Glossary of Property Terms

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Term Definition

Apartment

A self contained housing unit generally located within a building occupied by more than one household. (Alternative names: Unit or Flat). Source

Block

A small section of a city or town enclosed but not divided by streets. Source


Dwelling

A building, house or apartment where one resides. Source

Floor Space Ratio (FSR)

Gross floor space over all levels divided by the site area. (Alternative names: Floor Area Ratio, Floor Space Index (India), Plot Ratio.) Source

Gross Building Area (GBA)

The sum of areas at all floor levels, including the basement, mezzanine, and penthouses included in the principal outside faces of the exterior walls without allowing for architectural setbacks or projections. (Alternative name: Gross Floor Area - GFA) Source

Gross External Area (GEA)

Perimeter wall thickness' and external projections, Areas occupied by internal walls (whether structural or not) and partitions, Columns, piers, chimney breasts, stairwells, lift/wells etc.; Lift rooms, plant rooms, tank rooms; fuel stores, whether or not above roof level; Open-sided covered areas (should be stated separately) Source

Gross Internal Area (GIA)

The floor area contained within the building measured to the internal face of the external walls. Commonly used for industrial buildings and general warehousing. Source

Gross Lettable Area Retail (GLAR)

The total floor space measuring from the internal finished surface of external walls or from the centre line of inter-tenancy walls, whichever is deemed appropriate. Shop fronts outside, on, or inside the mall line are measured from the mall line or from the external finished surface, whichever is deemed appropriate.
GLAR is used for calculating tenancy areas in shopping centres, commercial buildings and strip shops, free standing shops, semi-detached or terrace shops in suburban streets.Source

Lot

Parcel of land (Alternative name: Allotment)

Net Internal Area (NIA)

The NIA is the GIA less the floor areas taken up by lobbies, enclosed machinery rooms on the roof, stairs and escalators, mechanical and electrical services, lifts, columns, toilet areas (other than in domestic property), ducts, and risers. (Alternative name: Usable Floor Area - UFA)Source

Net Lettable Area (NLA)

Total floor space measuring from the internal finished surfaces of permanent internal walls and permanent outer building walls, the centre line of inter-tenancy walls and partitions or the public area wall faces where walls and partitions adjoin public areas, whichever is deemed appropriate. (Alternative name: Net Rentable Area)Source

Net Saleable Area (NSA)

Usually used for residential property and is very similar to Gross Internal Area (GIA). It includes all floor area including internal walls, mezzanines, hallways, bathrooms but excludes common spaces, patios, balconies.Source

Stratum Area (SUA)

The area shown on a registered plan of subdivision as calculated by a registered surveyor.Source

Townhouse

Attached contemporary housing generally having two or more floors plus a garage and attached to other similar units via party walls in the terraced style.Source

Zone

A land use restriction within a designated boundary as part of a master plan for development. Restrictions as to the type, size, and purpose of land uses differ dependent on whether it is located within a residential zone, industrial zone or commercial zone. Source

Performance Indicators

Term Definition

All Risks Yield (ARY)

The resultant rate of return from a net income/value relationship – a general concept. It reflects potential for future rental grown, strength of the covenant, likely performance in an inflationary economy, etc.

Benefit Cost Ratio (BCR)

A ratio attempting to identify the relationship between the cost and benefits of a proposed project. Benefit cost ratios are most often used in corporate finance to detail the relationship between possible benefits and costs, both quantitative and qualitative, of undertaking new projects or replacing old ones. Source

Development Margin

Net profit as a percentage of total development costs. (Alternative name: Profit and Risk Factor)

Discount Rate

The interest rate used to convert future cash flows (both income and outgoings) to their present value (what it is worth today). The term “discount” does not refer to the meaning of the word, but to the requirement of discounting future cash flows by a particular rate of interest to determine the present value. Source

Equated Yield

The internal rate of return (IRR) with specific allowance for income/rental growth (at an annualised rate). The discount rate applied to the projected rental income from an investment so that sum of all income discounted = initial capital outlay. The equated yield is the IRR, where income is assumed to vary over time as a result of inflation and/or real income in values. When income is constant over time, IRR = ARY.

Equivalent Yield

The ‘weighted’ average rate of return on stepped incomes without specific allowance for future income growth. This yield acknowledges reversionary income (based on current market conditions) but ignores future changes in incomes or values due to inflationary or ‘real value’ changes.

Gross Profit

A project's revenue minus its cost of goods sold. Gross profit is a project's residual profit after selling a product or service and deducting the cost associated with its production and sale. Source

Hurdle Rates

The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, the riskier the project, the higher the hurdle rate. Source

Initial Yield

Is the yield (net passing income / purchase price) shown upon purchase. The purchase price is based upon the passing income capitalised value. No allowance is made for future rent growth.

Internal Rate of Return (IRR)

A measure, expressed as a percentage return on the capital outlay, of the average annual return from the projected cash flows of an investment, or the actual return generated by the cash flows over the investment period where the net present value is equal to zero. Source

Net Present Value (NPV)

Net Present Value measures the excess or shortfall of cash flows, in present value terms, of all the expected future cash flows from an investment and the amount of the initial investment at cash flow zero (present time). A NPV of zero means the project will repay the original investment plus the required rate of return. A positive NPV means the project will repay in excess of the original investment plus the required rate of return while a negative NPV means a project will not deliver the required rate of return to make a project feasible. Source

Net Profit

Net profit is calculated by subtracting a project's total expenses from total revenue, thus showing what the project has earned (or lost) in a given period of time. Source

Reversionary Yield

Is the yield the property would show if all rents were current market rents.

Weighted Average Cost of Capital (WACC)

The minimum return on capital that a firm must expect to earn on its investments to attract new capital and to maintain its current value. Weighted Average Cost of Capital (WACC) is an expression of this cost and is used to see if certain intended investments or strategies or projects or purchases are worthwhile to undertake. Source

Weighted Average Lease Expiry (WALE)

A property risk consideration, being the analysis of the length of time until tenancies expire, generally weighted by area or income. (Alternative name: Weighted Average Lease Duration - WALD) Source

Development

Term Definition

Acquisition Costs

Incidental costs associated with securing ownership of real property such as agent commissions, mortgage application fees, professional fees and stamp duty.Source

Construction Costs

The total cost of building areal estate project. Source

Development Management Fee

A fee, usually charged as a percentage of the overall project cost, to cover the costs associated with administering and managing a project. (Alternative name: Project Management Fee)

Englobo Land

An undeveloped lot, group of lots or parcel of land that is zoned to allow for, and capable of significant subdivision into smaller parcels under existing land use provisions.Source

Escalation

Changes in the cost or price of specific goods or services in a given economy over a period. (Alternative names: Inflation, Growth Assumptions)Source

Highest and Best Use

Valuation concept meaning the possible use of a property that would produce the highest market value. The use must be legally allowable, physically possible and financially feasible.Source

Improved Land

Any permanent development made to raw land which increase its usability, such as installation of water utilities, sewer, roads and building structures and thereby increase its market value.Source

Joint Venture

An agreement between two or more parties to undertake specific business venture or economic activity together.Source

Land Bank

A stock of land held by a developer with the intent to hold it for future development or until such a time as it is profitable to sell on to others.Source

Land Holding Costs

Costs related to keeping and maintaining land, such us Council Rates, Land Tax, Bills, Service Charges, etc.

Pre-Sale

Signing a contract to commit to purchase land or property that is yet to be developed. (Alternative names: Exchange, Sell Off-the-plan)

Pre-Sales Commissions

Proportion of sales commission that is paid at the time of exchange

Professional Fees

Fees paid for work done by a professional such as an accountant, solicitor, architect and so on. (Alternative name: Consultant Fees)Source

S Curve

A display of cumulative costs plotted against time. The name derives from the S-like shape of the curve, flatter at the beginning and end and steeper in the middle, which is typical of most projects.Source

Sales Commissions

A percentage of sales paid to a real estate agent or broker for their services (Alternative name: Agent Commission)

Sales Rate

The velocity of sale, usually measured by units/lots per month.

Statutory Fees

A cost levied by a statutory authority, be it local, state or federal. (Alternative names: Local Authority Fees, Government Fees)

Trust Account

A legislatively required bank account used to safeguard the monies held by an agent for or on behalf of another person such as a buyer or seller. (Alternative name: Escrow Account)Source

Unimproved Land

Raw land in its natural state void of merged improvements. (Alternative names: Undeveloped Land, Vacant Land) Source

Leasing and Investment

Term Definition

Base Rent

The minimum fixed rental payment due under a lease without taking into account any add-ons such as a percentage of sales clause or turnover rent or participation requirements. (Alternative names: Current Rent, Passing Rent) Source

Base Year

The minimum fixed rental payment due under a lease without taking into account any add-ons such as a percentage of sales clause or turnover rent or participation requirements. (Alternative names: Current Rent, Passing Rent) Source

Capital Expenditure

Capital expenditure (CAPEX) is payment made for capital improvements in the property. It is treated differently to repairs and maintenance for taxation purposes. Capex consists of single payments, sometimes spread over a period of time that increases the capital value of the property and in some cases can be depreciated.

Capitalisation Rate

Expression of risk and return expressed as a percentage that is used to convert the net income in perpetuity from an investment into value at a given time. The capitalisation rate or yield is derived from the analysis of confirmed sales evidence of comparable properties, calculated by dividing the net income or net market rental value of the sale property by its sale price. The sales evidence used will usually indicate a range of yields in which points of difference are adjusted for. (Alternative names: Yield, Cap Rate) Source

Crown Lease

A right of tenure of Crown land by lease,licenses, irrigation holdings, special leases, yearly leases and including removal of minerals. Source

Effective Full Repairing and Insuring (FRI) Lease

In multi-let buildings all costs are recovered by a service charge (UK)

Effective Rent

Effective rent is the face rent adjusted and annualised for the impact of lease incentives. The two common lease incentives are initial rent free periods and the provision of fit out or other tenancy expenses associated with taking up a lease.

Escalation Clause

A clause in a lease agreement, or contract of sale with rent back provision, providing for an increase in rent in the event of a certain event or events happening. Source

Face Rent

The nominal quoted rental obligation expressed in dollars as specified in a lease agreement at commencement, without taking out the effect of rent-free periods, rebates or other incentives, if any. Source

Fit out Costs

Expenses incurred or the total cost of the fit out process of premises prior or during to occupancy. Source

Fit out Period

The duration or time frame from a specified date in which the lessee may perform fit out works. Source

Full Repairing and Insuring (FRI) Lease

Imposes full repairing and insuring obligations on the tenant, relieving the landlord from all liability for the cost of insurance and repairs. The majority of leases of commercial property will be of this type, with the landlords heavily protected to ensure they have as good an investment as possible by passing on as many costs as possible to the tenant. Source

Graduated Lease

Lease, usually long term, with a stipulation to vary the rental rate based on such inferences such as periodic market value reviews or inflation indexes. Source

Gross Lease

A type of commercial lease where the landlord pays for the building's property taxes, insurance and maintenance. A gross lease can be modified in a number of ways to best meet the needs of a particular building's tenants (for example, a gross lease may or may not require the tenant to pay utility bills). Source

Ground Lease

A lease of land, as opposed to a lease of a building. Source

Head Lease

A lease which gives contractual responsibility to one particular tenant (head lessee), that will subsequently grant leases to sub-lessees who will be tenants in possession. Source

Hold Over Tenant

Where a tenant remains in possession of a property even after the expiry of a lease, until the landlord acts to eject the tenant or negotiate a new rental agreement. Source

Internal Repairing and Insuring (IR) Lease

Landlord covers all structural and fabric repairs etc. (UK)

Lease

A contract by which an owner of an asset (the lessor) gives the right of possession and use to another (the lessee) in return for a payment or series of payments for an agreed period of time. A lease can be in the form of a gross lease, net lease or month to month lease among other types of leases. (Alternative names: Tenancy, Letting (UK)) Source

Lease Incentives

Offerings to persuade or attract tenants, such as rent free periods or financial incentives.

Lease Up Period

The period of time that a tenancy takes to be occupied after it was last vacated, or in the case of new buildings, when construction completed. (Alternative names: Letting Up Period, Rent-Up Period)

Leasehold

A form of property tenure with possession and use is held by virtue of lease. Source

Letting Fees

A letting fee is a fee charged by an agent to the owner of the property for the service of finding a new tenant at the start of a tenancy. Source

Make Good Clause

What the leases require each tenant to do at the end of the term of the lease with respect to returning the premises to base building condition. Source

Market Rent

The generally accepted price to lease a space for residential or commercial purposes. (Alternative name: Fair Market Rent (US) Source

Net Lease

A lease which separates the base (net) rent from certain expenses associated with a leased property including, but not limited to, rates and taxes, insurance and maintenance. Source

Option Period

A time frame or period of time, which is valid for an option to be exercised before or on the expiration date. Source

Option Probability

A percentage of probability that a tenant will take up the option on the lease.

Outgoings

Expenses incurred by the owner of an interest in real property, including, but are not necessarily limited to, rates and taxes, insurance, repairs and maintenance and management fees. Source

Recoverables

Expenses passed through to the tenant

Rental Guarantee

A rental guarantee provides owners with the assurance that they will continue to receive rent on their property. Rent will be paid into the Investor's bank account immediately after the property settles.Source

Rent-Free Period

An offer of a period of time where a tenant does not have to pay rent as an incentive to lease.

Turnover Rent

A rent that is calculated as a percentage of the gross revenue or total sales of a lessee's business, usually in addition to a base rent and more commonly found in leases of supermarkets within a shopping centre. Source

Vacancy

A rental property, including hotels and motels, that is at present unoccupied. Source

Vacancy Allowance

When preparing a pro-forma estimate of future performance of an investment, the vacancy and collection allowance is an estimate of the amount by which gross scheduled rents should be decreased to account for vacancies and for rents that will be uncollectible. (Alternative names: Vacancy Factor, Vacancy Rate) Source

Valuation

Term Definition

Direct Comparison

Valuation methodology involving comparison of the property to be valued with confirmed sales of properties with similar features. Comparisons can be made in many forms including a straight comparison or by analysis on a rate per area basis. The outcome will usually indicate a range of value in which points of difference are adjusted for. This method is best applied where sales of other properties are sufficiently alike to allow comparison. It is the usual means for valuing residential property and vacant land and as a check or supporting valuation method for non-residential properties. Source

Discounted Cash Flow (DCF)

Valuation methodology involving the projection of a series of cash inflows and outflows over a defined future period of time, utilising equal periods over the term of those cash flows. The process involves calculating the present value of the future cash flows by using an appropriate discount rate. The underlying principle to the DCF analysis is that the current Market Value is equal to the present value of all the future cash flows, taking into account the time value of money. The DCF method heavily relies on the internal rate of return (IRR) which reflects the total rate of return which an investor would expect to achieve from the investment over the cash flow forecast period. In determining an appropriate IRR, the market will generally take into account the returns available from alternative “risk free” investments such as Government bonds, inflation factors, the illiquidity risk premium generally attached to property and the asset risk premium attaching to the particular investment, however a certain degree of subjectivity is involved. Factors that limit whether a DCF is appropriate include the suitability of the method opposed to comparative methods of valuation, the availability of reliable information and criteria affecting the selection and application of a discount rate. The main detriment of a DCF analysis is that it relies on assumptions and projections and assumes a willing buyer at the end of the period. A DCF is most frequently used as a supporting valuation method for large office buildings, large shopping centres and residential subdivisions. Source

Income Approach

Property valuation method where the current market value of a property is calculated by discounting (multiplication by the inverse of the capitalisation rate) the current market net income in perpetuity. The method requires three essential factors, namely the market rental value, capitalisation rate and (bottom line)capital adjustments. The capitalisation of net income approach is usually the principal valuation method for commercial or investment properties including retail and industrial. (Alternative names: Capitalisation Approach, Capitalisation of Market Rental Approach, Capitalisation of Net Income Approach, Capitalisation of Net Rental Approach, Investment Approach) Source

Market Value

Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. (Alternative name: Fair Market Value) Source

Residual Land Value

The sum of money available for the purchase of land, calculated from the value of the completed development minus the costs of development (including profit). (Alternative name: Residual Value) Source

Terminal Capitalised Value

The resale value of a property as calculated using a Terminal Capitalisation Rate. (Alternative names: Terminal Sale Value, Capital Value)

Unimproved Value

the capital amount that an estate of fee simple in the land might reasonably be expected to realise upon sale assuming that any improvements to the land, other than merged improvements, had not been made and, in the case of land that is reserved for a public purpose, assuming that the land may continue to be used for any purpose for which it is being used or could be used at the date of valuation. (Alternative name: Unimproved Capital Value - UCV) Source

Taxation

Term Definition

Depreciation

Describes any method of attributing the historical cost of an asset systematically across time periods when the asset is employed to generate revenues over the life of that asset. Source

Goods and Services Tax (GST)

Consumption tax levied on the provision of goods and services. Source

Land Tax

Tax levied against the unimproved value of land usually by the relevant state government in Australia. Source

Margin Scheme

The margin scheme is a way of working out the GST you must pay when you sell property as part of your business, only available in Australia. The amount of GST you must normally pay on a property sale is equal to one-eleventh of the total sale price. When you use the margin scheme, the amount of GST you must pay on a property sale is equal to one-eleventh of the margin. Your margin is generally the difference between the sale price and the amount you paid for the property. Source

Sales Tax

A tax imposed by the government at the point of sale on retail goods and services. It is collected by the retailer and passed on to the state. Source

Stamp Duty

The tax placed on legal documents usually in the transfer of assets or property. This duty is customary in the Commonwealth of Nation countries including Singapore and Australia and certain states in the United States. (Alternative name: Stamp tax) Source

Value Added Tax (VAT)

Similar to a sales tax, it is a tax levied on products and services at each stage of production or distribution and is ultimately passed on to the consumer. Source

Financing

Term Definition

Annual Equivalent Rate (AER)

The actual interest rate or yield of a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears. The annual equivalent rate disregards the amount stated on the debt instrument, the nominal interest rate, to compare the annual interest between loans with different compounding terms, e.g. daily, monthly, annually or other. Source

Capitalisation Loan

A loan where the interest is not paid by period but added to the principal thereby increasing it. In a capitalising loan the periodic debt servicing payment is minimised and the compounded interest is paid out at the end of the loan period.

Construction Loan

A short term finance arrangement used to fund the construction of areal estate project usually prior to a longer term mortgage being obtained, where disbursements are dependent on construction progress and interest accrues only on distributions in line with construction progress and not the total amount to be borrowed. Source

Debt Service Ratio (DSR)

The ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity's ability to produce enough cash to cover its debt (including lease) payments. (Alternative name: Debt Cover Ratio (DCR) Source

Debt to Equity Ratio

The amount of equity contributed into the project as a percentage of debt funding.

Interest Coverage Ratio (ICR)

A measure of the ability to meet required interest obligations, being the number of times the annual interest on debt is covered by annual income. Higher Interest Coverage Ratio's indicate an enhanced ability to make timely interest payments. Source

Interest Only Loan

A loan where the interest is paid by period thereby keeping the principal constant. Where interest is a tax deduction, the whole of the debt servicing payment can be deducted.

Land Loan

A loan used to purchase land for eventual construction. Due to (generally) smaller market demand for land than improved property, a land loan may have a somewhat higher rate of interest or require a lower loan to value ratio than standard home loans. Source

Line Fees

A bank fee payable on the facility limit to partially cover the costs of managing and maintaining the limit. (Alternative name: Bank Loan Fees)

Line of Credit

A flexible but secured loan where a maximum loan balance is established, funds can be used at the borrower's discretion to the maximum loan balance and interest is only calculated on the amount drawn, not the funds available. (Alternative name: Overdraft) Source

Loan Application Fees

A fee charged to process an application for a loan, such as a home mortgage from a lender or mortgage broker. Loan application fees are charged to cover some of the costs involved in processing the application including credit checks, property appraisals and basic administrative costs. (Alternative name: Establishment Fee) Source

Loan to Value Ratio (LVR)

Lending risk ratio calculated by dividing the mortgage loan principal (amount borrowed) by the market valuation of the property. When the loan to value ratio exceeds 80% (i.e.. a loan in excess of $80,000 against a property worth $100,000) lenders mortgage insurance is usually necessary. Source

Principal and Interest Loan

A loan where the debt servicing payment includes interest and principle computed so that the loan is paid out over a specified period or term. Where interest is a tax deduction, only that part of the repayment that represents interest can be deducted.

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