Investing in real estate in India can give great returns to NRIs. Real Estate is also a safe investment to make in the long run.
However, before making any kind of investment – it’s important you do your homework and understand the basics of what means what.
If you have hired a property manager – you may hear them using certain words you don’t know the meaning of and just find yourself nodding to their updates without a clue about the term that is being referred to.
Here are a few terms you must know as a property owner:
#1 Carpet Area: The carpet area is the net usable area of the house. It includes the thickness of the internal wall but excludes the balcony or terrace. The larger the carpet area, the better space you get.
As a beginner property investor, this term is important to know because, according to the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA), it is now mandatory for the developers to make buyers aware of the carpet area. The price of the property must be quoted based on the Carpet area.
#2 Built-up Area: Built-up area refers to the total area that is measured on the outer line of the property including, the balcony, terrace, etc.
This is the area that includes both the carpet area and the walls and doors. As a property investor, you must know this term because the built-up area is the carpet area plus the areas covered by inside and outside walls. This plays a major role in determining the size and price of the property.
#3 Title Deed: A Title deed is a legal deed or document that constitutes evidence of ownership of a particular property.
This is an important term you need to know because, when you are buying a property from a seller, you need to make sure that the name in the title deed is of the buyer. This helps to avoid legal issues and complexities in times of registration.
#4 Stamp Duty: Real estate stamp duty is a type of tax collected by the government when a property is sold and registered to another owner.
You need to be aware of this because whenever any movable or immovable asset changes hands, the buyer of the property has to pay a certain amount of tax to the state government to get it stamped. The stamp duty varies from state to state, depending upon the property location and type of deed. The stamp duty is usually charged on the transaction value or circle rate (Circle rate is the government-determined price for a property below which it cannot be registered in the government records) whichever is higher. For instance, if the value of the property is INR 1 crore, and the stamp duty is 3%, the buyer has to pay an amount of INR 3 lakhs as tax.
#5 Proof of funds: Proof of funds is a statement from a financial institution like a bank to confirm that the buyer has enough funds to proceed with an offer to the seller.
This is a crucial term you need to know as a beginner real estate investor as proof of funds reduces the risk of investment.
#6 Clear title: A clear title in real estate is when there is no claim or legal right against the property from others that put into question the legal ownership of an asset.
Read our article on: Power of attorney for sale of property
In short, a property with a clear title is a property that has no disputes from other parties. The buyer purchasing the property with a clear title can claim full legal
#7 Net Operating Income (NOI): Net operating income is income that is generated annually from an investment property after deduction of property expenses. Such expenses may include property tax, property management fees, and utilities.
#8 RERA: The Real Estate (Regulation and Development) Act, 2016 (RERA) is an Act of the Parliament of India which seeks to protect home-buyers as well as help boost investments in the real estate industry. The bill was passed by the Rajya Sabha on 10 March 2016 and by the Lok Sabha on 15 March 2016.
#9 Freehold Property: A freehold property is the one that gives complete ownership to the owner of the house. In other words, it is free from the hold of any entity besides the owner. The owner of such properties enjoys free ownership and can use the land for any purposes but in consonance with the local laws. The owner is free to pass on the property of successes without any prior approval from anyone else.
#10 Capital expenditure: Capital Expenditure or CapEx is the amount spent on the investment property in an attempt to increase the lifespan and value of the property.
Capital expenditure includes the cost of renovations such as replacing a roof, adding an extension, or doing a new paint job. These are one-time, major expenses that a buyer needs to incur to ultimately improve the value of the property.