What are preferential location charges?

[ecis2016.org] We examine what preferential location charges (PLCs) are and the extent to which it can increase the cost of a property

In a move to attract more buyers for homes built by the agency, the Delhi Development Authority (DDA) has approved a plan to apply preferential location charges (PLC) in its housing scheme for 2021. In a first, winners of the DDA draw of lots will be able to choose the location of the flat by paying between 1.5% and 3% of the total cost of the apartment in the DDA’s housing scheme. This brings us to the question, what are preferential location charges or PLC?

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What are preferential location charges or PLC?

Home buyers often do not mind paying a little extra, to enjoy certain amenities that other buyers may not have access to. This gave rise to the concept of preferential location charge (PLC), a charge that increase the overall cost for the buyer and a tool that helps the builder to tweak the rate of the property at his discretion.

If location is the single-biggest determinant of the property’s value, the PLC is the additional cost that a buyer has to pay, to enjoy a great location within a housing society.

What are the types of preferential location charges?

A house overlooking the park, a flat with a view of a swimming pool, a unit close to the main road, or an apartment lying towards the corner, are all considered to have a preferential location. A buyer has to pay PLC if his unit enjoys any of the above-mentioned locational advantages.

Developers levy PLC, based on two factors – the height at which the unit stands and the view that the unit enjoys.  The PLC charged based on the floor of the house, is known as floor rise premium. This means that an apartment that is located on the ground floor in Delhi and provides a view of a park to the owner, will attract two types of PLCs – one for the height as ground floor homes are considered worthier in the NCR and another for the view.

In Mumbai, where flooding is common during the rainy season and because of which units lying at the lower floors do not provide the same advantage as they do in the NCR, a sea-facing unit located at, say, the 12th floor, will attract two types of PLCs – one for the height and the other for the view.

“While, in Mumbai, people pay higher PLCs to stay on the top floor, people in Delhi pay higher PLCs for apartments on the ground floor,” says Abhishek Singh Goyat, chairman of the Antriksh Group.

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“Some projects also charge PLC, based on the floor taken. In such cases, buyers should consider taking home on the middle floors, so that it does not deeply affect their budget,” says Amit Jain, MD, Mahagun Group.

According to Jain, PLC has become a common terminology in realty, for projects that are created with greater attention to location and architecture. A prospective buyer looking to invest in property, must discuss this with his developer before entering into an agreement, Jain advises.

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How is PLC charged?

The developer will charge PLC from a buyer, if the apartment faces a park or a road. The same goes for a corner flat. Consequently, a buyer may end up paying multiple PLCs, as there are no laws to regulate this common price escalation tool used by the developer community.

“While a buyer with a park-facing unit will pay a certain amount for this, more charges will be added as PLC, if the unit is also a corner one and road-facing. This will tremendously increase the overall cost of the house,” says Sanjoj Kumar, a Noida-based realty broker.

How does PLC impact property price?

PLCs significantly increase the price for home buyers, primarily because they are charged, not on the basis of the carpet area of the unit but on the super built-up area. For example, the PLC is calculated based on the super built-up area of 1,500 sq ft even if the house actually has a carpet area of 800 sq ft. As explained earlier, multiple PLCs can also be levied. Since there are no fixed rules, developers enjoy full discretion in fixing PLCs at rates advantageous to them. Depending on the developer and the project, a buyer may be charged between Rs 100 and Rs 500 per sq ft as PLCs.

For example, a corner apartment facing the park will attract two PLCs – a PLC based on the floor chosen and a PLC for a view of the park. A third PLC – for the corner location of the flat will also be applicable. “Usually, the developer will charge you two PLCs, but will choose the one that is higher,” explains Manish Gupta, a South Delhi-based property consultant.

“In their marketing pitch, developers use low base prices as the bait to attract buyers. If the base price of the unit is Rs 4,000 per sq ft, for example, the application of PLCs might escalate it to Rs 5,000 per sq ft, in case the unit attracts multiple PLCs,” says Brajesh Mishra, a Gurgaon-based lawyer, with specialisation in property law.

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“As the base price is factored in while calculating the taxes on house construction, the PLC acts as a perfect tool for the builder to save on taxes, as well,” adds Mishra. To make matters worse, the buyer will ultimately pay the GST on the overall property cost and not the basic rate, considering that the PLC is counted as a service under the provisions of the GST regime, explains Mishra.

Needless to say, luxury projects that are located in prime areas of a city have much higher PLCs, making such properties prohibitively pricey. “Penthouses in high-rise apartments generally record higher PLC charges, due to the amenities provided, such as private terrace, pool, etc. Development of all these projects requires additional attention from the developer’s end for creating a unique value for it. It works favorably well for properties purchased for investment purposes – higher rental yields can be generated from such thoughtfully designed housing units,” opines Kushagr Ansal, director, Ansal Housing and president, CREDAI Haryana.

How to calculate preferential location charge?

The PLC amount can be calculated by multiplying the super built-up area of the apartment with the rate specified in the developer’s rate card. If the super built-up area is 1,500 and the PLC is Rs 400 per sq ft for a ground floor unit, the buyer will have to pay Rs 6 lakhs over and above the base selling price of the unit.

Can you buy a property without paying preferential location charge?

Unfortunately, even if a buyer wants to go for a plain vanilla housing option, he would end up paying the PLC, because not one unit in a housing project will fall in a category that does not enjoy a preferential location.

“The parameters set by the builder are such that it puts the buyer in a non-negotiable condition. There would hardly be any apartment in a housing society that would not face a park or a road or a corner. Since the term preferential location has been adjusted to suit the needs of the builder community, the buyer has absolutely no choice whether or not he wants to enjoy a preferential location,” says Nilankur Sen, a Kolkata-based lawyer.

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Even if you are buying a unit at, say, the 5th floor in a housing society in the NCR, the unit will attract the same PLC as units located on the ground or the first floor. This is because builders typically have a floor-wise pricing when determining PLCs, explains Sen. To make matters worse, developers continue to change the pattern of charging PLCs, in the absence of any regulation. In Delhi, for instance, developers of landscaped, luxury projects are now charging higher PLC even for the top floor despite the fact that across the city PLC is being charged on purchase of ground floor flats. “A project that boasts of a luxurious view, will definitely have higher PLC for its top-most floor,” says Goyat.

Is there scope for bargaining on preferential location charge?

ecis2016.org data show that developers in the eight prime Indian residential markets – Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, NCR, MMR and Pune – are currently burdened with an unsold inventory consisting of over 7.38 lakh units. As home sales have hit a record low now, because of the prevailing market conditions following the Coronavirus pandemic, developers currently are more willing to negotiate the terms and conditions of the deal. This opens a window of opportunity for buyers, especially in the MMR and NCR markets that have the highest inventory stock.

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