% on the property value.

These rates contribute significantly to the overall cost of property transactions and are subject to periodic revisions by state authorities. Stamp duty is the most significant cost that varies across states, with some regions charging up to 9.9%. These taxes are non-negotiable and need to be planned for separately.

• Registration and Miscellaneous Fees

In addition to stamp duty, some cities impose extra charges like transfer duty or metro cess. For example, Mumbai applies a 1% metro cess, and Bengaluru charges a 10% cess. This cess is calculated based on the stamp duty rate.

For instance, on a property priced at ₹60 lakh, the buyer would pay ₹3 lakh in stamp duty at 5%, plus ₹30,000 as cess on the stamp duty amount. This cess applies to both ready-to-move and under-construction properties.

• Legal and Administrative Costs

Government charges aren’t the only expenses to consider when purchasing a property. You will also incur voluntary yet essential costs, such as brokerage fees (typically 1% of the property value), hiring a professional for property verification, and paying for a document writer to prepare the sale deed.

For instance, brokerage fees on a property worth ₹50 lakh can amount to ₹50,000. Where as legal charges for property document verification may be on the higher side, depending on the complexity of the transaction. These additional costs are necessary for a smooth transaction and can significantly add to the total expenses.

• GST on Under-Construction Properties

While under-construction properties can save you from additional costs like brokerage or legal fees, they come with a steep 5% Goods and Services Tax (GST). This tax is included in the property cost when the developer obtains the occupancy certificate, which is not applicable for resale properties. As a result, the total additional expenses on under-construction properties can easily exceed 9%-10% of the property’s value.

Know What Your Loan Covers

When taking out a home loan, it’s essential to understand that the loan amount typically covers only the property’s value, usually 75%-90%, but not the additional costs. Expenses like stamp duty, registration fees, legal and property verification charges, and documentation are not financed by the bank. Proper budgeting for these extra expenses ensures that buyers are not unprepared during the property purchase process.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.