Knowledge is the biggest toolkit an investor has on his side. But when it comes to real estate, we can see a lot of investors do not pay a lot of attention to smaller details which can create big problems for them. Let’s discuss real estate terminologies, which will explain various things to you in the most simple and shortest way.
Here is a list of the most common terms that are used in the real estate market by all the parties involved which could help sort out basic doubts related to the industry.
- Carpet Area – When you buy a flat, the actual area on which you can lay carpet is called a “carpet area”. Note that builders advertise the property based on other parameters, but as a buyer, this is what you are going to actually use for the next many decades. Higher the Carpet area, the better space you get.
- Built-up area – Built-up area is the area that covers the Carpet Area and the Walls and doors. A good 15-20% of space goes into walls and doors and your super built-up area is generally 20% higher than carpet area. Ideally, the rate quoted by builders is based on “built-up area”.
- Super Built-up Area – A lot of times you will come across the term “Super Build Up area”, which is nothing but a built-up area along with all the space common to all the residents of society like Corridors, staircases, parking area, etc. So Super Built-up area is higher than Built-up area. A lot of builders also use “super built-up area” to advertise the projects which gives an artificial picture of the property. Never rely on that.
- Per square foot rate – This refers to the per square foot rate of the super built-up area that is determined by the builder and is used by him to state the flat’s price to the seller. This rate is inclusive of the carpet and super built-up area and is also referred to as a saleable area.
- Credit score – This is the measure of an individual’s creditworthiness that is statistically derived from his/her past records of dealings with financial bodies.
- 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.
- Sub-Registrar Office – For Registrations of Properties, there is an official department called “sub-registrar office”, you can visit it to get your properties registered and also obtain any legal documents related to properties and land. If any officer tells you to “pay for Chai Pani” there, tell him you are filing an RTI and putting his name in the application for the “request” he made to you and ideally he behave properly with you. Note that you can get the sub-registrar office address online.
- Capital Gains – When you sell a property after 3 yrs, the amount of profit you make is called “Capital Gains”. Tax will be applied on these Capital gains after applying Indexation. Also, you can avoid paying this tax if divert the part of the profit to another property, or another way of saving tax on that amount is investing in NHAI or REC bonds.
- Encumbrance Certificate – Encumbrance Certificate is evidence of free title or ownership of property. This document clearly tells you if there are any legal or monitory dues on property. So if you are going to take a home loan against a flat, the bank will need an Encumbrance Certificate to be sure that there is no other loan going on for the same property. You can get the Encumbrance Certificate from the Sub-Registrar Office (where registration of properties takes place). You can ask for up to 30 yrs of data (if available). It takes around 15-20 days at times to get it after you have put a request to get an encumbrance certificate.
- Stamp Duty – Real Estate Stamp Duty is the tax collected by Govt. The stamp duty payable differs from one state to another. In some states, it’s 3-4% and some have it at 8% also. The Stamp duty is payable on Agreement Value. So a lot of times buyers and sellers do the property agreement at a lesser value and involve black money in the transaction. It’s important to factor in stamp duty cost as per your home purchase plan because it’s quite a huge amount. For a Rs 50 lacs property, it can be in the range of Rs 2-3 lacs. Important point is that women in many states have to pay lesser stamp duty compared to men.
- Franking Charges – When you go for a home loan, there is a small charge called “franking charges” paid by your buyer to Bank. Franking (in the case of a real estate transaction) is actually the activity of stamping a document that proves that the Stamp duty has been paid to govt. It’s an official seal kind of thing which is to be done in sub-registrar office for small fees (Few Hundreds), this is done by the bank and they collect those charges from the buyer.
- Registration Charges – Just like you pay Stamp Duty, you also pay Registration Charges when you register the property in your name and the charges again depend from state to state. In Maharashtra, the registration charges are 1% of the property or Rs 30,000 whichever is lower.
- Gift Deed – Generally you “sell” the property in exchange for money. But when you have to transfer the property rights to someone without taking the money like what happens in families, then you should pass it on as GIFT and a Gift Deed should be prepared to document the process. Note that Stamp duty is to be paid even if the property is transferred through Gift Deed.
- Power of Attorney – A lot of times you will find that someone is trying to sell you land or a flat, based on power of attorney, which is a legal way of transferring your rights to someone else. But Supreme court has now banned all real estate transactions based on power of attorney. So next time someone tells you that the owner of the land is outside India and hence assigned him the power to sell the flat, do not get fooled, only deal with someone with a clear title deed.
- Sale Deed – A sale deed is one of the most important legal documents in a purchase or sale of a property. Once it’s signed by the seller and buyer only then the sale is assumed to happen legally. The registration of property and stamp duty payable is based on the sale deed only. A sale deed will also contain property details, measurements, and other important details.
- Service Tax and VAT – Service tax needs to be paid only for under-construction properties until the completion certificate has been obtained by the builder. Because the flat is under construction, it’s regarded as “service”, so service tax is applicable (3.09% at the moment). But once the construction is over and the completion certificate has been obtained by the Builder, then the property like “goods”, where the service tax is not applicable. In the To be Paid for Under Construction Flats. VAT again is applicable for under-construction properties, but only in those states where the state govt has asked for VAT. Not all states have VAT applicable.
- Completion Certificate – Once the project is completed, the local authority visits the site and inspects the construction and various things, and awards a completion certificate to Builder. so Completion Certificate is a kind of certificate from the local authority, that now the work is complete. This is the moment a builder can officially declare about the project completion. There still can be few last-minute things that might need to be addressed.
- Possession certificate – A possession letter is issued by the Builder which is actually the official permission to take possession of the property. Generally, it’s given to those who booked property during under construction. If it’s a ready-to-move-in flat, the sale deed is enough and will work just like a possession certificate. Note that a builder can give a possession certificate only after he has obtained a completion certificate.
- Guidelines Value – For each area, there is an official govt defined rate for property which acts as the base price. The minimum registration and stamp duty charges have to be on those guidelines’ value. Builders generally charge a premium over these guideline values
- FSI (Floor Space Index) – It is the ratio specified by the local authority (generally municipal corporation or urban development authority) which governs how much area one can build over a specific plot of land. i. e. if FSI for an area is 2 and you have a 1000 sq ft plot, you can build (2 X 1000) 2000 sq ft building over it. Generally, common areas like a staircase, lift, the passage leading to the flat door, service ducts outside toilets and kitchens, etc. are not considered in this 2000 sq ft FSI area, which means, you can construct these areas over and above the permitted FSI area. At the macro level, this magic ratio called FSI determines how much construction will come up in a city.
- OC (Occupancy Certificate) – Well, generally CCs (Completion Certificates) are issued by the municipal corporations in stages. i. e. a 25 floors high building may be issued CC for every 5 floors depending on its design. However, the building is considered to be ready for occupation after the builder has not only completed the construction but has also made it habitable by bringing in all services like electricity, water supply, drainage connection and fire fighting facilities. The corporation, after receiving NOCs from all concerned dept. will issue OC. Ideally, the builder should / can issue Possession Letter only after receiving the OC. In reality, though, several (not few) buildings have OC even after years of completion and being occupied. Buildings not having OC have higher outgo towards water bill, electricity charges, and property tax.
Hope now when you go out to buy your home next, you will not need anyone on your side to have a conversation with the builder and you will give him the feeling that you know more than him. It should help in some way.
If you are aware of some other thing that you have come across or feel can be added here, please add it in the comments section