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How Builders Overcharge Property Buyers?

Builders
Builders

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.

Copyright © Nitin Bhatia. All Rights Reserved.

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Dileep
Dileep
9 years ago

Hi Nitin,

I’ve taken an under construction flat on December, 2014 in Hyderabad. During
that time, builder said that I need to pay service tax 3.09% and Vat 1.25% on
Flat cost(39, 50,000 = 22,00,000(Sale Deed) + 17,50,000(Work Order)).

I paid 95,480 as service tax(3.09) + Vat(0.25) on Sale Deed 22,00000. Remaining Service Tax and Vat has to be paid later against‘Work Order’.

Today, I’ve received the following email from builder saying that Service tax has increased from
3.09% to 5.6% as the nature of Work Order is treated as contract for the remaining amount.

Email from Builder:
“This is to inform you that earlier we had been collecting Service Tax @
3.09% (i.e., 25% of 12.36%) and VAT @ 1.25% on the Flat Cost.

Please note that presently the Service Tax is revised as 3.5% (i.e., 25% of
14%) on the registered Sale deed value & VAT remains 1.25%.

On the Work Order the Service Tax is 5.6% (i.e., 40% of 14% ) & VAT is 5%
as the nature of Work Order is treated as contract by the respective
authorities & the above rates are applicable for Construction contract.

We have received notices from Commercial Tax department to remit tax @ 5% &
hence same will be charged at actuals to you on Work Order value Only.”

I know that Govt has increased Service Tax from 3.09 to 3.05, which is fine. But
the builder is saying 5.6% Service tax and Vat as 5%, which is huge difference
between Govt rate and Buider’s.
Could you please let me know is the builder saying correctly? If so, is there a way
to reduce this service tax and Vat and pay as per Govt rates?
Regards
Dileep

mangesh
mangesh
8 years ago

Hi Nitin,

I will directly ask you my query.
I have 20 lkhs available and my salary is 5 lakhs ctc+ 2 lkhs bonus(IT)
I want to buy a home in either ulwe or vashi .
1)Should i sale my jn1 flat in vashi (approx 37 lkh) and take a 1 bhk flat in vashi without loan of around 57 lkh
2) should i take a loan of 25 lkh nd take a 2 bhk flat in ulwe around 53 lkhs stretch max

I am really confused and need a solution.
Any help will really be useful for me.
Thanking you in advance

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  mangesh

Vashi market is saturated. I will prefer Ulwe over Vashi as appreciation will be more in Ulwe compared to Vashi.

mangesh
mangesh
8 years ago
Reply to  Nitin Bhatia

Hi Nitin ,
So thankful to you for your attention .I have been onsite(Canada) from which i have saved approx RS.20 lakhs and I will use this for the buy.
I just wanted to know if you could let me know for Ulwe whether or not prices will be stable or grow in near future about 2-3 years,as i have been hearing a lot about the prices to be either very stable or not grow so much in Ulwe.
I am not very knowledgeable in this field so if you could solve my confusion on this too would be of great help to take my decision.
I am asking about 2-3 years because I am planning to get get married as I am 27 and I will have to take a decision whether Ulwe will be developed to be able to stay there ,If not I will have to sell it and look out for an option in Vashi/Koperkhairne.

Thanks in advance and I will wait for your reply

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  mangesh

For short term, you may consider Vashi, Koperkhairne or Airoli.

Pravesh
Pravesh
7 years ago
Reply to  Nitin Bhatia

Hello,

My builder M/S Jaypee Greens(A Division of Jaiprakash
Associates Ltd.) G-Block, Surjapur Kasna Road, Greater
Noida, is charging service tax for the ready to move in
flat booked by me on 29/05/2016 in Star Court Tower 6
flat no. 702. He has already received the completion
certificate with ref No-(Plg.) BP-3050(c)/2016/2042 dated
06/04/2016 from Greater Noida Industrial Development
Authority, 169, Chitvan Estate Sector-Gamma, Greater
Noida. I have attached the demand letter received from
him and the completion certificate issued to him by
greater noida authority. Please let me know if the
service tax charged by him is legal or illegal?

What action I can take if it is illegal? Please help on
this
issue.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Pravesh

Legally the construction is completed. Therefore in my opinion ST is not applicable.

RAJESH BHATIA
RAJESH BHATIA
7 years ago
Reply to  Nitin Bhatia

Hi Nitin Sir

I am booking a flat in Supertech Azalia (cost is 60 lakhs plus service tax plus registry approx 67 lakhs). I am scared of 2 clauses, the first one is escalation price due to farmer compensation, increase in cost of raw material, labour etc and another is escalation due to increase in super area etc. and due to this I dropped the idea to book b’cos already 67 lakhs is my extended budget and if Supertech demand e.g 10 lakhs etc at the time of possession, I can’t manage. The agents, supertech sales team, channel parterns refused to remove the escalation clauses from booking form and future Builder Buyer agreement but offered me to provide a letter on supertech letter head confirming removal of escalation clause at the time of booking. Pls suggest should I trust on such kind of letter though there is no removal of escalation clause in builder buyer agreement.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  RAJESH BHATIA

In my opinion, you cannot trust builder and i doubt that they will handover any such letter to you. Even if they will issue you the letter then it will not be from authorized signature of builder so that tomorrow builder will claim that some employee misused their letter head and fraudulently issued the letter to you. They should agree to remove the cost escalation clause from booking form and builder buyer agreement.

bharath chandra
bharath chandra
8 years ago

Hi Sir,
I’m Planning to construct a five storied residential complex with 100 residential flats in a corporation area. Legal aspects are indispensable part of a construction project. I’m not completely aware of legal compliances, regulations and codes of practices. Could you please brief me the laws applicable to real estate business and legal formalities to be completed for the project before the execution of the project ?

Nitin Bhatia
Nitin Bhatia
8 years ago

This forum is only for general discussion. Personalized consultation is available on paid basis.

kamlesh
kamlesh
8 years ago

Dear Sir

All your blogs provide good information. I had booked a under construction flat in Dharwad Karnataka in 2013 now its ready. Now my builder is telling that area of flat is been increased by 100 sq feet. In sale agreement the area mentioned is 1119 Sq feet. All of sudden before registration he told me to measure the area of flat. Actually, I am in Japan on my company assignment till may 2016, so i told my friend to measure the area with a good engineer. When he measured the area the build up area is 937 sq feet. Now the builder is telling to pay the amount for 1218 sq feet super build up area which is almost 30% of build up area.

My question is

Is there any legal option to get rid of this extra 100 sq feet area problem or should I pay the amount of this extra area which is RS 245000.

Can you suggest some idea for this.

Clause written in agreement

The Developer/owner have agreed to sell and the allottee has agreed to purchase the apartment in ground floor ,flat D measuring about approx 1119 sq feet build up area in the Sai avenue specifically described in the second schedule mentioned hereunder along the specification of the construction and the amenities agreed to be provided ,on what is known as `owenership Basis` for the total consideration of Rs. 27,13,575/-which is excluding of other charges /deposits etc in respect of electricity connections,what connections and other incidental charges. The parties shall not dispute the aforesaid consideration amount.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  kamlesh

You may check the approved layout plan. It seems there is a deviation from approved layout. Though you are getting additional area but you may not get OC and CC from local town planning authority. Secondly, check for any clause in agreement that mention any possible change in area. If there is no such clause, then you are legally not bound to pay any additional charges.

aJAY
aJAY
8 years ago

i have purchased a plot 2011 in jaipur from Mahalaxmi Infralands Pvt. Ltd. all payment paid in advance also paid registry amount in 2012.

but he don’t give the registry till 2015 later builder said we are unable to provide the registry, so you take your amount back. as per builders document clause

if registry not provided than he return back the money with 12.5% interest per year. when we went for collect the amount Pulkit (Mahalaxmi employee) said we are

unable to paid the interest, we giving only your amount + some appreciation amount.

finally we agreed also for same he is giving 3 cheques for 3 different month date.

4100 rs. cheque is cleared

54500 rs cheque is bounced but after lots of detouring he made the NEFT for same

9097 Rs. Appreciation amount cheque has been also gated bounced after that whenever we called in his office the lady picked the phone and she said we made the NEFT at

earliest, that things happening since 1+ months, and also we are not find such any serious reply in mail, we made mail after mail but no any such serious kind

of reply are came aiso every mail reply like a false commitment, also some time his office boy Pulkit falsely accused of misbehave.

So please show me the proper way to address this problem

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  aJAY

Cheque bounce is a criminal offence in India under negotiable instruments act. Please file police complaint against builder for cheque bouncing.

icarus p
icarus p
8 years ago

Hello sir
I had purchased a flat in Mumbai and done registration the flat is ready for possession unfortunately I don’t have money to pay to builder which is outstanding. Assuming I get a buyer who is willing to advance me that money which I pay attention o Boulder take possession and then sell to buyer will not NOC be required in both cases where the buyer is availing loan or not. Also per agreement need to pay 200 psf transfer fees to builder .how do I factor that in negotiations with buyer

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  icarus p

If builder allow you to transfer the flat then you may go ahead. As per govt rule Builder NOC is not required as flat is registered in your name but in Mumbai still it is a practice to apply for Builder NOC if the society is not formed. The negotiations and payment details will depend on real case scenario i.e. sale value, payment outstanding to builder, actual NOC charges etc.

snm
snm
7 years ago

Just read your article on how builders cheat home buyers. In that regard I have a small query which I request you to kindly respond to.
Q: I had an apartment buyer agreement in a building under construction, with a 18 months payment plan. Most of the instalments were paid by me before time(to reduce the interest component of the price). The very well known builder offered possesion 21 months after the date of the buy agreement which I took. However, he started billing me for maintenance of the building fron the very next month of signing the buyer agreement!
Your comments pl. When is the builder actually entitled to bill maintenance to an apartment buyer?
Thanks very much
snm

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  snm

You need to clarify whether builder is billing for maintenance corpus or for actual maintenance. Normally, builders collect maintenance charges of 2 years in advance. The period of 2 years will begin from date of possession. Also check your cost breakup sheet for more clarity.

RK
RK
7 years ago

Hello Sir,
Your article is very nice. My buider is alking for Rs.3 lkah for AUDA & Electricity Deposite fees for a home which is valued @ 17 lakh only. Its located in Sanand area of AHMEDABAD. I dont know how to verify the amount that he is aksing is correct.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  RK

You may check with local electricity department and AUDA.

RK
RK
7 years ago
Reply to  Nitin Bhatia

Is it payable individually by each home owner to AUDA and AEC or builder first pays it for all units and then recovers from unit holder ?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  RK

Builder pays for the project and “over” charge from the buyers.

Mukesh Kumar
Mukesh Kumar
7 years ago

Dear Nitin,

Builder is asking 2 lakh for Increase In Balcony Area of The Flat Demand

I booked my flat B-1007 in MigSun Green Mension (Mahaluxmi Buildtech), Opp. sec zeta, surajpur site c, greater noida (U.P.) in Feb, 2016. I submitted home loan application to Syndicate bank in greater noida and application was pending for six months due to unsigned builder buyer agreement from the director of Migsun Green Mansion. However, I already signed the agreement. Lastly, they informed me that this flat had some dispute and this was the cancelled flat. Sandeep (MigSun) said “We are giving you the another flat B-706 in same cost and size which does not cost anything and not any liabilities”.

I was not informed the fact even after so many calls and conversations till the last moment in July 2016. I was informed and said that there was some dispute of this flat B-1007. However, they all know that flat B-1007 was already booked by someone else. The disputed flat was booked in my name even after knowing all these things and they blocked my booking amount for 5-6 months. I did not ask them to give me new flat or increase balcony. Although, they asked me to take this one and said that we had not any other option except this.

Please note that I did not ask to change my flat, but they gave me with their choice and convenient. I did complete payment as per final demand letter in October 2016. After so many calls, they informed me that the mail had been sent to the possession office. I asked Deepak who is handling possession at Migsun Green Mansion site and he said that i did not have any information. After few days, i got to know that they are asking for 2 lakh rupees for increase in super area. They did fraud with me and harassed me. Now they are denying possession and forcing me to pay 2 lakh rupees.

When I booked my flat in Feb’2016 and it was in same stage as it is right now till 3 Dec, 2016. There is no change in shape and size as well as all the surroundings. they changed initially booked flat B-1007 to B-706 in July, 2016 because they booked disputed flat in my name and flat B-706 is also in the same stage along with no change in surrounding areas and whole structure of apartment and society are same. Builder does not have Completion certificate yet.

I am following for one and half month and did not receive any response from builder. Please suggest that how can I get rid of this amount and get the possession as soon as possible.

Thanks,
Mukesh Kumar

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Mukesh Kumar

You have not mentioned whether you received any booking or allotment letter mentioning B-1007 or not. Secondly, the answer will also depend whether you would like continue with the project or exit.

Mukesh Kumar
Mukesh Kumar
7 years ago
Reply to  Nitin Bhatia

Thanks for your response. I have received allotment letter of B-1007. Now i have two allotment letter for B1007 and B706. I have already paid Rs. 43,57407 lacs. he is asking 2 lacs more at the time of possession. I do not want to pay 2 lacs, however, i need to continue with this home. Please suggest.

Moreover, i did not receive any response after talking to CEO of Migsun so many time. he is not taking any steps to resolve the issue.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Mukesh Kumar

In this case, you need to inform the home loan provider and apply for fresh home loan against flat no B 706. If you would like to continue with the project then you don’t have any other option but to pay the amount demanded by the builder.

Chacko Tharakan
Chacko Tharakan
7 years ago

Sir, My builder collected service tax on final bill that insluded my expense heads like (1) 2 years maintenance charges in advance, (2) construction workers welfare fund, (3) Electricity meter, (4) Corporation tax, (5) Owners Association deposit, (5) State Elecricity Board charges, (6) State Water Authority Deposit/Installation, (7) Share in electrical connection cabling, (8) Registration expenses of which 75% is ctamp duty, (9) Club membership, (10) Reticulated gas system and (11) Transfer of common areas to association. Is the builder right in collecting service tax as most of the expense heads does not attract aservice tax? I had raised my query to builder who confirmed that they remitted service tax to Tax Authority and I could claim refund from them. Please respond to this query.

Nitin Bhatia
Nitin Bhatia
7 years ago

You cannot claim refund on service tax paid. You may request builder to refund excess service tax charged.

Chacko Tharakan
Chacko Tharakan
7 years ago
Reply to  Nitin Bhatia

Sir,

My query was “Is the builder right in collecting service as most of the espense heads does not attract service tax”?

Thanks and regards

Nitin Bhatia
Nitin Bhatia
7 years ago

I agree with you but unfortunately real estate is unregulated sector. Builder works on philosophy “Take it or Leave it”. The things will change once RERA will be implemented in your state.

Nagaraja M
Nagaraja M
7 years ago

Hi sir,

I had booked a flat in chennai with builder Urban tree. We have received a allotment latter received on 31/10/2016. this is property under construction property. after receiving the sale & construction agreement we found that completion data with 6 month grace period.
info : we have signed the booking form with 6 month grace period based his review with customer saying that RERA is implemented in this project said by CEO.
We have rewritten mail to CRM person to adopt the clauses of RERA 2016 in the sale & construction agreement. He is not replying with proper answer.
Please helps us how proceed further.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Nagaraja M

RERA will be implemented prospectively not retrospectively. Therefore, in my opinion builder is misleading you and your project will not be covered under provisions of RERA.

Netra
Netra
7 years ago

Hi Nitin,

Thank you so much for this article. This clears up lot of my confusion/queries. We are looking to buy a 2 BHK in Bandra east, Kherwadi, Mayur project by Geopreneur group. This group is only 2 years old, so we are concerned about their credibility simply because they are not established yet. The older projects completed by them are under the original Agarwal group, so that way we cannot directly compare. But I am going to ask all the questions that you mentioned here to the builder. Again, thanks a lot of sharing such valuable information with us home buyers.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Netra

In my opinion, if you are not sure about the builder’s credibility then you should avoid buying a property.

Kapil Gupta
Kapil Gupta
7 years ago

Hello Nitin ,

I have bought a flat on resale whose first payment data is in 2007 and BBA sign date is 2013 . I have got the possession in 2017 . I am asking for delayed payment from builder .
Should I get the delay from first payment date or from BBA sign date . Please let me know

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Kapil Gupta

It depends on the promised date of possession.

Sandy *
Sandy *
7 years ago

Hi Nitin Sir,
I have invested in commercial office space in ‘Noida One’ Project (an IT Park) by KLJ in Noida, Sec-62. An agreement was signed in Oct 2012 with clause, project to be delivered in two years with 6 months grace period.
Now Builder has applied for Occupation Certificate and asking me to pay ‘Cost Escalation’ amount Rs. 2.03 Lakh along with FCC charge Rs 1.16 Lakh.
In ‘Agreement to Sub Lease’ there is no such clause for paying Cost Escalation. However there is one clause which is as below.
“Any charge not applicable at present but which may become applicable at a later date shall be charged at a rate prevalent on such later date.”

My query is whether I am liable to pay Cost Escalation to builder? What are the options I have in order to avoid paying it?
Also Build has not paid us penalty on the delay he made. What can I do here?

Regards,

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Sandy *

I don’t think so that you are liable for cost escalation clause. It is not covered in the clause shared by you. You can approach consumer forum to claim penalty for delay.

Dheeraj Singhal
Dheeraj Singhal
7 years ago

Dear Sir,
My builder charged 4% VAT on our Villa. But in Sep. 2016, A notification was issued from haryana government that VAT would be 1% fixed. I paid amount before sep. 2016 so my builder is refusing to refund extra VAT paid. Though it is clearly stated for the projects till 31 march 2014, if someone has paid extra VAT then it will be refunded.
How can i claim that extra VAT paid.

Thanks,
Dheeraj

Nitin Bhatia
Nitin Bhatia
7 years ago

Please issue legal notice and take legal route.

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