Well! Cheers to your upcoming property purchase. You are going to achieve your life-time milestone. Buying a home or property is not at all a small deal. It is worth return of your invaluable efforts that you invested for your life-time wish which you have been dreamt for long years and fortunately that’s going be real in few days. Before moving ahead on to the final process, you have a first & foremost thing to do. Yeah! Regardless you are a first time home-buyer or proprietor, figuring out certain essential terminologies circulating in real estate is very essential that you must know before purchasing a right property with right dealers, builders & developers. It is the best initial activity that can save you from unwanted collapses and disputes. In this article, we will highlight you a notable real estate terms that you must be aware of it.
“As a society, we have always believed that true wealth creation begins with owning a piece of land. This is why Real Estate gets the top billing in most investment portfolios”. - Ramashrya Yadav, Founder & CEO - Integrow & Director - Aurum PropTech Ltd.
Commencement Certificate:
A Commencement Certificate (CC) is one of the mandatory documentation in the real estate which represents and proves the project’s legality. It is an important approval from concerned authority to construct a building in the locality. The certification confirms the builder or developer has received all the required legal approvals. And the most important thing is the commencement certificate is not only for builders or developers, it also for home owners & buyers.
Cost Sheet: A document that provides you a various costs and components of the property. When you are buying an apartment or villa, the developer should provide you a proper documentation of Cost Sheet with break-ups. The sheet brings all the data and information of your apartment prices and schedules for payment. The data and information in Cost sheets include Apartment’s base price, IDC (infrastructure development charges), Internal & External development charges, legal documentation charges, GST charges, and Corpus fund and maintenance charges.
FSI (Floor Complex Index):
Floor Space Index or Floor Area Ratio denotes the covered area of respective floors of building in the plot area. Developers express FSI in percentage and FAR in decimals. FSI can vary based on number of floors of building and the localities. FSI is modulated according to the city type, building type and other regulations of the concerned municipalities. If the size of the building is higher, then the ratio of FSIs also increases accordingly. Plots and villas which are bordering on the road acquire higher FSI aligned to width of the road. Using the plot area & total area covered by the building, you can find out FSI ratio with easy formula.
FSI = Total Area of all the floors of building/ Plot area
TDR (Transfer of Development Rights): TDR is an essential certification for urban real estate planning. The TDR document is issued by the Corporation of Municipalities to the property owners. It denotes the part of the property or land has been kept aside for additional amenities like roads and parks. By having the TDR certificate, the owner of the property obtains several rights for exchanging the area with additional parties with money. This exchanging activity can only possible when the owner of the property approves to the rights. It allows the land owners to transfer the asset rights, affix the procedure and eliminate the complexities while purchase.
RRR (Ready Reckoner Rate): A Standard rate or value of the property evaluated and estimated by the respective State government authority which the property is located. It applies for all the residential, commercial lands, plots and properties. The RRR indicates the actual and minimum selling price of the property excluding the amenities involved in the property. The objective of estimating the RR rates by state government is to reduce the chances of developers hiding the actual rate of the property where buyers end up with paying more than the price limits. Even mostly we buy properties for Market price, it’s recommended to invest in the property where the capital gap between RR price and market price is negligible.
Nithin Kamath, Co-Founder & CEO, Zerodha instructed the Real estate investors that Real estate is illiquid like private market valuations. Real price Vs last transacted price that sellers claim could be way off.
Occupancy certificate (OC):
Occupancy certificate or Completion certificate is another essential document every buyer should aware of it. The certificate acts as a legal proof that the building is legally safe and ready to move in. After inspecting the rigidity of the building, construction codes and regulations, the municipal authority of construction or building department issues the Occupancy certificate to the builder. The certificate ensures the building is constructed according to the approved plans and satisfies the building codes, statutory standards and other safety regulations. This certificate also plays a vital role by being essential document to obtain the utilities such as electricity, water, gas and many others.
Stamp duty: Be it as a home, property, apartment or land, Stamp duty acts as a legal verification tax imposed by the Government of India to get a legal ownership of the asset. It’s a legal activity of paying certain stamp duty charges for registration process while purchasing a property. It ensures the entire transaction made for registering a property is legally valid. Importantly, if there is any disputes related to ownership occurred, the completion stamp duty helps as a testimonial-support system. The Stamp duty makes sure the verification of all transactions, contracts, agreements and other each & every element correlating to the cash flow of the property. Entirely, the process of paying stamp duty charges during the registration entitles the property is legally purchased under fair evaluation.
Preferential Location Costs (PLC): An Additional fee that buyer must to pay for purchasing a property that was established in better location. Definitely you may come across the apartments and housing plots with swimming pools, spas, shops and having a better view point of the city. For such case, you need to pay the estimated PLC for the property. Based on various factors, the preferential location costs may vary. Factors affects the preferential location costs includes rigidity of the project, location of the property, amenities around the project, quality of the building, choice of floors, accessibility to get facilities and so on. So it’s better to examine the PLCs in advance corresponding to your investing plans and requirements. It represents a percentage of the total purchase price, and the remaining amount is typically financed through a home loan.
Down payment: An initial payment made by the home-buyer to the developer during the time of property purchase. It denotes paying of certain amount from total purchase price and the rest of the amount will be typically subsidized through home loan. To qualify for home or any loan in real estate down payment is necessary. The down payment ensures the commitment of the buyer and stands an evident factor for lender to provide finance to settle the remaining amount. Generally, financial experts recommend paying more Down payments. Because, by paying higher down payment reduces the cost of interest for loans.
Encumbrance Certificate:
To validate ownership title for a property, Encumbrance certificate is one the crucial document for all the transaction of selling and buying the property. It ensures the respective property or land is free from legal dues and disputes. If you are a first-time home buyer applying for home loan against the property, generally all the banks & financial institutes asks for minimum 10 to 20 years of encumbrance. To get Encumbrance certificate for your real estate properties, you can apply in local sub-registrar department and you will receive for particular period of time. There will be a detailed inquiry about the property or home which is supposed to conduct by Sub-registrar officer and the process usually takes 10 to 25 days.
“Having much knowledge about real estate is critical. It involves research and comparison of prices in the desired area, consultation with real estate agents, and evaluation of different properties based on location, features, quality, legal status, and potential for capital appreciation. But such knowledge empowers you to create informed arguments and counter-offers”. - Akash Pharande, Managing Director, Pharande Spaces
Final Note
As per the report of Economic times, the investments in real estate industry stretched $4.6 billion during the period of January to September in 2023, which 27 percent greater than the previous year. The statistics shows the tendency of people attracted to invest in Real Estate in India. . Investing in Real estate property tends to be a wise and profitable choice, rather than investing in gold or bank deposits comparatively. So before investing your capital to begin your journey in Real estate, it’s essential to know the core terms & considerations in the industry. By now I hope this article is helpful to grasp the terms circulating in Real estate. Keep this as comprehensive guide to refer the terms whenever you require going through a smooth home-buying journey!
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