Glossary of Commercial Real Estate Terms

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Glossary of Commercial Real Estate Terms
Glossary of Commercial Real Estate Terms

The new year has opened the doors of opportunities for commercial property as the economy is on the rebound. Most offshore investors are looking for properties in Australia, which was successful in curtailing the contagion. The demand for sustainable office properties and industrial spaces in the regional and fringe areas is growing. The resilient sector has maintained its supremacy and continues to top the charts with increasing transactions. Naturally, many first-time buyers are jumping the bandwagon to enjoy a better yield.

If you too are planning to invest in commercial real estate in Australia, then you must be well-equipped to understand the terms necessary to successfully clinch the profitable deal. Here is a glossary of all the relevant terms that will help you in the endeavour.

Amenities

The attributes of a property which add to its appeal and value. Tangible amenities include a kitchenette, parking, air-conditioning, etc. Intangible amenities include location and accessibility.

Anchor Tenant

The most known brand among several tenants in a large commercial property which attracts more tenants.

Amortisation

The lowering of the value of an intangible asset during its useful life.

Appraisal

When the real estate agent carries out an informal valuation of the property.

Annual Percentage Rate

The rate of interest charged to borrowers annually and paid to the investors. It is expressed as a single percentage value.

Arrears

The debt or liability payments that are overdue. It is paid when one or more recurring payments are missed.

Asking Rent

The rent amount advertised by the landlord in dollars per square metre per year.

Asset Management

The strategies employed to retain or boost the market value of an asset to gain higher rental income from the property.

Bank Guarantee

The tenant may have to provide the landlord with a bank guarantee that is equal to the rent for a few months. In case of default, the landlord can ask for payment from the bank.

Body Corporate

A group of owners of the land that is used to build apartments or units is known as body corporate or owner’s corporation. They are in charge of the maintenance of the common areas.

Building Code of Australia

The board lays down the technical requirements for safety, amenity, health, and sustainability in the design and building of new structures and renovation work in existing constructions.

Capital

The financial resources which can be utilised for gaining returns or generate income.

Capital Gains Tax

The government policies have put a restriction on the way capital can be used for investment. The gain acquired from the resale of a property is subject to CGT. Personal property assets are exempted from CGT.

Caveat Emptor

The Latin phrase means ‘let the buyer beware’ which has been put in place to remind the buyer to conduct thorough due diligence of the property before making the purchase.

Conveyancing

The terms refer to the transfer of a property from the buyer to the seller. It includes designing and signing the sales contract that enlists handover obligations.

Contingency

Any threat or risk that may or may not occur in the future is a contingency. Preparing for potential contingencies such as risk on investing in real estate.

Cooling Off Period

It is a brief statutory timeframe after the preparation of the contract. The buyer can cancel the contract unconditionally during this period.

Counteroffer

When the seller or buyer makes a new offer for a property after an unacceptable offer has been made by either party.

Covenant

It refers to a term in a property deed or title which restricts someone from using a property for specific purposes.

Consumer Price Index

The average change in the amount Australian households pay for a fixed basket of goods and services over time.

Depreciation

The drop in value of property assets over time due to changing market conditions.

Due Diligence

Assessment and examination of the property by the buyer to check the viability of the investment, terms of sale, planning controls, amenities, etc.

Effective Rent

The rent amount which covers incentives provided to the tenant.

Encumbrance

Claim against a property by someone who is not the owner.

Escrow

Third-party which holds funds or an asset on behalf of the other two parties involved in a transaction.

Face Rent

The rent amount which does not include commercial lease incentives, such as rent-free periods or reduction in rent or fit-out support.

Fiduciary

A person who holds assets in trust for another person.

Fixed Rent Review

The increase in rent after a fixed period of time as mentioned in the lease.

Force Majeure

A clause in the agreement which releases a party from its obligations in case of an unforeseen event like a natural calamity.

Land Tax

The tax to be paid annually for the piece of land you own.

Lien

The legal right of a creditor to sell off the property of a debtor if he violates the terms of the loan contract.

Line of Credit

The maximum loan amount that a creditor can get from a financial institution.

Make Good

The obligation of a lessee to return the rented property in the same condition as it was at the beginning of the lease.

Mortgage Insurance

The insurance policy bought by the lender or debtor to stay covered in case of mortgage default.

National Australian Built Environment Rating System

performance-based tool that evaluates a structure’s complete environmental performance during operation.

Negative Gearing

Lending funds to purchase an asset and generating income from the investment.

Net Absorption

It denotes the shift in the capacity of occupied space between two survey periods and helps to establish the demand.

Net Present Value

A rate used to ascertain whether the future projected cash flow from the rental property has a present value greater than the funds required to invest in it.

Public liability

A legal obligation that can arise from injury to a third party, or damage to their property when the third party is present on the owner’s property.

Quantity surveyor

An adviser to the construction industry who is in charge of assessing and checking costs, from the beginning of the project until its construction.

Real Estate Investment Trust

An investment platform that allows investors to purchase a stake in property assets without holding up their funds for the long-term.

Stamp Duty

The tax on legal documents related to the transfer of assets or property such as property sales and acquisitions throughout Australia.

Strata Title

The ownership of multi-level apartment blocks and horizontal subdivisions that come with shared areas, such as onsite parking and swimming pools.

Tenants in Common

Co-owners of an undivided interest in the same property. They have an equal right to possess and use the property.

Term Deposit

A deposit that is held by a financial institution for a fixed term and can be withdrawn only at the end of the term.

Torrens Title property

Real estate where the owner holds the title of the building and the land.

Valuation

Determining the value of real estate professional without any bias or preference.

Yield

Estimating future income from investment in real estate.

Conclusion

If you are interested in buying commercial real estate in Australia, then make sure you are aware of the terms mentioned above.

Author Info Manish Khanna

Manish is founder of Business2sell Group of Websites. 

Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities. 

With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent. 

I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.

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