Whether you are planning to buy your first home or you want to build wealth through real estate investing, you should familiarize yourself with common terms and legal jargon used in the real estate market. Understanding these terms is crucial for navigating the complexities of buying, selling, and investing in real estate. In this article, let’s decode the key terms used in the Indian real estate market, helping you make informed and confident decisions.
1. Real Estate (Regulation and Development) Act (RERA)
RERA, implemented in 2016, aims to regulate the real estate sector and protect buyers by ensuring transparency, accountability, and timely completion of projects. It mandates the registration of projects and lays down strict guidelines for developers.
2. Floor Space Index (FSI) / Floor Area Ratio (FAR)
FSI/FAR is the ratio of the total built-up area of a building to the total plot area. It determines how much construction can be done on a piece of land. Higher FSI allows for more construction, which is a crucial factor in real estate development. Example: If a plot of land is 1000 sq. meters and the FSI is 2, the total buildable area is 2000 sq. meters.
3. Undivided Share (UDS)
Undivided share of land refers to the portion of land that an individual apartment owner holds in a multi-story building or residential project. This share is calculated based on the apartment’s size in relation to the total built-up area. In residential societies, the land is jointly owned by the apartment owners or homeowners. Each home owner has a right against the land, but the land cannot be divided into parts.
4. Super Built-Up Area
Super Built-Up Area, or super area, includes the built-up area and a proportionate share of common areas like lobbies, staircases, and amenities. This is the area on which most developers base their pricing. In simple terms, super built-up area refers to the area within a property unit (eg: apartment) and a share of common areas.
5. Built-Up Area
Built-Up Area is the total area of the apartment including walls, balconies, and terraces, but excluding common spaces. It is typically larger than the carpet area but smaller than the super built-up area.
6. Carpet Area
Carpet Area is the actual usable area inside the apartment, excluding walls and other structural elements. This is the area where you can “lay a carpet,” hence the name.
7. Stamp Duty
Stamp Duty is a tax levied by the government on the registration of property. It is calculated as a percentage of the property’s sale price or circle rate, whichever is higher, and varies across different states. When registering a property transfer deed, one also has to pay a registration fees (usually 1%) in addition to the stamp duty.
8. Ready Reckoner Rate (Circle Rate)
The Ready Reckoner Rate is the minimum price at which a property can be registered in a particular area. Set by the state government, it serves as a benchmark for calculating stamp duty and taxes.
9. Occupancy Certificate (OC)
An Occupancy Certificate is issued by the local municipal authorities, confirming that a building complies with the approved plans and is ready for occupation.
10. Completion Certificate (CC)
Completion Certificate is issued by the local authority after verifying that the construction of the building is completed in accordance with the approved plans and regulations.
11. Freehold Property
A Freehold Property refers to complete ownership of both the land and the building, allowing the owner full rights to transfer, lease, or sell the property.
12. Leasehold Property
In a Leasehold Property, ownership of the land remains with the government or another entity, while the property is leased to the buyer for a specified term, typically 99 years. Ownership reverts to the original owner at the end of the lease unless it is renewed.
13. Mutation
Mutation is the process of updating property ownership records in the local municipal authority’s records after a transfer of property through sale, inheritance, or gift.
14. Encumbrance Certificate (EC)
An Encumbrance Certificate certifies that the property is free of any legal or financial liabilities, such as loans, disputes, or mortgages. Where the property has certain encumbrances, the encumbrance certificate will include the details.
15. Soft Launch
A Soft Launch is the initial phase of a project’s release to a select group of investors or buyers, usually at discounted prices before the public launch.
16. Tenancy Agreement
A Tenancy Agreement is a contract between a landlord and tenant that outlines the terms of the rental, including the rent amount, lease duration, and responsibilities of both parties.
17. Ground Coverage or Built-Up Ratio
Built-Up Ratio is the percentage of the total land area that can be developed into built-up space. It reflects the balance between open and constructed areas on a plot.
18. Down Payment
A Down Payment is the upfront amount a buyer pays when purchasing a property, usually a percentage of the total property value, with the remainder financed through loans.
19. Gross Leasable Area (GLA)
GLA refers to the total area in a commercial property that can be leased to tenants, including both usable spaces and common areas.
20. Net Operating Income (NOI)
NOI is the income generated from a property after operating expenses are deducted but before taxes and financing costs. It helps investors assess the profitability of income-generating properties.
21. Gross Rental Yield
Gross Rental Yield measures the annual rental income of a property as a percentage of its purchase price. It helps investors gauge the return on investment from rental properties.
22. Title Deed
A Title Deed is a legal document proving ownership of a property. It contains details such as the property description, owner’s name, and history of ownership.
23. Provisional Allotment Letter (PAL)
A Provisional Allotment Letter is issued by a developer to confirm the provisional allotment of a property to a buyer. It specifies payment terms and conditions for final allotment.
24. Mortgage Lien
A Mortgage Lien is a legal claim a lender has on a property when a mortgage is taken out. The lien grants the lender rights to the property if the borrower defaults on the loan.
25. Encumbrance
Encumbrance is any legal or financial liability on a property, such as a mortgage or a legal dispute, that affects its transferability.
26. Market Value
Market Value is the estimated price a property would fetch in the open market based on factors like location, demand, condition, and comparable sales.
27. Completion Bond
A Completion Bond is a guarantee ensuring that a construction project will be completed as per the agreement, even if the contractor fails to do so.
28. Subvention Scheme
A Subvention Scheme is a payment plan where the buyer pays a portion upfront, and the developer covers the interest on the loan during the construction period.
29. Capital Gains
Capital Gains are the profits earned from the sale of a property. In India, these are taxed as short-term or long-term based on the holding period of the property.
30. Joint Development Agreement (JDA)
A JDA is an agreement between a landowner and a developer where the landowner provides the land, and the developer undertakes the construction. The completed project is shared as per the agreed terms.
31. Escrow Account
An Escrow Account holds funds during a real estate transaction to ensure that payments are released only when specific conditions are met, such as construction milestones.
32. Earnest Money Deposit (EMD)
EMD is an initial deposit made by a buyer to show commitment to purchasing a property. It is typically non-refundable if the buyer backs out of the deal.
33. Lock-In Period
The Lock-In Period is the minimum duration during which an investor or tenant cannot exit a contract without incurring penalties, protecting developers or landlords from early termination of agreements.
34. Pre-EMI
Pre-EMI refers to the interest paid on a home loan for the disbursed amount during the construction phase. Full EMI payments begin only after possession.
35. Transfer of Development Rights (TDR)
TDR allows landowners to transfer unused development rights from one property to another, typically where development is permitted, to promote land conservation or redevelopment.
36. Built-to-Suit (BTS)
Built-to-Suit is a commercial real estate agreement where the developer constructs a building according to the tenant’s specifications. The tenant leases the property upon completion.
37. Built-Up Area Ratio (BUAR)
BUAR compares the built-up area of a property to its total land area, determining how much of the land has been developed.
38. Possession Certificate
A Possession Certificate is issued by the builder or developer, confirming that the property is ready for the buyer to take possession.
39. Title Insurance
Title Insurance protects property buyers and lenders from losses due to defects in the title, such as unpaid liens or disputes. Such insurance policies are currently unavailable in the Indian market.
40. Rent Escalation Clause
A Rent Escalation Clause in a lease agreement allows the landlord to increase rent at specific intervals, often tied to inflation or market conditions. Generally speaking, a long-term lease includes provisions for increase in the rent after set tenures.
41. Vacancy Rate
Vacancy Rate measures the percentage of available rental units that are unoccupied. A low vacancy rate indicates strong demand and a healthy rental market.
42. Sale Deed or Transfer Deed
A Sale Deed is the final document transferring ownership of a property from the seller to the buyer, executed after all conditions of sale are fulfilled.
By familiarizing yourself with these terms, you’ll be better prepared to navigate the Indian real estate market, whether you’re investing, buying, selling, or renting. Real estate transactions involve significant financial commitments, and understanding the nuances of these terms can help you make informed decisions while protecting your interests.
