Watch for the hidden costs in land deals
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It is in the best interest of the buyer that all additional costs and mandatory payments to be made must be checked, writes C.H. Gopinatha Rao
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Photo: T. Singaravelou
Scrutiny a must: Since the land deals are not as transparent as it should be one must verify the fees and charges to be paid before getting building plan approval.
Three incidents in the recent past are beginning to impact on property transactions. Suddenly, the landowners realise that tax and other payments they owe the local body is significant and they had failed to verify these aspects before closing the deal. In Ambattur, a senior citizen bought one ground for Rs 40 lakh in April and decided to build 1200 sq.ft house at an estimated cost of Rs.15 lakhs. When he submitted the plan to the Ambattur municipality, much to his surpr
ise and shock, he was informed that he had to pay about Rs. 7.5 lakhs towards fees and vacant land tax to get the necessary approval. The tax component in this case was as much as 50 per cent of the building cost.
According to the registered valuers, vacant land tax is collected for 12 half years. For the first 11 half years, the tax is 0.7 per cent of the value of the land on the date of purchase (the consideration paid or guideline value whichever is higher) and for the 12th half year, the guideline value as on the date of application for approval is considered.
For example, if the land was purchased in April 2003 for say Rs. 20 lakh and the current value is Rs.40 lakhs, the vacant land tax would be (11 x 0.7% x Rs 20 lakh + 1 x0.7%x Rs, 40 lakh) is Rs 1.82 lakh.
In the above mentioned Ambattur plot, the following fees were collected.
Building License fee: Rs 1200
Road formation (frontage 40’ and width of road 30’) for 40’ feet length (40 x Rs. 400): Rs.16,000
Land tax for 12 half months (0.7% x Rs. 40 lakhs x 12): Rs. 3,36,000.
Scrutiny fees: Rs.900.
OSR charges (10% of GL value of land): Rs. 4,00,000
Regulation charges: Rs.557
Labour welfare fund: Rs. 1440
CMDA development charges: Rs. 718
The total tax and fees that was payable to the local body was Rs. 7 ,54,615.
In another Municipality, the amount demanded as tax and fee was about Rs 21 lakh for sanctioning building approval for a shed and toilet measuring 4500 sft on a plot of 20,000 sft. This included the vacant land tax of about Rs. 4.4 lakhs and open space reservation land charges of about Rs. 12 lakh.
In another instance at Chromepet, for a land measuring 3200 sft , Rs. 42,000 was paid to Pallavaram Municipality towards vacant land tax.
Additional cost
In all the above cases, the buyers did not verify the fees and charges they had to pay in order to get planning and building approval. They only checked for the title clearance and bought the property. Now, the additional cost affects economics of the project.
Since most of the land deals are not as transparent as it should be, it is in the best interest of the buyer that all additional costs and mandatory payments to be made must be checked. This must be done before land deal is negotiated and the price is fixed. It would be ideal to ask the seller to get approval for a small building before the deal is closed. However, those who have already purchased the plots and have received such notices can approach the authorities concerned to know as to under which provision of the Act, the levy is demanded. If no reply is received they can demand the information under Right of Information Act. Consult the lawyers in order to verify whether the levy is in compliance with the rules .
The author is former National President, Institution of Valuers.
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