Under-Construction Property In Mumbai Is Costlier Than Ready Flats

The city, its narrow spaces and poor living conditions have inspired many authors and film makers. This is why entertaining the idea of having a spacious house in India's financial capital Mumbai may only cause a heartburn to many of us looking for affordability everywhere. A city where property prices are among the most expensive in the world, even the affordable could be out of the reach of a common man. We still prepare ourselves and do the best we can; we opt for under-construction properties to cut costs.
 
But, does it really cut cost if we buy an under-construction property instead of ready-to-move-in? The answer is, no.

Why?

• You will have to keep paying your house rent along with the equated monthly instalments (EMIs) for your home loan repayment. That holds true no matter which city you buy a house in. The only difference is that even rents are much higher in Mumbai when compared to other major cities in India. These include the national capital, Delhi. Laws of renting are also quite strict in Mumbai. For example, you can take a house in Delhi by paying three months' rent as security deposit. But, in Mumbai, you have to pay a year's rent as the security deposit. If you think long term, investing in an under-construction property will actually end up costing you a lot.

• Most of us who invest in under-construction property in India need a home loan to complete the transaction. As such a property is still on papers and most of the documentation would happen in future, it's on a developer's guarantee that you get to avail of a loan. To market their projects better, developers and banks come up with attractive offers, too. However, all their efforts to ensure an easy transaction does require some spending from a buyer's side. The ways in which you may be asked to pay for the services could be different but it is certain that you will have to pay for them.

• When Abhay Singh, a non-resident Indian (NRI), bought an under-construction apartment at Mira Road in 2010, his developer gave him a round figure on the service tax and value-added tax (VAT) that he had to pay. Singh does not remember how his developer did the calculation.  Singh's case is particularly strange. Being an NRI, he had a comparatively good spending capacity, but he has to settle with Mira Road, a locality which will not be on top of a home buyer's list in Mumbai. Second, Singh is a civil engineering graduate and has credible calculation skills. The only saving grace was that Singh had not taken a home loan for the purchase and he could avoid paying for any financial services extended to him. However, the buyer of an under-construction property in Mumbai will not be able to escape service tax and VAT.
   
  It is to be noted that service tax is a central levy that an end users pays for availing of services, while VAT is a state levy that the end user has to pay for any value additions that could have been done to a product. While service tax is kept at 15 per cent, VAT rates vary from state to state. (To buy an under-construction flat in Mumbai, you have to pay one per cent of the agreement value as VAT.) While the cost of buying a resale property looked too high and you had hoped to save money for spending on renovation works, all the taxes you have to pay for a new property would stretch you financially. 

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