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Commercial Real Estate Glossary.
The terms you meet in a commercial property deal, defined plainly. No jargon for its own sake — just what each one means and what to watch for.
- Cap Rate (Capitalisation Rate)
- The annual net operating income of a property divided by its price, shown as a percentage. A ₹1 crore asset earning ₹6 lakh net a year has a 6% cap rate. Higher cap rates usually mean higher return but also higher perceived risk — a low cap rate signals a safe, sought-after asset.
- Gross Yield vs Net Yield
- Gross yield is annual rent divided by price, before costs. Net yield subtracts running costs — maintenance, property tax, vacancy, management — before dividing. Net is the number that reaches your pocket, and it is always lower than gross. Ask which one a seller is quoting.
- Pre-Leased (Pre-Rented) Property
- A property already occupied by a tenant on a signed lease at the time of sale, so rental income starts from day one. Popular with investors who want yield without the wait or risk of finding a tenant. The strength of the deal depends on the tenant and the lease terms.
- Lock-In Period
- The minimum period during which the tenant cannot vacate (and sometimes the landlord cannot evict) without penalty. A long lock-in with a strong tenant gives an investor predictable income. Read whose lock-in it is — a landlord lock-in protects the tenant, not you.
- Rent Escalation
- A pre-agreed increase in rent over the lease, commonly 5% every year or 15% every three years. It protects the landlord against inflation and lifts the yield over the holding period. Always model the escalation, not just the starting rent, when you compare deals.
- Freehold vs Leasehold
- Freehold means you own the land and building outright, with no time limit. Leasehold means you hold the property for a fixed term (often 90 or 99 years) from a lessor such as a government authority, after which rights revert unless renewed. Freehold generally commands a premium and simpler resale.
- RERA (Real Estate Regulatory Authority)
- The regulator established under the Real Estate (Regulation and Development) Act, 2016. Developers must register qualifying projects and disclose approvals, timelines and carpet area. Always check a project’s RERA registration number — it is your first line of due diligence.
- Carpet Area vs Chargeable (Super Built-Up) Area
- Carpet area is the usable floor space inside your walls. Chargeable or super built-up area adds a share of common spaces — lobbies, stairs, walls — and is often 25–40% larger. Price is frequently quoted on chargeable area, so compare deals on carpet area to know what you actually get.
- FOIR (Fixed Obligation to Income Ratio)
- The share of your monthly income already committed to loan EMIs and fixed obligations. Lenders use it to decide how much more they will lend — most cap total obligations around 50–55% of income. A lower FOIR means more borrowing headroom for a property purchase.
- LAP (Loan Against Property)
- A secured loan raised by mortgaging a property you already own, usually up to 50–70% of its market value. Investors use it to unlock capital without selling. Rates are lower than unsecured loans but the property is at risk if you default.
- CAM (Common Area Maintenance)
- The recurring charge for upkeep of shared spaces in a building or complex — security, lifts, lighting, cleaning, landscaping — usually billed per square foot per month. In commercial deals, confirm whether CAM is paid by the tenant or the owner, as it directly affects net yield.
- IRR (Internal Rate of Return)
- The annualised return that accounts for the timing of every cash flow — purchase, rent received each year, escalations, and eventual resale. Unlike a simple yield, IRR captures both income and capital appreciation over the full holding period, making it the truer measure of a deal.
- Sale-Leaseback
- A transaction where an owner-occupier sells its property to an investor and immediately leases it back, staying on as tenant. The seller frees up capital while keeping the premises; the investor gets a pre-leased asset with a committed occupant. The tenant’s credit strength is the whole story.
- Grade A Building
- The top tier of commercial property — modern specification, power backup, ample parking, professional management and a prime location. Grade A assets attract MNC and blue-chip tenants and command the lowest cap rates because they are the most liquid and lowest-risk.
- Occupancy Certificate (OC)
- The certificate issued by the local authority confirming a building is complete per approved plans and fit for occupation. Without a valid OC, a property cannot be legally occupied and may be hard to resell or finance. Always verify the OC before you commit.
Plain-English explanations for general understanding — not legal, tax or investment advice. Definitions are simplified; specifics vary by deal and jurisdiction. Talk to a Sachdeva Estates advisor before you decide.