Understanding Real Estate Jargon in India
Investing in real estate, whether for personal use or financial gain, has become increasingly popular among Indian families. Understanding the terminology used in the real estate industry is crucial for making informed decisions. This glossary explains some of the most frequently used terms to help you navigate the Indian property market with confidence.
Key Terms for Residential Real Estate
- Built-up Area: This refers to the total area of the floor, encompassing the carpet area, walls, lobbies, corridors, atrium areas, and basement. The specific inclusions within the built-up area can vary regionally. For example, Mumbai often includes basements, staircases, lifts, and utility rooms, while Delhi includes lift and staircase areas. Chennai excludes basements and atriums, and Bangalore excludes only the basement.
- Carpet Area: This is the actual usable area within the walls of the floor, excluding the thickness of the walls.
- Super Area: This generally refers to the entire area of the building, including the carpet area, lobbies, corridors, walls, lifts, staircases, basements, and other atrium and utility areas. Similar to built-up area, the definition of super area can also vary by city. Mumbai includes areas under water tanks and utility rooms, Delhi excludes basements unless used commercially, Chennai includes basements and atriums, and Bangalore excludes the basement.
- Efficiency Ratio: This is the ratio of carpet area to super area, expressed as a percentage.
- Floor Space Index (FSI): This is the ratio of the total combined gross floor area of all floors (excluding exempted areas) to the total area of the plot.
- Maintenance Charges: These are fees collected by the maintenance society or association for the upkeep of the property, including generator sets, security, landscaping, and common areas.
- Market Value: This is the price a property is expected to fetch in the open market, determined by factors such as demand, supply, property type, construction quality, location, infrastructure, and maintenance availability.
- Stamp Duty: This is a tax levied by the Government of India on property transactions, calculated based on the agreement value or market value, whichever is higher.
- Sale Deed: This legal document transfers absolute ownership of the property from the seller to the buyer. It is executed after the sale agreement and fulfillment of its terms and conditions.
- Registration Charges: These are the fees paid to legally register the property title in the buyer's name at the sub-registrar’s office.
Essential Terms for Commercial Real Estate
If you are considering investing in commercial property, it is helpful to be acquainted with the following terms:
- Common Area Maintenance (CAM): These fees are collected by landlords from tenants to cover maintenance, property taxes, and insurance, typically in Triple Net Leases. Common areas include hallways, pathways, and utilities.
- Cap Rate: Short for capitalization rate, this represents the return on investment for a property, calculated as Purchase Price / Net Operating Income.
- Cash on Cash: The annual percentage return on your down payment, excluding appreciation, calculated as first year's cash flow divided by the initial down payment.
- CPI (Consumer Price Index): Used to calculate annual rental increases to account for inflation.
- Full Service Lease: A lease where the tenant pays rent that covers all expenses, including utilities.
- Gross Lease: A lease where the tenant pays only rent, while the landlord covers taxes, insurance, and maintenance.
- Gross Leasable Area (GLA): The total rentable area of a property, excluding spaces like elevators and utility rooms.
- Letter of Intent (LOI): A non-binding offer to purchase a commercial property.
- Mixed Use: Properties that combine commercial and residential spaces, such as retail on the ground floor and apartments above.
- Net Operating Income (NOI): The annual income generated by a property after deducting operating expenses (property tax, insurance, maintenance) but before mortgage payments.
- Percentage Lease: A lease where the tenant pays base rent plus a percentage of their revenue.
Always clarify any real estate terms you are unsure of to ensure that all parties involved have a clear and mutual understanding.