The True Cost of Owning a Home

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I know many friends who save up and invest diligently with one main goal in sight. - the dream of buying a house. Often, I’ve dug a bit deeper and asked them why they’re so keen on having their own place, especially because they don’t plan to retire in the city they currently live in, and because most of them have plans of working abroad.

The answer has always been unanimous - ‘If I have my own home, I don’t have to pay rent’.

Well, I can’t disagree with that. But there’s no denying that home ownership, while eliminating rent, comes with its own steep costs. And many of these are not evident at first glance.

Let’s break down the hidden costs of owning a home.

First, the purchase price

If you’re truly keen on buying your own house, you probably spend more time on property listing apps than on social media. And while you’re browsing through the properties listed online, you’ll find a price tag attached to them. 

Like a 2BHK flat for sale in Bangalore for ₹50 lakhs. 

Or a 3BHK in Noida for ₹1 crore. Or even a villa for sale in Mumbai for ₹1.5 crore.

This price tag is the basic purchase price of the house you’re looking at. And it is the most obvious expense associated with buying a home. A few years later, if I were to ask you the price at which you purchased your dream home, this is the first number that may pop up in your head.

But is it truly the cost of your home? No. 

At least not unless you pay the entire cost of the house upfront. 

The stamp duty and registration charges

These costs aren’t included in the price tag that you see at first glance. In India, stamp duty charges are typically around 5% to 7% of the property’s market value, while the registration charges come in at 1% of the market value.

So, here’s how that would go for a house with a market value of ₹50 lakhs:

  • The stamp duty charges may begin at around ₹2.5 lakhs
  • The registration charges may be around ₹50,000

That basically means you’ll have to pay at least ₹3 lakhs upfront - over and above the purchase price. 

The down payment 

For most of us, coughing up a huge amount like ₹50 lakh or above may not be practical. Here’s where a housing loan can prove to be the new best friend on the block. But you cannot avail a loan to cover the entire cost of your house. Lenders generally require that you pay a portion of the cost of the house upfront - as a down payment.

Normally, this is around 15% to 20% of the price of the house. So, for a house costing ₹50 lakhs, your down payment would come up to around ₹7.5 lakhs to ₹10 lakhs. 

Your home loan EMIs

A home loan definitely makes it easier to achieve your dream of home ownership. But it comes with its own cost - the big, bad interest. Interest rates for home loans in India are typically in the range of 7% to 9% per year. If you're worried about all the nuances of the Indian home loan, take a tour of the 2022 home loan guide to be better informed.

Take the same example we’ve been discussing earlier. That one about a ₹50 lakh house, for which you pay ₹3 lakhs as stamp duty and registration charges, and make a down payment of ₹10 lakhs. 

To buy this house, you need to avail a loan of ₹40 lakhs. Let’s assume you spread the repayment schedule over 20 years. And you manage to avail a loan at affordable interest rates - say 7% per annum. In that case, here are the interest costs associated with home ownership. 

Particulars

Amount 

Principal amount of the home loan

₹40,00,000

Interest due over the course of 20 years

₹34,42,871

Total cost 

₹74,42,871

The tax implications of owning a house

House tax. Property tax. You may have heard these terms thrown into random conversations. 

While you may not have paid much attention to these terms earlier, you certainly need to get better acquainted with this concept if you wish to buy a house in India. This is because owning a house comes with its own tax implications - a.k.a. property tax. 

Property taxes are collected by state governments, so the state in which you plan to own your house plays a key role in determining how much you’ll pay as property tax. Keep in mind that even if you rent out your house, the responsibility to pay this tax falls on you - the owner. 

Now, there are ways to save taxes when investing in a house, but let's get into that once we figure out how to calculate taxes.There are three methods used to calculate property tax. The method chosen varies from one place in to another. Let me introduce you to them.

Method of calculating property taxes

Details

Examples of cities that use this method

Capital Value System

Here, the property tax is calculated as a percentage of the market value of the property

Mumbai

Unit Area Value System

Here, the property tax is calculated on the basis of the property’s built-up area, according to the per unit price 

Delhi, Bengaluru, Kolkata and Patna 

Annual Rental Value System 

Here, the property tax is calculated on the annual rental value of the house

Hyderabad and Chennai

Regular maintenance and upkeep

Buying a house is a one-time thing. But maintaining it is an everyday affair. 

And while it’s easy to quantify taxes, interest, and down payments, things like maintenance costs are not as predictable. At least not entirely predictable. When we talk of maintenance costs, there are two kinds you should account for - the expected, and the unexpected.

Expected maintenance costs

Ads for gated communities are practically everywhere these days. Houses in apartment complexes like these come with various amenities like parks, play areas, gyms, jogging tracks and more. The costs for maintaining these amenities and facilities are distributed and billed to each homeowner on a monthly or quarterly basis. 

Typically, these costs are calculated on a per unit basis. For instance, some communities may levy maintenance charges at ₹2 per sq. ft. Others may levy the charges at ₹3 or ₹4 per sq. ft. 

So, taking the running example of your ₹50 lakh home again - let’s say the house has a carpet area of 1,000 sq. ft, and the maintenance costs come in at ₹3 per sq. ft. This means you would have to pay a monthly maintenance of ₹3,000.

Unexpected maintenance costs

These costs cannot be predicted or ascertained accurately. Like unexpected repairs and damages, ranging from a broken latch or changing the fans to remodeling your kitchen or having a major renovation. 

While you cannot predict these costs, you can always estimate them and set aside some funds for these items. An easy rule to follow is to set aside around 1% to 2% of the cost of your house for its maintenance.

So, you know the drill now. For your ₹50 lakh home, you can assume an annual maintenance cost of ₹50,000.

The cost of utilities and furniture 

A fully furnished house. A modular kitchen. A comfortable sofa in the living room. All the newest appliances in town. Some quaint, charming patio furniture. And a quirky accent chair in your favorite corner. This paints quite a fine picture, right? But it also comes with its own price tag. And although they aren’t exactly hidden costs of owning a home, these expenses are easy to overlook when you plan to buy and own a house. 

And if you think these costs are subjective, you guessed it right. Some folks may manage to get all the interiors and furnishings done for a 1,000 sq. ft. house in a budget of ₹15 lakhs to ₹20 lakhs. But for others, the bill may go up to ₹30 lakhs or higher. 

The cost of home insurance 

What’s the first rule of the homeowners’ club? Get your property insured. 

Despite being a country with a penchant for having their ‘own house,’ home insurance penetration in India is remarkably low, at just around 1%. In non-financial lingo, it means that a vast majority of houses in India are uninsured.

So, in case of extensive damage due to fires, natural calamities or any unexpected incident, homeowners have no financial safety net to fall back on. All the money spent on buying, building and making a house into a home becomes futile without a home insurance plan.

The cost of home insurance depends on the following factors - 

  • The amount and type of coverage
  • The duration of coverage
  • The type of construction used for your house
  • The value of the assets in your house
  • The age of your house

Let’s add up all these hidden costs

Particulars

Details

Amount

Stamp duty and registration charges

₹3,00,000

The down payment 

₹10,00,000

Loan EMIs over the course of 20 years

₹74,42,871

Property tax 


(calculated for a 1000 sq. ft. house in Bangalore, assumed to have been constructed in 2002)

₹5,000 per year - for 20 years

₹1,00,000

Expected maintenance costs 

₹3,000 a month - for 20 years

₹7,20,000

Unexpected maintenance costs

₹50,000 per year - for 20 years

₹10,00,000

Utilities and furniture

₹20,00,000

Property insurance


(calculated for a 1000 sq. ft. house in Bangalore, with a market value of ₹75 lakhs and belongings worth ₹10 lakhs)

₹5,000 per year - for 20 years


(approximately)

₹1,00,000

Total cost of owning a house for 20 years

₹1,26,62,871

Average cost of owning a house per month

₹52,761

So, the true cost of owning a 1000 sq. ft. house with a price of ₹50 lakhs - for around 20 years? Well over ₹1 crore.

There's a lot you need to decide on before you buy a house or tap into a loan, looking into how you can best plan buying a house should be your first step once you decided on buying one. Know that you can take all the time with your decision here because it's a pretty crucial one.

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