What are Pre-Possession Costs?

Charges that home buyers may need to pay, before taking possession of their property:

Names of the charges Description
Stamp duty 5%-8% on market value entered in your agreement deed.
Interest on delayed payments 18%-24% (as on date).
Labour welfare charges 1% of the construction cost + service tax.
Advance maintenance charges Rs 1.5-3 per sq ft for a year + service tax.
Holding charges If applicable, varies with developers.
Water connection charges Rs 20,000-40,000 + service tax.
Power back-up charges Rs 20,000-30,000 per KV +  service tax.
LPG connection charges Rs 5,000-8,000
Additional compensation charges Conditional
Escalation charges Conditional

Stamp duty: This is a government tax that is levied on property transactions and is charged by the development authority. The stamp duty varies from one city to another and ranges from 4% of the property value, to as high as 8%. The tax may also differ, depending on whether the property owner is a male or female or if the property is jointly owned.

Interest on delayed payments: This can force the buyer to overshoot one’s budget drastically. This scenario usually arises, when a buyer is booking a property and is simultaneously applying for a bank loan. The builder may charge you for the delay in payment, before the loan is disbursed.

Labour welfare charges: The development authority charges around 1% of the construction cost, as a basic welfare fund from all buyers. Your developer will simply pass this on to the authority. For example, if the construction cost of your two-bedroom, 1,100-sq ft apartment, is Rs 1,400 per sq ft, you will incur around Rs 15,400 (and service tax) as labour welfare charge.

Holding charges: If you receive a demand letter from your developer for the possession of the property, he will mention a particular date for depositing the due amount. Usually, this period varies from 30 to 60 days. After this date, your developer may levy holding charges, till the time you take the possession. After three months of holding, the developer may even initiate a cancellation of your allocation or charge interest on delayed payment.

Advance maintenance charges: Developers may raise this demand, for maintenance of the project’s premises. The maintenance cost is generally higher in group housing societies.

Other miscellaneous costs: These may include charges for power back-up, firefighting, installation of gas pipelines, water connection, etc. Apart from these, developers may also levy escalation costs, on the condition that market rates for raw materials have gone up.

Service tax: The government charges service tax from buyers (via the developer) in under-construction projects. A tax of 15% is levied on 25% of the property value. So, a buyer pays 3.75% as service tax on the total value of the apartment. This tax is levied at every stage of the construction. Additionally, most of the charges mentioned earlier, also have a service tax element.

Buyers should also complete all formalities within the stipulated timeframe. Your case becomes stronger, if all your payments are done on time and it also ensures smooth transfer of the property in your name.