What are external development charges?

[ecis2016.org] Discussed below are external development charges and its impact on the cost of buying a property for a buyer

In Haryana, real estate developers owe nearly Rs 21,679 crore as the extra development charges (EDC) and infrastructure development charges (IDC). This amount includes the 15 per cent annual penalty these builders have accrued on top of the actual payment for their failure to make the payment on time. In fact, Nearly 80 per cent of arrears are penal interest on the EDC while the penal interest amount has crossed 100% in case of the IDC.

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The overall cost of buying a flat in a housing society in India includes several associated charges that significantly increase the basic rate of the property. What is worse, is that the buyers cannot opt out from these associated charges. The external development charge (EDC) is one such additional cost.

External development charges meaning

For a housing project to be suitable for living for the buyers, a developer has to ensure presence of a host of civic amenities. These include basic utilities like water and electricity supply, sewage and drainage systems, solid waste management and disposal, roads and road systems, landscaping, etc. To avail of these services, the builder has to pay the civic authority in that area a charge known as the EDC. A one-time levy, the EDC is paid by the developer to the civic authority at the time of receiving the rights to carry out the above-mentioned development works. Subsequently, this EDC is passed on to the home buyers.

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This levy is recognised in the Real Estate (Regulation and Development) Act, 2016 (RERA). According to the law, roads and road systems, landscaping, water supply, sewage and drainage systems, electricity supply, transformer, sub-station, solid waste management and disposal or ‘any other work that may have to be done within the periphery of, or outside a project for its benefit’ are categorised as external development work and will subsequently attract EDC.

EDC is also a key source of revenue generation for civic authorities. However, developers often fail to make timely payment of the EDC. For example in Haryana’s budget for 2020-21 that was announced in February 2020, chief minister Manohar Lal Khattar said hundreds of builders, mostly in Gurgaon and Faridabad, were yet to pay the state government over Rs 10,000 crores as EDCs.

In case the builder fails to pay these charges on time and is made to pay a penalty on the same, the additional burden will inevitably be distributed among the property holders in the project.

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Difference between EDC and IDC

EDC, however, should not be confused with the infrastructure development charges, another associated levy that builders charge from the buyer. Under the infrastructure development charges (IDC), the builder pays to the civic authority a charge, for major infrastructure projects being developed in the region, including highways, bridges, metro networks, etc. These charges typically range between Rs 50 and Rs 300 per sq ft of an apartment. IDC varies depending on the location and type of the project within the city.

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“IDC covers the cost of infrastructure developments like transit systems and highways in the city where the project is located, while EDC is for essential facilities like drainage, electricity supply, water supply, landscaping, etc., done solely for the project,” explains Harvinder Sikka, MD, Sikka Group.

“Infrastructure development charges are often misunderstood as internal development charges, which puts a question mark on the authenticity of developers. Realtors in such cases should be open about IDC and EDC,” adds Sikka.

What is the impact of EDC on the overall pricing?

EDC is typically levied on the built-up area of the project. As these charges vary across projects and builders, buyers are made to pay different costs, over and above the per sq ft rate of the property. However, the size of the apartment is a key determiner of the EDC. In any case, the EDC may account for up to 10% of cost of the unit, mentions Vikas Bhasin, CMD Saya Group. In other cases, the EDC can increase the price of an apartment by 15%-20%.

Even if we factor in the lowest range of the EDC, the buyer may be asked to pay an additional Rs 5 lakhs (10% of Rs 50 lakhs) as the EDC, say, if the basic price of the unit were Rs 50 lakhs. If the developer is charging 15% or 20% of the unit’s cost as the EDC, the buyer will have to pay an additional Rs 7.5 lakhs and Rs 10 lakhs, respectively, as the EDC.

Buyers are advised to get in touch with the civic authorities to know the prevalent EDC in the area. This way, one could avoid paying any additional charges that the builder might demand in the name of EDC.

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