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Real estate glossary you must know

Whether for investment or end-use purposes, real estate is an asset class that has fast captured the imagination of Indian families. Buying real estate is an integral part of financial planning for any family. Like in the medical or legal professions, real estate also has its own vocabulary, much of which can be confusing to the lay person. Here is a glossary of most commonly used terms in the industry so that you are not at a handicap when buying real estate in India.

Built-up area: The built-up area refers to the entire area of the floor including carpet area, walls, lobbies and corridors, atrium areas and basement. In Delhi, the lift areas and staircase areas are included in the built-up area. In Mumbai, the basement, staircase, lift, and utility rooms like generator and electricity rooms are also taken as built-up area. In Bangalore, the basement is not included in the built up area and in Chennai, the basement and atrium areas are excluded. As always, check with your builder/broker on what definition they are using.

Carpet area: It is the actual usable area within the walls of the floor.

Super area: This generally refers to the entire area of the building including carpet area, walls, lobbies and corridors, lifts, staircases basements, and other atrium and utility areas. In Delhi, the basement is not included in super area unless it is being used for commercial purposes. In Mumbai, the area under water tanks and other utility rooms are included in the super areas. In Chennai, the basement and atrium areas are included in the super areas whereas in Bangalore, the basement is not included in the super area.

Efficiency ratio: Efficiency ratio is generally expressed as a percentage of carpet to super areas of the property.

Floor Space Index (FSI): Floor space index is the quotient of the ratio of the combined gross floor area of all floors excepting areas specifically exempted under these regulations to the total area of the plot.

Maintenance charges: These are charges taken by the maintenance society towards the maintenance of the property which includes costs of generator sets, security, landscaping, and common areas.

Market value: Valuation process evaluates the market value of the property. Demand and supply forces in the market and factors like type of property, quality and construction, its location, infrastructure and available maintenance are taken into consideration. Market value of the property is the price that the property commands in the open market.

Stamp duty: Real Estate Stamp duty is a type of tax collected by the Government of India. Stamp duty is based on the market value or the agreement value whichever is greater.

Sale deed: The sale deed gives the buyer the absolute and undisputed ownership of the property. By executing this, the seller transfers his right of property to the buyer. It is executed subsequent to the execution of the sale agreement and after compliance of various terms and conditions detailed in the agreement.

Registration charges: These are the fees associated with getting the legal title registered in your name. This legal activity is conducted in the sub-registrar’s office in your local court.

In addition to the above, the following terms are commonly used in the commercial real estate market and worth getting familiar with if you are considering buying commercial property.

Common Area Maintenance (CAM): Common areas include hallways, pathways and utilities. CAM fees are collected by the landlords from the tenants to cover maintenance, property taxes and insurance in the case of Triple Net Lease.

Cap rate: This refers to the capitalization rate. The capitalization rate is the return on investment on the property. Capitalisation rate is measured by the formula: Purchase Price / Net Operating Income from the Property.

Cash on cash: It is the annual percentage return of your down payment not including appreciation. It is the first year’s cash flow divided by your initial down payment.

CPI:The Consumer Price Index is used to calculate the annual rental increase so as to compensate for inflation.

Full service lease: This is a lease where the tenant pays rent to cover everything including utilities.

Gross lease: This is a lease where the tenant only pays the rent and the landlord pays the taxes, insurance and maintenance.

Gross Leasable Area (GLA): This is the Gross Leasable Area or the total rentable area. This is the area that can be leased out for rental income. This does not include spaces for elevators, utilities room etc.

Letter of Intent (LOI): This is the Letter Of Intent which is a non-binding offer letter to buy a commercial property.

Mixed use: These are commercial properties with retail on the first floor and apartments on upper floors.

Net Operating Income (NOI): Net Operating Income is the annual income after deducting expenses like property tax, insurance, and maintenance but except mortgage payments.

Percentage lease:It is a lease where the tenant pays base rent plus a percentage of the tenant’s revenue.

If there is any real estate term that you are unsure of always check and verify. It is always better to ensure that you and the other party are working on the same understanding.

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