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Wednesday, December 10, 2014

What is Capitalised Ground Rent?

If you are liable to pay Ground Rent for your plot or flat, understanding the Capitalized Scheme can potentially help you save tons of money...read on...

What is Ground Rent?
As the name suggests, Ground rent is the rent paid for taking the ground on lease from the land owner. Typically, in case where you leasehold a land or a property from government authorities like DDA (Delhi Development Authority), you ought to pay a fixed ground rent annually.

Who is liable to pay ground rent?
All allottees on "Hire Purchase Basis" are liable to pay Ground Rent till the execution of conveyance or Capitalized Value under the special scheme is paid to DDA. Once the capitalized value of Ground Rent is paid to DDA, all previous dues of Ground Rent and/or interest thereon, if any, are not required to be paid.

How much is the Ground Rent?
Ground rent is payable annually in advance @ 2.5% of the cost of land as given in the Allotment cum Demand Letter in respect of all allotment on lease hold basis. 

What if you default paying the ground rent?
In case of default in making the payment of Ground Rent by the stipulated date, the allottee is liable to pay interest at the rate of 10% per annum. 

How long do you need to pay ground rent?
The Ground Rent is payable till such time the property remains on lease hold basis. Once the property is converted into free hold, the Ground Rent is not payable.

Do people default on ground rent?
Almost 60% of the population never bother to pay ground rent for years together. This lapse is either because either they are not aware of it, or they simply ignore it. The government also does not have any strict followup on this rent collection. Whatever be the reason, the ground rent keeps accumulating with late fees and interest charges, and the lease holder will be required to pay the entire accumulated amount whenever he or she plans to sell the house or convert it into free hold.

Liberalized Scheme for payment of Ground Rent
As a simple and easy system to clear the dues of ground rent, a one time payment has been introduced under the scheme "Capitalized Ground Rent". Under this scheme, allottee is required to pay only 7.5% of the cost of land as indicated in the allotment cum demand letter on account of capitalized value of Service Charges in respect of new allotment and 5% in respect of old allotments in respect of unpaid & future dues. Thereafter allottee is exempted from paying Service Charges in future.
Remember that the ground rent under this scheme is 7.5% + 5% of the "cost" of land, and not the "price" of the land. In most cases, the "cost" turns out to be drastically low, thus making this a very efficient mechanism for one time settlement of ground rent.

Is the scheme optional?
Yes, this scheme is 100% optional. The allottee who does not opt for the "Capitalized Ground Rent" would continue to pay the ground rent as per original terms and conditions of the allotment cum demand letter.

If you are owning a leasehold property, make sure you find out whether this scheme can help you save tons of money, before you decide to pay the next ground rent.

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