The top real estate Terms and definitions that every property investor should know in 2020

To someone starting in the real estate investment sector, the terms associated with it can sound like jargon. They might seem like an unlikely combination of letters to people not used to such investing terms. Starting out in the real estate sector is extremely intimidating, and it can be even more difficult if you don’t understand the complex-sounding terminology that people throw around. However, do not worry, because terminologies and acronyms are not too complicated, and can be understood with ease. Therefore, to help real-estate beginners and property investors out, here’s a look at some of the top real estate terms and definitions you need to be aware of.

Terms Used in the Decision Process​

1. Appraisal: The process by which a professional gauges and determines a property’s value by conducting an independent survey, and taking note of the property’s condition, and the value of nearby properties in the same area. 
2. Class A Properties: Properties that are new, in high-demand, is situated in the best location, are in the best condition, and have the best and most luxurious features. Such properties offer the lowest risk, provide the highest rents, and have a high value.
3. Class B Properties: Second-class properties that are in demand, are around 10 to 20 years old, requires only little maintenance, and are situated in good locations. These are low-risk properties that provide moderately high rent and have good value. 
4. Class C Properties: Properties that do not have much demand as they are situated in less desirable areas, are over 25 years old and require a renovation. These have a high cap rate, possess moderate risk, and provide only moderate rent.
5. Class D Properties: Properties which are in mediocre locations, but are constructed poorly and are older than 30 years old. These require significant repair and replacement to become liveable, and therefore, are high-risk properties that provide low rents, yet high ROIs after proper maintenance.
6. BHK: An apartment that comprises a Bedroom, Hall, and Kitchen.
7. RK: An apartment that contains a room that serves as a hall or bedroom and a separate kitchen. The 1 RK is smaller than a 1 BHK.

Terms Used While Negotiating A Deal

• Open Market Value:  The best-expected price a property can have at valuation at any given time.
• Bayana: An Indian term that means Token amount, or the money paid to the landlord to prevent them from taking negotiations with another party forward. 
• Carpet area: The space within the house that is actually used by the people living in it, which essentially consists of the space enclosed within the external and internal walls. Basically, it is the space that can be carpeted and hence used by the residents. It excludes the area taken up by the walls and includes a balcony or terrace area. 
• Built-up area: The entire area that the house takes up in square inches including space taken up by the walls, and carpet area. It is usually 10-20% more than the carpet area of the house and is also called the plinth area.
• Super built-up area: The area that includes built-up area and common areas such as the lift, staircase, lobby, and corridors. The entire space is then divided proportionately between all apartments within the complex.
• Floor space index: The proportion between the building’s built-up area and available, allotted government area.
• Per square foot rate: The price the buyer has to pay per square foot of the super built-up area to buy the flat, which includes both the carpet and super built-up area.

Terms Used in the Purchase Process

1. Amortization: The process by which an owner pays off their loan in varying amounts on a monthly basis, allowing the owner to get more equity.
2. Short sale: A transaction wherein the property fetches a sum that is lower than the mortgage owned on it.
3. Capitalization rate: The percentage obtained on dividing the NOI with the market value of the property that helps the owner find the expected ROI of the investment without taking the mortgage into consideration. 
4. Foreign Exchange Regulation Act (FERA): The Act that deals with, regulates, monitors, and controls dealings made with foreign agencies and exchanges.
5. Foreclosure: The legal process through which a lender recovers the outstanding loan as a result of non-payment by forcing the buyer to sell the property that was kept as collateral.
6. Cooperative Housing: A housing scheme wherein land is bought, developed, and maintained by a Cooperative Housing Society. After the government allots land to the society, they develop and construct the apartment complex. Once completed, individual flats are handed out to the members of the society.  
7. Property Tax: Tax levied on a property by a local municipal body, which the owner must pay annually.

Other general Real Estate terms we should know

• Assessment: The process by which a property’s value is found for the purpose of paying tax.
• Property management: Companies or individuals who oversee the day-to-day management, operations, and maintenance of properties.
• Pugree: The Indian term for a security deposit paid to landlords by tenants, which is refundable once the lease ends.
• Remote investing: Investment that occurs through investors located geographically away from their investment. In such cases, the owners rely on property management firms to handle the property, see to its upkeep, and handle operations. 
• Brokerage: The money paid to a firm or individual who acted as a broker by facilitating the buying and selling of property as a commission. 
• Mattha: A word that describes the frontage a building has with the main road.
• Encumbrance Certificate: A certificate handed out by the Registrar of Assurances or Sub-Registrar’s office. It is issued after due verification of all documents that prove the property is free from loans, leases, restrictions, and easements.
• HVAC: Equipment that deals with heating, ventilation, and air conditioning of the building, which helps with temperature control.
• Occupancy Certificate: A certificate handed out by a legal and local development authority that states people can move in or occupy the flat as all necessary works promised in the plans have been completed.
• Patwari: A government-appointed official who handles the maintenance and updation of land ownership records and helps with collecting land tax.
• RERA: The Real Estate Regulation and Development Act, 2016 works to preserve the best interest of both the buyers and sellers. It helps protect buyers, while also making the real-estate industry more credible and transparent by holding developers accountable. 
• Khata: A legal document that helps compute and file property-related tax returns in the state of Karnataka.  It contains details regarding property size, tax, identification number, location, carpet, and built-up area and owner details. 

Property or real estate investment might be capital intensive, but when done right, it can do wonders for your financial position. The first step towards making the right investment decisions is to understand the market. Using this guide, you will be able to understand the key metrics and terms related to real estate investing. Being able to navigate the market with confidence, will help you make the right decisions and score big. We at PropertyAngel can help you along the way with any query or doubt that you may have. In case you need any help with anything related to real estate in India, reach out to us at PropertyAngel.

Authored by: Dhivya Naresh

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