Deciphering Real Estate Pricing in India

You see a full page Ad for a beautiful Apartment complex – looks so inviting, and the price does look competitive at Rs 6000/- sft. You do the Math for a 1800 sft 3 BHK flat and say 6000 * 1800 = 1.08 Crores – thats manageable.

Most NRI’s & first time buyers fall for this trap. Builders have been taking Indian buyers for a ride for many years – And even a progressive BJP Government has developed cold feet on setting up a Real Estate Regulator.  In the absence of a regulator – The reality is you would have payed 40 – 50% more than 1.08 Cr before you finally get to move in to your house.

Lets look at how the numbers Add Up

Quoted Rate for Bare Bones Flat = 1800 * 6000 = 1.08 Cr

Cost of 1 Car Park / KEB/BWSSB/Khata/ Legal Charges/Generator Charges/ Club House Charges/Corpus for Maintenance / Corpus for Sinking Fund/ Fixed cost for Gas Pipeline from main bank …. all of this easily adds up to an additional 20 %  or Rs 20 Lacs

The Govt earlier charged you only Registration Tax – now they charge you VAT and ST on Construction Cost  thats 4 + 4.94% = 8.94 %. Since the undivided share of land is very small you end up paying this Tax on almost 80% of the cost = 1.6*.0894*.8 = Rs 7.58 Lacs 

Most people have two Car Parks so a second Car Park is a must – thats Rs 4 – 5 Lacs (Although the initial one may be priced a lot lesser) = Rs 4 Lacs 

Registration Costs is approximately another 8%. Some Builders state that this is only on the undivided share of land – while some builders insist on the total value of the property = Rs 8 Lacs 

Woodwork cost can vary – but good quality wood work can put you back easily by 10 lacs for a 3 BHK apartment = Rs 10 Lacs 

So Add up all the extras which the builder never talked up  20 + 7.58 + 4 + 8 + 10 = 49.58 Lacs 

Your initial prices you had in mind after seeing the Ad was 1.08 Crores , now this looks more like 1.5 Crores. 

Thats nearly a 50% increase on what you had planned …. and you are yet to add the interest cost that you have borne for the 3 – 4 years that the construction happens , this is if the builder completes the project in the committed time (Most rarely do).

So be aware of what you are getting into the next time you see a full page Ad promising you the sky and moon. Trust is a lot different.

PS – Lookout for my next Blog on why we need a Real Estate Regulator and the ten imp questions you need to check out before buying a Flat



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