June 10, 2022

Real estate jargon: A home-buyer’s guide

Are you aware of the difference between “super built-up area” and “carpet area”? Or between “fixed-rate loans” and “floating-rate loans”?... It’s possible that you don’t have complete clarity on these terms. However, if you are planning to buy a property, whether for habitation or investment, it’s necessary to learn about some commonly-used jargon for your own benefit and security. This is more so because in the fast-evolving domain of real estate, there has been immense transition and consolidation, with the industry becoming more and more professional every day. So a lot of informal or colloquial phrases have been replaced by formal, globally-benchmarked terminologies. Here are a few critical terms you should know about before doing a real estate transaction:

#Carpet area: This is the net area inside the external walls that you can use or lay a carpet on. This will exclude usable space on the terrace or balcony, but will exclude all common area spaces like elevators, stairways, lobby, etc, while including the external walls.

# Built-up area: This is the entire built-up space extending to the property’s periphery and includes the total thickness of the walls -- inner and outer – carpet area and covered areas including balconies and terrace. Built-up area will again not include common areas like lobby, stairways, lifts, etc.

# Super built-up area: The super built-up area will include the entire built-up area of the property that will include corridors, lifts, staircases and other usable areas. For apartment buildings, the common areas are proportionately divided among the apartment owners.

# Rate per square-foot: For any property transaction, the price-determining unit is square foot or cottahs/bighas/acres. In the case of an apartment complex, the price of a flat is fixed on the basis of carpet, built-up or super built-up area.

# Home loan: If you want to buy a property and have a financing need, you can obtain a loan from any bank, housing finance corporations or non-banking financial institutions. Home loans are repaid in equated monthly installments (EMIs) over a period agreed upon. This could range between 5 and 30 years.

# Loan term: This is the tenure of your loan-repayment plan by way of EMIs. The EMIs are higher if the duration is short, but you benefit from considerably lower interest payout. On the flip side, a longer-term loan tenure will ensure lower EMIs, but you end up shelling out a lot of more money because of the increased interest payout.

# Interest rate: This is the rate of interest that banks charge on home loans. The rates offered are slightly lower for women borrowers, compared to those offered to male borrowers. The rates at present are hovering in the range of 6.9 to 8% per annum.

# Fixed-rate interest: If you opt to keep your interest rate fixed for the whole tenure, you are insulated against fluctuations in monetary policy. You should know though that fixed rate of interest is not actually fixed for the entire tenure. So learn more about this from your bank/FI.

# Floating-rate interest: If you choose floating rate, your interest on loan is liable to alteration with every change effected by the RBI in terms of guidance rate, called ‘repo rate’. So you could gain or lose, depending on the banking regulator’s guidance parameters.

# Loan default: If a borrower defaults on his/her EMI payment for 2 consecutive months, the bank will slap a penalty. In case of a willful default, legal action can also be initiated against the borrower and the property can be attached as well.

# Credit history: If you have a good history of repaying your credit card bills, loans and any other debts on schedule, you will have a high credit score of more than 650. This will ensure quick approval of home loans as well as lower rates. A bad history of repayment on the flip side can also result in rejection of home loan.

# Floor area ratio (FAR): FAR is the ratio of the entire built-up area and the actual plot area as sanctioned by the government. The built-up area will increase with the rise in FSI. The seller/developer has to produce the FSI before the sales deed can be finalized.

# Property appraisal: Before sanctioning a home loan, the bank usually sends out an expert team to evaluate the property so that its market value can be ascertained. Once that is established, the bank would offer a maximum of 90% of that market value as loan, notwithstanding the borrower’s personal loan eligibility.

# Freehold property: When the owner has full and unconditional rights over the land and the building that stands on it, the property is termed a “freehold property”.

# Circle rate: The government fixes a circle rate for each locality as a benchmark for transaction in that particular locality.

# Stamp duty: You must pay a portion of your property value to the government to register your property, which is called stamp duty and can vary in the range of 3 to 10%, depending on the state where you are buying your property.

# Registration charge: This is a central government levy and is usually 1% of the property value which you have to pay to complete the process of registration.

# GST: Developers have to pay goods and services tax or GST on the sale of units in under-construction projects to the government, which is then passed on to the buyer.

# Sale deed: A sale or conveyance deed is a document that is created at the time of sale of the property. Once this deed is signed and registered, it means the sale process has been completed and the buyer becomes the rightful owner of the property.

# Mutation: Property mutation is entering the ownership title in the official record books of the local municipal body. Once mutation is done, the name of the earlier owner is replaced by that of the new owner and the property tax bill is generated in the name of the new owner.

# RERA: The Real Estate (Regulation and Development) Act, 2016 or RERA was introduced to protect the interests of home-buyers and ensure greater transparency among real estate developers, in turn boosting investments in the sector.

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Real estate jargon: A home-buyer’s guide