12 Real Estate Terms You Must Know Before Investing In Plotted Development Or Home Buying.
Are you a freshman in real estate investing? Do you plan to invest in any form of home buying? Whether you are planning to invest in a plotted development, resort-styled living plots, or apartments or planning to diversify your investment portfolio, there are common terminologies used in real estate markets that you must familiarise with beforehand. As a newbie, it may not be easy to learn all the terms in a go. So here is a compiled list of 12 common jargon and acronyms used by investors and marketers in real estate. Next time you hear words like RERAor FAR, you can understand them and know their significance.
- RERA
- Realtor
- ROI
- Market Value
- Cash Flow
- Appreciation
- Credit score
- Turnkey Property
- Floor Area Ratio (FAR)
- Super Built-Up Area
- Carpet Area
- Built-up Area
The Real Estate (Regulation and Development) Act, 2016 is an act of parliament enacted to protect the interest of home buyers and boost investment in the Indian realty sector. The Act also establishes RERA in each state for regulating the real estate sector. Only registered agents can work in the real estate sector to facilitate the sale and purchase of real estate properties.
Though a Realtor and an actively licensed real estate agent are used interchangeably, not every real estate agent is a realtor. A person who is a member of the National Association of Realtors and whose job is to arrange the sale, manage and rent land, homes and buildings is a realtor.
Return on Investment (ROI) is the measure of profit an investor gets on an investment. It is calculated by dividing the net profit by the total capital cost of investment. This measure helps you decide the profitability of the proposed investment. A high ROI earns better profits.
ROI = Net Income / Cost Of Investment
Market Value (MV) or Basic sale price (BSP) is the base rate per sqft at which the real estate property is listed for sale by the seller. Market value excludes additional charges such as Goods and Services Tax (GST), preferential location charges, amenity charges, and other maintenance fees.
Cash flow is the net amount of cash an investor earns monthly from an investment after deducting all the operating and maintenance costs. Cash flow assessment assists in sound investment decisions. If expenses are more than income from the property, it is referred to as negative cash flow. When income earned is more than the expenses of the property, then investment maintains a positive cash flow. Ideally, a real estate investor should invest in a property that maintains a positive cash flow. A positive cash flow is a sign of profitable investment.
In real estate, appreciation is an increase in the value of any property over time. Favourable location, high property demand, and inflation are some factors that cause rapid appreciation in the value of the property. For example, properties in localities with upcoming commercial developments and infrastructure projects have higher appreciation rates.
A person's creditworthiness or eligibility to repay a loan is measured by credit score. Before issuing a home loan to a potential investor, banks or money lenders evaluate their loan repaying ability using a CIBIL score or credit score. Ideally, financial institutions expect investors to have a credit score of 750 or higher. Banks calculate an individual's credit score based on past credit history. A better credit score has a higher chance of getting loans approved with benefits of lower interest rates, flexible repayment terms, a quick approval process and more.
A turnkey property is a home or apartment that is nearly completed or almost ready to move in. Such properties generally have very high demand among real estate investors as they can immediately buy and start renting them out. Another advantage of turnkey properties is that potential buyers can directly see the property and asses it's quality, design and other related factors before purchasing it.
The ratio between a building's gross floor area and the land area is referred to as the Floor Area Ratio. It is the maximum floor space permitted for constructing a building on a given land. Local municipalities lay down the guidelines for ascertaining FAR, which vary from one location to another. The height of a building, number of floors and other features are decided based on the FAR value.
A super-built-up area is commonly referred to as a saleable area as the realtors use this to promote their projects among buyers. It is the area that includes carpet area, wall thickness, and other areas within the apartment like corridors, lifts, stairs, lobbies, terraces etc. Sometimes, this area may include amenities like a clubhouse, garden, swimming pool and gymnasium.
Super built-up area = Built-up area + common areas
The carpet area is the net usable floor area of an apartment excluding the area covered by the external walls, verandah area, areas under services shafts and exclusive open terrace area.
The entire floor area of the home, including the carpet area, balcony area, and internal and external wall thickness, is called a built-up area. Generally, 30% of the area of an apartment is used to build inner walls and balcony spaces.
Real estate investment is the most profitable type of investment in India. Being well informed about the market and common terminologies used by real estate buyers and sellers can help you make a well-informed investment decision.
