Important real estate jargon Indian homebuyers must know

While navigating the real estate landscape, one is bound to encounter legal jargon at every step of the way. Understanding these technical terms is essential, especially for first-time homebuyers, to make informed decisions and keep potential financial shocks and stress at bay.

Here are some real estate legal terms that every Indian homebuyer must know:

1. Certificates

   • Commencement Certificate (CC)

     Issued by municipal authorities, a CC permits the builder to start constructing the building. This certificate can be obtained only after seeking necessary approvals, clearances and sanctions from relevant authorities.

     Importance:

     It helps know the legitimacy of the project, thereby protecting buyers against all potential legal issues.

   • Occupancy Certificate (OC)

     An OC is a legal document that conveys the readiness of a building for occupancy. It certifies that the builder has adhered to all regulations, safety measures, and other compliance requirements while completing the project, making it safe for habitation.

     Importance: Apart from confirming the project’s legitimacy, it eliminates the possibility of homebuyers being expelled from the building and deprived of basic amenities like water and electric supply.

   • Encumbrance Certificate (EC)

     An EC is a document that certifies a property title’s defect-free status. It ensures that no third party can claim the transferred ownership, protecting owners against potential legal and monetary liabilities.

     Importance: It offers peace of mind to buyers and helps them obtain a home loan or withdraw money from their Provident Fund (PF) to buy a house.

2. Areas

   • Carpet area

     The carpet area refers to the net usable area of a floor, including the area of internal walls. It specifically excludes the size of external walls, areas under service shafts, exclusive balcony or veranda areas, and exclusive open terrace areas. Buyers are entitled to a refund and an annual interest if the delivered carpet area is less than that promised.

     Importance: Adhering to a standardised carpet area while pricing the property ensures fairness in the deal. Transparency on the net usable area also helps owners shortlist suitable interior design styles for their new abode.

   • Built-up area

     The built-up area is the total available space in the property. This includes the carpet area plus other areas such as the external walls, balconies, terraces and internal staircase in the case of a duplex. A built-up area is usually 15% to 30% more than the carpet area.

     Importance: It gives a holistic idea of the property’s total available space, helping buyers understand the potential for future renovations and expansions.

   • Super built-up area

     The super built-up area encompasses the built-up area along with common areas such as the corridor, lobby, swimming pool, gym, etc.

     Importance: The super built-up area influences people’s quality of life since it concerns residential amenities. It also impacts maintenance charges that are paid for the upkeep of the building.

3. Deeds

   • Sale deed

     A sale deed is a written document that records a sale transaction between a homebuyer and a seller. The seller, known as the grantor, transfers the ownership rights to the buyer, known as the grantee, in exchange for monetary consideration.

     Importance: It serves as legal proof of transfer of ownership to the buyer. It also clearly details the terms, price, and other conditions to avoid ambiguity or fraud.

   • Conveyance deed

     This is a legal document that transfers the right of ownership from one party to another with or without monetary consideration. It is a broad term that includes a sale deed as well as other deeds, such as an exchange deed and a will deed.

     Importance: Much like a sale deed, a conveyance deed makes ownership transfers between two parties legally binding.

4. Mortgages

   • Fixed-rate mortgage

     In a fixed-rate mortgage, the interest rate remains fixed throughout the loan tenure. It is not affected by market or economic changes. The lender locks the interest rate, protecting borrowers against potential market rate hikes. Hence, such loans tend to have slightly higher rates than floating interest rates.

     Importance: The fixed rate of interest makes budgeting and overall financial planning easier for borrowers.

   • Adjustable-rate mortgage

     An adjustable-rate mortgage or a floating-interest rate loan does not offer fixed interest. In this case, the home loan interest rate is tied to a benchmark rate and fluctuates throughout the tenure. Although such loans have lower rates than fixed interest rates at the outset, they can increase later.

     Importance: Floating-rate loans allow borrowers to capitalise on falling market interest rates.

     Learning about loans with fixed and floating interest rates can help homebuyers choose a credit option that would suit their financial circumstances, needs and risk appetite.

   • Pre-EMI

     An Equated Monthly Instalment or EMI, which can easily be ascertained with a home loan EMI calculator, is the repayment of the home loan to the lender. A pre-EMI is the repayment of the loan during the construction of the property, and it only involves the interest component.

     Importance: The flexibility to repay only the interest amount for a certain period helps borrowers with short-term cash management.

   • Full EMI

     Full EMI repayments start after getting possession of the property and include both principal and interest, unlike pre-EMIs.

     Importance: Full EMIs facilitate faster loan repayments, implying reduced interest payments over the loan tenure.