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Five Real Estate Terms You Must Know

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Real estate has ruled the roost in the past decade in India. Every household likes to invest in real estate in some form or other i.e. house, land, etc. Here are ten real estate based terms you must know before investing in it:

1) Freehold Property

Freehold property can be defined as any estate which is “free from hold” of any entity besides the owner. Hence, the owner of such an estate enjoys free ownership for perpetuity and can use the land for any purposes however in accordance with the local regulations. Sale of a freehold property does not require consent from the state and hence requires less paperwork, thus, making it more expensive than leasehold property.

Freehold property is inheritable and there are no restrictions on the right of the property owner to further transfer the property. In a free hold property, there is no encumbrance to the absolute title of the property. A free hold is not akin to a condominium wherein the owner of the individual unit pays a maintenance charge. Free hold property can be inherited by a legal guardian. A freehold property can be transferred by registration of sale deed.

2) Carpet Area

Carpet Area is the area enclosed within the walls, actual area to lay the carpet. This area does not include the thickness of the inner walls. It is the actual used area of an apartment/office unit/showroom etc. Carpet area is the net usable area from the inner sides of one wall to another. It consists of carpet area, toilet areas, AHU rooms of the demised premises.

3) Floor Space Index (FSI)

Floor area ratio (FAR), floor space ratio (FSR), floor space index (FSI), site ratio and plot ratio are all terms for the ratio of a building’s total floor area (Gross Floor Area) to the size of the piece of land upon which it is built. The terms can also refer to limits imposed on such a ratio.

Floor area ratio = (total covered area on all floors of all buildings on a certain plot, Gross Floor Area) / (area of the plot)

Thus, an FSI of 2.0 would indicate that the total floor area of a building is two times the gross area of the plot on which it is constructed, as would be found in a multiple-story building.

4) Stamp Duty

Stamp duty refers to the amount you have to pay to the government when you enter into a particular transaction. It is called “stamp duty” because the amount is paid by affixing adhesive stamp (eg: on a demand promissory note) or by executing a written document on stamp paper (eg: executing an agreement or a sale deed).

Duties that are payable to the central government are laid down in the Indian Stamp Act. In addition, each state has a Stamp Act which lays down the stamp duty payable for transactions within that state. Before you enter into a transaction, it is advisable to find out the stamp duty payable for that transaction. The stamp duty payable generally depends upon the monetary value of the transaction.

5) Amortization

Amortization means paying off debt with a fixed repayment schedule in regular installments over a period of time. Consumers are most likely to encounter amortization with a home or car loan. Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources. Amortization roughly matches an asset’s expense with the revenue it generates.

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