GLOSSARY OF TERMS (INDIAN REAL ESTATE)

For investment or end –use purposes. Either ways real estate is an asset class that has rapidly captured the imagination of families in India. Buying property is an integral part of financial planning for any family. For instance, perplexing to the lay person. Here is a glossary of most frequently used terms in the industry so that you are not at all a handicap when buying property in India.  In the medical or legal professions, real estate also has its own vocabulary, much of which can be perplexing to the lay person.

Table of Contents hide

A.

Area

Unit of measurement of land, I aere is equivalent to 4048.32 Square meters and 43560 Square feet.

Allotee

The Person who is allotted property, either by government body/ authority or by a developer.

Agent

Also Known as Real Estate Agent, Realtor or Broker. An agent plays the role of a facilitator for property transactions for a consideration.

Apartment

Means a part of any property, intended for any  type of independent use, including one or more rooms or enclosed spaces located on one or more floors or any, part or parts thereof, in an multi –storied building to be used for residence or office or for the practice of any profession or for the carrying on of any occupation, trade or for business or such other type of independent use as may be prescribed, and with a direct exit to a public street ,road or highway, and includes any garage or room (Whether or not adjacent to the multi –storied building in which such apartment is located) provided  by the promoter for use by the owner  of such an apartment for parking any vehicle or as the case may be for the residence of any domestic aide employed in such an apartment.

Appraisal 

A Written report of the estimated value of a property prepared by a certified Real Estate appraiser or a valuer.

Appreciation

An Increase in the value of a property due to changes in market conditions or other causes over a period of time.

A cceptance  Letter

Once the loan is issued by the way of sanction letter, the applicant communicates his willingness to accept the loan by way of an acceptance letter. He has to send within a time frame of1-3 months from the date of the sanction letter. 

Advanced EMI

Number of EMIs in the form of the post dated cheques, paid out in advance at the time of disbursement of loan.

Allotment Letter

The Allotment Letter contains details regarding the agreed price, payment and construction schedule, house plans, delivery date builders liability in case of late completion or problems after possession.

Annual Reducing Balance of the principal

In an annual rest the EMIs are calculated on an annual basis. The interest is calculated on the outstanding principal at the beginning of every year. Once the interest is calculated at the rate charged to the customer for the entire year. It is deducted from the EMIs received during the year. The balance EMI is taken as principal repaid during the year and this is deducted from the opening balance of principal of the current year to arrive at the opening balance of principal for the next year. Thus the component of principal increases and the interest keeps reducing year after year. 

Approved Plans

This Refers to the plan of the building that is approved by the respective municipal corporation.  This is a drawing of the layout of the project and the layout of the flats. This document is an important document as this document can establish any illegal constructions that may have taken place.

Assessed Valuation

The Value that a taxing authority places on real property for the purpose of determining the amount of taxation for that property.

B.

Benami Ownership  

In Benami Ownership, the title of the property is in one party name and the real ownership is in another party s name.

Beneficiary

The Person /persons /institution designated to receive the income from a trust, estate or a deed of trust. A contingent beneficiary has conditions attached to his /her their/its rights.

Bhumidar

A Bhumidar is of the class of tenure – holder under the Delhi Land Reforms act-1954. He has the right to use land for any purpose connected with agriculture, farming pisciculture or poultry. He has no right to use land for industrial purposes other than those connected directly with the aforesaid activities, unless the land lies within the declared industrial belt.

Built –up area.

Built –up area denotes to the entire area of the floor including carpet area, walls, lobbies and corridors, atrium areas and basement. Always check with your builder/agent on what concept they are using. In Mumbai, the basement, staircase, lift and utility rooms like generator and electricity rooms are also taken as built-up area. In Delhi the lift areas and staircase areas are included in the built –up area. In Chennai, the basement is not included in the built up area. 

C.

Capital Transaction

Sale/Purchase of a property.

Carpet Area.

The actual usable area of an apartment/office unit/showroom etc. minus Wall  thickness. Simply put, it is that area within the walls where you can actually lay a carpet.

Common Area Maintenance (CAM):

Common Areas include hallways pathways and utilities. CAM fees are accumulation by the landlords from the tenants to cover maintenance, property taxes and insurance in the case of Triple Net Lease.

Cap Rate:

Cap rate denotes to the capitalization rate. Capitalization rate is the restitution on investment on the property. The Capitalization rate is measured by the formula: purchase price/ Net Operating income from the property.

Cash on Cash

The Yearly percentage return of your down payment not including appreciation. It is the first years cash flow divided by your initial down payment.

CPI  

The Consumer price index is used to account the yearly rental increase so as to pay for inflation.

Completion certificate/occupation Certificate

This is given by the municipal corporation to the developer. It is very crucial document as this certificate is issued only after the developer completes all the required formalities. Some of these formalities include getting water connection and electricity connections for the project and the construction being completed as per the permissions given in the commencement certificate and the approved plans.

CBD or Central Business District

Commercial area and its immediate radius of-2-3 kms typically located towards the city centre, which forms the hub of all major commercial activity in a city. Most of the larger corporate entities, large retail outlets and financial institutions would be located in this area. The Real Estate prices here would be the highest compared to all the other locations in the city. 

Clear Title

A title that is free from claims or legal questions and all other encumbrances about the ownership of the property.

Collateral

An asset (such as a car /home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract. In a housing loan scenario, collateral would mean additional security over and above the security of the property being financed.

Commencement Certificate

A Certificate issued by the appropriate local authority certifying the construction may commence. Typically this is done after the concerned party has obtained sanction of plans for the construction of a multi-storied building and has put the columns in place indicating the building boundaries.

Commercial Property

A Building/ Property which is used for the purposes of carrying out commercial activity or trading.

Common Areas

Those portions of a building, land and amenities owned (or managed) by a planned   unit development (PUD) or condominium projects homeowners association (or a cooperative projects cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. 

Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of building and parking areas.

Comprehensive Development plan (CDP)

The Master plan approved by an authority.

Condominium

A Real Estate  project in which each unit owner  has title to a unit in a building, an undivided interest in the common areas of the projects , and sometimes the exclusive use of certain limited common areas. Each individual owner  may sell or encumber his/her own  unit

Co-ownership

When there are more than one owner for an immovable property, the status of the property is known to be of the CO-ownership type. A CO-owner can do whatever he wishes with his part of the property as long as he does not affect the share of the other Co-owners.

Convenant

A Clause in a mortgage that obligates or restricts the borrower on the use of land or promising certain acts and if violated, can result in legal action against a violator.

For example, home owners associations often enforce restrictive covenants governing the architectural controls (such s how the house is built and what the house can look like) and maintenance   responsibilities. However, land could be subject to restrictive covenants even if there is no home owners association.

D.

Debutter Property

A Debutter is an endowment much less a trust although it can created through the medium of trust in which the property vests in the trustees and the deity God is the beneficiary. Not necessary that debutter be always a registered deed.

Deed

The Legal document conveying title to a property.

Down payment /Margin Money

Financiers normally give loans up to 80-85% of the value of the property. The balance would have to be paid by the buyer, as a payment or margin money. 

Defacto Possession

Also called Constructive possession. The actual physical possession is called defacto possession.  The actual possession should be held without force or fraud.

Dejure Possession 

Also called Juridical Possession, it means possession in the eyes of the law. This may not be accompanied by Defacto possessor of the property.

Deposit

A Sum of money given to bind the sale of Real Estate or a sum of money given to ensure payments or an advance  of funds in the processing of a loan. Deposit. Could    also be the deposit paid to a landlord as part of a rental transaction.

Depreciation

A   Decline in the value of property brought about by age, physical deterioration functional or economic obsolescence, etc. 

Due Diligence

Verification of the authenticity of the title of the property

E.

Earnest Money deposit or EMD

A  Nominal sum of money given as a token to the vendor, signifying the assent to a contract of sale or the like, that the parties are in the earnest or have made up their minds.

Effective Age 

A Real Estate appraiser estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

EMI

EMI is Equated Monthly Installment. The loan can be repaid through EMIs over the tenure of the loan.

Efficiency Ratio:

Efficiency ratio is expressed as a share of carpet to super areas of the property.

Encroachment

The Physical intrusion of a structure or improvement on the land of another.

For example, a neighbor s fence or construction that crosses over your property line.

Encumbrance Certificate

A Report issued by Registrar of Assurances or Sub-register s  office after due verification  of the relevant documents certifying  that the property  in question is free from all encumbrances such  as mortgagaes,  leases, easements or restrictions.

F.

Fair Market value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. In other words a value decided by the market forces.

Farm House

The concept of a farm house is nothing but the building appurtenant to the agricultural land. A farm house may be used for dwelling purposes, or as a store house or an outhouse.

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.

Full Service Lease

A Lease where the tenant pays rent to cover everything including utilities

Fixed Rates of Interest

When an applicant opts for a fixed rate of interest, the rate of interest remains fixed over the tenure of the loan. This is an ideal option for situations when one expects the rates of interest to go up in the future.

Floating Rate of Interest

When one opts for a floating rate of interest, the interest rate on the loan may fluctuate depending on the prime Lending Rate (PLR) fixed by the reserve bank. This change can happen as frequently as one in six months. If the PLR falls, the customer benefits and if it rises he suffers. However, in case of a fall the payments remain the same for every month. The finance company will refund some of the EMI cheques and effectively compensate the customer by reducing the tenure of the loan.

Farm Property

Farm Property is the general name given to the agricultural property.

Free Hold Property

A Property Where title paramount has conveyed the property in favor of the purchaser by conveyance/ sale deed with no restriction on the right of the holder of the property to further transfer the property to further transfer the property. Record of ownership of the free hold property can be ascertained from the office of the sub-register.  It can be transferred by registration of sale deed.

FSI or floor space index / FAR or floor Area Ratio

The maximum amount of construction allowed on a given plot of land. This is purely dependent on the plot area and would vary from one locality to another based on factors such as the road width. For example in Delhi in a 400 sq. yard plot the area is 40% the distribution being 20% for the backspace and 20% for the front. In case of a 1000sq. yard area the area set aside is 60% for the back and the front spaces.

Gross Lease.

A Lease where the tenant only pays the rent the landlords pays the taxes insurance and maintenance. 

Gross Leasable Area (GLA)

The Gross Leasable Area or the total rentable area is the area which can be rented out for rental income.Itn”t include space for elevators, utilities room etc. does

Heir

The person who is the lawful obvious inheritor of an estate or a property.

Hobli

The administrative jurisdiction of a revenue authority.

Immovable property

Includes land, buildings, hereditary, allowances, right to ways, lights, ferries, fisheries or any other benefit to arise out of land. And things attached to the earth or permanently fastened to anything which is attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops not grass.

Industrial property

Any property used for a manufacturing purpose. Areas where industrial activity may be carried out are specified by the respective local authorities.

Investment Property

Real Estate owned with the intent of supplementing one’s income and is not intended for owner occupancy (i.e. rental houses, apartment buildings, etc.)

J.

Joint Ownership Agreement

An agreement between owners defining their rights, ownership, monetary obligations and responsibilities.

L.

Landlord/Owner

Any Person who has a valid and legal right, ownership, monetary obligations and responsibilities.

Lease

Lease is where there are no two kinds of payments made to the landlords by the tenant unlike a rental transaction. A sum of money is paid to the landlords at the beginning of the lease tenure, which is repaid without interest when the tenure ends. No monthly payments are made.

Lease Hold Property

A property “bought” for a certain period of time. The “owner of such a property will have “bought” the property from the original landlord and is entitled lawfully to rent, lease or sell” the property to a third party during the period of lease hold. After the lease hold period, the property goes back into the original landlord’s possession.

Loan to value Ratio (LTV) 

The ratio of the amount of your loan to the appraised value of the home. The LTV will affect loan programs available to the borrower and generally, the lower the LTV the more favorable the terms of the loan programs offered by lenders.

Letter of intent LOI

The Letter of intent is non-binding offer letter to buy a commercial place.

Long Term capital Asset

This means a capital asset held by an assessee for nothing less than thirty six months immediately preceding the date of transfer. 

Lock- in

Rate Lock option. A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time, usually within 60 days. The lock in also usually specifies the number of points to be paid at closing.

M.

Mixed Use

It is commercial properties with retail on the first floor and apartment on upper floors. Mixed is the use of commercial and residential simultaneously.

Monthly Reducing Balance of the principal

Monthly Reducing Balance of principal is same as annual reducing balance except that the balance is calculated on a monthly basis and the EMI is broken up every month to arrive at the opening balance of principal for the next. Month.

Mortgage

It Is an agreement by which the borrower gives the lending institution the right to take possession of the property have to be deposited with the HFC.

Maintenance Charges

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

Market Value

Valuation process evaluates the market value of the property. Demand and supply forces like type of property, quality and construction. Market value of the property is the price that the property commands in the open market.

Mutation

Mutation means transfer/ change of name in the records of the Corporation for the concerned property.

N.

NO objection certificate or NOC

A Certificate issued by the concerned local authority that the plans are in order and conform to the guidelines and rules in force.  In other words, the authority concerned has NO OBJECTION to the commencement of construction.

Net Operating Income (NOI)

Net Operating income is the annual income after deduction of expenses like property tax, insurance, and maintenance but mortgage payments are exceptional.

O.

Occupancy Certificate or OC

A Certificate issued by the local development authority certifying that all necessary  works have been completed  as per the sanctioned plans and that the property is fit for occupation. The OC is issued after clearance from the water, electricity, sewerage, fire fighting authorities etc.

Owner

Any Person who has a valid and legal right, title and interest in the property.

Owner Financing

A property purchase transaction in which the property seller provides all or a part of financing.

Occupancy Certificate or OC

A Certificate issued by the local development authority certifying that all necessary works have been completed as per the sanctioned plans and that the property is fit for occupation. The OC is issued after clearance from the water, electricity, sewerage, fire fighting authorities etc.

P

Percentage lease

Percentage Lease is a lease where the tenant has to pay base rent plus a percentage of the tenant’s revenue.

Possession Letter 

This is a letter handed over by the developer to the customer stating that the property is complete and ready for occupation.  This letter also indicates the final dues payable by the customer before the keys is handed over to the customer.

Pre payment

Pre payment means repaying the loan before the tenure is over. Most HFCs charge a pre payment fee that is normally in the range of 1-2% of the pre-paid amount.

R

Real Assets

 Real Estate or real property owned by an individual or business.

Realtor

Synonym or Real Estate Agent.

Refinancing

The process of paying off one loan with the proceeds from a new loan using the same property as security.

Registration

A legal documenting and subsequent recognition of a transaction under the state. This can either be a rental or capital transaction and there is a fee attached to registering a transaction, which varies from state to state.

Refinance 

Refinance means prepaying existing higher interest loan by talking a lower interest rate in the wake up of falling interest rates. One can do this either from the same HFI or from a different HFI.  If one retires a loan using money borrowed from another finance company he will have to pay a refinance charge of 1-2% of the loan outstanding.

Registration Charges

The fees associated with getting the legal title registered in your name. This legal process takes place in the sub- register’s office in your local court.

Registration of an Agreement

It Is always advisable to register the documents at the time of purchase of immovable property. The agreement should be registered with the Sub-register of assurances under the provisions of the Indian Registration Act. Stamp duty should be paid prior to the registration.

S

Security

In lending, security refers to the collateral given, deposited or pledged to secure the payment of the loan.

Super Built –up Area

The Plinth area along with a share of all common areas proportionately divided amongst all unit owners makes up the super Built –up area. The common areas include corridors, balconies, swimming pool, garden clubhouse, the lift wells etc.

Sale Deed

The sale deed transfers the ownership of the property/properties in exchange for a price paid or considered. This document is required to be registered compulsorily.

Stamp Duty

The Stamp duty is usually a percentage of the transaction value levied by the state government on every registered sale. The agreement to sell clearly states the stamp duty, which is usually paid by the buyer, and he gets his name registered in the land revenue records. It ranges from 5 per cent of the transaction value to 14 per cent in some states. 

Super Area

This is as a rule regards to the entire area of the building which includes carpet area, lobbies and corridors, walls, lifts, staircases basements and other atrium and utility areas. In Mumbai, the area under water tanks and other utility rooms are included in super areas. In Delhi, the basement is excluded in super area unless it is being used for commercial purposes. In Chennai, the basement is not included in the super area.

T

Tahsildar

Revenue authority or officer empowered to impose and collect revenue from a particular jurisdiction

Tenant

One who was is not an owner but enjoys possession of a property from the owner on certain specified terms and conditions for a temporary period.

Title

The document that that provides legal evidence that the person has the right to the possession of the land.

Title Search

An investigation of public records into the history of ownership  of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear owner ship.

Transaction

Any Activity that leads to an exchange between two parties- buyer and seller/ landlord and tenant etc.

U

Under – Valuation

A Value of the property that is lesser than the fair market value. Registration fee for a property in case of capital transaction or rent in case of rental transaction.

Urban Land Ceiling and Regulation Act (ULCRA)

Popularly referred to as ULC Act. This is basically a legislation that was enforced to prevent profiteering and hoarding in the urban land market as well as prevents urban congestion. 

Z

Zone.

Parts of a city or town are allocated and categorized into zones, which in turn will have a Bering on factors like type of property that can be constructed number of floors allowed for construction, etc.

Leave a Reply

Your email address will not be published.