How Builders Overcharge Property Buyers?

Let’s accept the fact that Builders do overcharge Property Buyers. You must be wondering how, the answer is, by taking undue advantage of the multiple factors. These factors are ignorance of property buyers, loopholes in the legal agreement and lastly through Bullying. Though i have not observed any such incidences with very reputed builders. One of the reason is that reputed builders already include the brand premium in the cost of the property. The poor buyer has no other option but to oblige. In this regard, i like the English word “Standard”. It is now a common practice to regularize irregular payment/overcharging by using the word “Standard”. If any buyer asks or questions the charges then the standard reply from the builders is that these are “Standard” charges.  Another common reply is that “Everyone else is paying and only you are questioning”. In my opinion, these are tactics to bully a property buyer. Buyers have every right to seek details on all the payments to Builders. In this post, i am listing down 7 common tactics adopted by builders to overcharge the property buyers

How Builders Overcharge Property Buyers?

Stamp Duty and Registration Charges: This head is one of the most exploited cost head to overcharge buyers by the builders. This is especially true in the case of under construction property. In many cases, i observed that the stamp duty and registration amount charged by the builders are much higher. This variance is due to different prevalent practices to register a property. An under-construction property can be registered at UDS i.e. Undivided Share in the property. In layman terms, Total Cost minus the Construction cost. On the contrary, a builder charge stamp duty and registration charges on the full value. In some scenarios, the work order is executed therefore stamp duty is due only on Total Cost minus Work Order/DOTOR Cost but builders charge stamp duty at the total cost. For more details, you can check my post How to Save Stamp Duty and Registration Charges?. It is always advisable to clarify from builder how the stamp duty and registration charges are calculated. These charges should match with cost break up sheet. Moreover, you should ask for original payment receipts issued by the sub-registrar office. In case of any discrepancy, you can always ask for a refund of the excess amount charged by the builders.

VAT and Service Tax: Another gray area which is least understood by the buyers and exploited by the builders. In my post, VAT and Service Tax, i explained how it is being calculated. Builders are not willing to share how they calculate these 2 components. Moreover in case of Landowners share, VAT is not applicable in many states but builders still collect the same. Another misconception is that VAT and Service Tax is paid for individual flats, but it is not true. VAT and Service tax is paid for the entire project. The reason i mentioned this point is because builders refuse to issue payment receipts to buyers for VAT and Service tax because of this reason. It is not the right practice. If the VAT and Service Tax is collected from the buyer then builders should issue the VAT and Service Tax payment receipts. The VAT payment receipt should carry Tax Invoice No and TIN of the builder. Whereas Service Tax Payment receipt should carry Tax Invoice No and Service Tax Registration No of the builder. Both the payment receipts should have detailed calculations of the respective tax.

Occupancy Certificate: I observed that builders demand Rs 50,000 to Rs 75,000 from buyers to share occupancy certificate. Occupancy Certificate and Completion Certificate are issued for the complex/project, not for individual flats. As it is one of the critical document, therefore, the buyer has no option but to pay the amount. It is an illegal collection. A buyer can only get a photocopy of the occupancy certificate issued for the complex and there are no charges to be levied for the same. A buyer can also take a copy from other buyers. The copy of occupancy certificate should be available with the apartment association or society. If all these efforts fail then you can directly approach the local civic authority to get the copy of same.

Builder NOC: In some states, if the buyer would like to sell the property after property registration but before the apartment association/society is registered. The new buyer may demand builder NOC. Now to get this Builder NOC, the builder may demand few lac rupees. Maharashtra is one such example. Let me clarify that Builder NOC is not required once the property is registered in the name of a Buyer. Even though the association is not formed, Builder NOC is not required for any sale purchase of such properties.

Maintenance: Nowadays, it’s a normal practice that after handing over the possession of the property, builder retain the rights of property maintenance for 12 to 24 months. If you are buying an under construction property then maintenance is bound to increase in 2-3 years time i.e. at the time of possession. Ideally, new construction requires very less maintenance but it is another way round. Builders charge maintenance at the rate of Rs 7 to Rs 10 psf which is a very princely amount. A clause in the agreement also gives a right to increase this amount in future if there is an increase in maintenance cost. It is advisable to discuss the same with the builder and association should be formed immediately after the possession is received.

Govt Taxes: Govt taxes is one more open ended clause in the agreement. Though each state has its own rules but it is always advisable that the buyer should not agree for any open ended clauses which are difficult to defend. The buyer can clarify what are these existing Govt taxes and should agree only for any new tax levied in the future and applicable to the buyer. Builders have a habit to pass the taxes to the buyer even though these taxes are supposed to be paid by the builder.

Cost Escalation Clause: In some of the “Standard” agreements of the builders, there is a clause related to cost escalation. Under cost escalation clause, the builder reserves the right to increase the property cost if his cost increases. A buyer should not agree to such clauses as the builder may pass the cost of his operational inefficiencies to a buyer. In such cases, the budget of a buyer goes for a toss.

Hope you will take care of this point to avoid any future shocks.

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