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real-estate-terms-often-misused

Know and Understand Real Estate Terminology!

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Absentee Landlord
An individual or entity that rents or leases real estate to another party, but does not reside on the premises. An absentee landlord could be anyone from a local investor to an overseas conglomerate.

Absentee landlords are the norm, rather than the exception, for commercial properties. The term "landlord" may indicate that the individual or entity's real estate holdings are likely to be sizable. An absentee landlord may also have a long-term perspective with regard to real estate investments, with on-going rental income rather than capital appreciation being the primary investment objective.
Related Topic: Landlord

Absorption Rate
The rate, expressed as a percentage, at which available space in the marketplace is leased during a predetermined period of time i.e. the speed with which the market in a specific area absorbs empty space, indicating demand. Also known as ‘absorption rate’.

Access Bond Facility
An access bond facility allows bondholders to pay extra cash into a home loan account to benefit from a savings on interest on the bond, but bondholders can withdraw this cash again if needed.
Related Topic: Bond, Loan Agreement.

Acquisition Costs
All the costs of acquiring a property other than the purchase price, such as legal costs, bond registration costs, insurance, lender fees and transfer fees. Generally excludes long-term finance charges. This is normally after adjusting for discounts, incentives, closing costs and other expenses.
Related Topic: Bond Costs; Insurance; Raising Fee; Transfer Costs; Transfer Duty; Transfer Fee, Valuation Fees

Addendum
A supplementary or separately attached document to an original sale contract which contains additional text not included in the main contract document and which may elaborate, define or contain additional specifications, provisions, standard forms or other information. A contract addendum may also be called an appendix.
Related Topic Agreement of Sale.

Administration Fees
Fees charged by the bank to cover the costs of the management, control and paperwork attributable to the handling and operation of the home loan account.
Related Topic: Raising Fee.

Advocate
A lawyer with specialised skill and knowledge who takes instruction from an attorney and generally appears in court.
Related Topic: Attorney, Registering Attorney (Bond).

Aesthetic Value
The value added to a property directly attributable to the beauty of the structure, finishes, improvements or surroundings.

Affidavit
A solemn, sworn statement of fact, declared and signed by the author, in the presence of a commissioner of oaths who in turn testifies to the authenticity of such a statement.

Affordability
The ability to afford the monthly instalments on the home loan. The bank, in terms of the National Credit Act, must assess whether the borrower can afford the monthly instalment, taking into account the nature and amount of joint income. The general rule, called the affordability factor, is that monthly instalments should not exceed 30% of gross monthly income.
Related Topic: Agreement of Loan, Bond, Loan Agreement.

Affordable Housing
Also known as ‘inclusionary housing ‘which essentially is low-cost social housing aimed at the lower-income sector of the market.

Agreement of Loan
Is the contract which is entered into between the bank and the borrower which contains the conditions at which the bank grants the bond to the applicant and includes the details of the interest rate, bank charges, insurance and monthly instalments.
Related Topic: Bond, Loan Agreement

Agreement of Sale
Also known as an Offer to Purchase or Deed of Sale. A legal contract in which one party agrees to buy and another agrees to sell a property, containing terms and conditions of the transaction and signed by the parties.
Related Topic Addendum

Alienate
Means to sell, exchange or donate in terms of the Alienation Act 68 of 1981 which governs the alienation of immovable property.

Amortisation
A detailed payment schedule in which repayments of a loan is broken down into equal, periodic instalments of principal and interest over the loan period.

A sample amortisation schedule can be viewed in our Commercial Property Financial Model:
Commercial Property Financial Model
The Funding Model Tab reflects the Amortisation Schedule

Anchor Tenant
A tenant with a brand name in a shopping mall that will draw shoppers and benefit the other stores. As such, it usually receives a favourable lease.

Ante Nuptial Contract
An agreement made prior to getting married, setting forth the rights both during and after the marriage and in the event of death or divorce. The parties will be married out of community of property.

Approaches to Value
The different methods used to estimate the value of a property, for example the cost approach, the comparison approach or the income approach.
Related Topic: Assessed Value, Comparative Market Analysis (CMA), Income Capitalisation Approach, Net Operating Income (NOI).

Arbitration
The procedure whereby parties to a dispute appoint an arbitrator to settle the dispute. The arbitrator’s decision is final and the parties bound by it. It is normally an informal hearing regarding a dispute.

Arbitration Tribunal
An independent body or person appointed to settle a rental or purchase dispute by way of arbitration.

Arithmetic Mean
The most often used measure of central tendency, it is the simple average of a number of observations. Mathematically, it is equal to the sum of all values divided by the number of observations. For xample, the arithmetic mean of 6 and 7 is (6+7)/2. The arithmetic mean of 6, 7 and 8 is (6+7+8)/3; and so forth. Outlier observations may unduly affect the mean. References to the mean refer to the arithmetic mean, unless otherwise specified.
Related Topic: Geometric Mean, Median.

Asking Price
The price at which the seller is offering the property for sale.
Related Topic: Price

Assessed Value
The value placed upon a property by the municipality for property tax purposes payable by the owner.
Related Topic: Approaches to Value, Comparative Market Analysis (CMA), Income Capitalisation Approach, Net Operating Income (NOI), Valuation.

Assessment
A professional opinion as to the current market value of the property, determined by a qualified professional on the bank’s request prior to offering finance, taking into account factors such as the property’s condition, location and future marketability.
Related Topic: Approaches to Value, Assessed Value, Comparative Market Analysis (CMA), Income Capitalisation Approach, Net Operating Income (NOI).

Attorney
A lawyer providing general legal services to consumers. Attorneys do not appear in court, but will instruct an advocate to appear in court. Usually, there are three types of attorneys, or conveyancers, involved in a property transaction – the transferring attorney, the registration attorney, and the cancellation attorney.
Related Topic: Advocate, Cancellation Attorney, Conveyancer, Registering Attorney (Bond), Transferring Attorney.

Auction
A method of selling a property by public sale at an auction to the person or company who makes the highest bid.

Auditor
A professional registered in terms of the Public Accountants and Auditors Act 51 of 1951, who audits financial statements to verify the fairness and compliance with an identified financial reporting framework and any applicable statutory requirements.

Authority Form
Is a form signed by the borrower to authorise the loan grantor to make certain payments from the proceeds of a loan upon registration of the property into the borrower’s name. Guarantees are issued by the bank upon the signature of such authority forms pending transfer, and payments are effected against such guarantees upon registration.


Balance Sheet
An accounting document that sets out the financial position of a private individual, company, CC or trust at a specific date, detailing assets, liabilities and net worth.

Bank
A financial institution registered in terms of the Banks Act 94 of 1990 to offer consumers financial services such as bank accounts and loans.

Basic Rental
Called base rental in the US. A set amount used as a minimum rent in a lease which also employs a percentage of turnover or other allocation for additional rent.
Related Topic: Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Beneficiary
The recipient of specific benefits or proceeds from a trust.
Related Topic: Deed of Trust, Inter Vivos Trust, Investment Trust, Trust, Trustee.

Body Corporate
The controlling body of a sectional title scheme represented by the aggregate of all owners, who together own the common property.

Bona Fide
In good faith.

Bond
Also called home loan or mortgage loan. A loan made to an owner of a property where the property is the security for the loan. The bond is registered in the Deeds Office against the title deed of the property. This establishes the right of the lender to have first call on the money realised on sale of the property. The mortgagee (lender) can foreclose on the mortgagor the (borrower) if he/she defaults on debt or repayment, and force the sale of property.
Related Topic: Access Bond, Loan Agreement.

Bond Assurance
Also known as home loan insurance or mortgage protection insurance taken out on the life of the borrower in the bank’s favour to cover the amount owing n the home loan in the event of death or disability, as an alternative for life assurance.
Related Topic: Life Insurance.

Bond Costs
The bond costs include conveyancing (attorney’s) fees and VAT, as well as property inspection fees. The buyer must pay these fees to the registering or bond attorney when the bond is registered. The conveyancing fees are calculated according to a sliding scale based on the amount of the bond registered.
Related Topic: Acquisition Costs.

Bond Originator
An independent company which assists homebuyers in applying for a home loan or building loan, approaching all the banks on the homebuyer’s behalf, free of charge.

Bond Term
The repayment period of the mortgage or home loan, normally 20 or 30 years.

Book Value
The value of an asset as contained in the financial statements of an entity which incorporates the original cost of the asset plus additions to value less any depreciation.

Boom
The upswing in a cycle, whether a business, property or investment cycle, which signifies growing demand , increasing investments, rising prices and high confidence levels.

Breach Clause
A condition in a contract which obliges one party to a contract to give the defaulting party written notice to remedy his breach of contract within a specific period (usually 7 days) before he can summarily cancel the contract.

Breach of Contract
A breach of contract occurs when one of the parties to a contract fails to keep to the terms and conditions of the agreement.

Breakeven Point
The moment in time when the income from the property reaches a level where it equals the expenses related to that property.

Bridging Finance
A short-term loan for an amount a person is going to receive at the end of a period of time while a transaction in progress is concluded, such as the proceeds from a property sale while registration is taking place.

Bubble
Occurs when the market demand pushes beyond the usual fundamentals.

Building Construction
The construction of buildings like houses, office blocks, factories, shopping centres, schools, hospitals.
Related Topic: Civil Construction.

Building Cost
The amount of money needed to construct a building, usually measured by the Quantity Surveyor.

Building Loan
A loan granted to a person who buys or owns a vacant plot of land where such a loan will be applied to the construction costs associated with the building of a structure on the land.

Bulk
The market value of office and shopping-centre land is generally expressed as the value per bulk square metre. Bulk square metres refer to the gross building area (GBA) of a building. According to The Sapoa Method for Measuring Floor Areas in Commercial and Industrial Buildings, GBA covers: “The entire building area, but it excludes patios, plant boxes, sunscreening, escape stairs, machine rooms, parking (basements or above ground), lift motor rooms, service rooms, caretakers’ flats, etc. GBA is mainly used by planning consultants in order to plan and execute a building in accordance with the permissible Floor Area Ratio (F.A.R) as derived from the zoning of the property. GBA is fixed for the life of the building but it should be noted that different local authorities may interpret the National Building Regulations which regulated the F.A.R definition in a slightly different manner.”

Bundle of Rights
Refers to all rights that accrue to the owner of a specific property and specifically include the right to possession, control, exclusion, enjoyment and the right of disposition.

Buyer's Market
Market conditions that favour buyers. For example, when there are more sellers than buyers in the market, sellers may be forced to lower their prices in order to sell their properties.

Buy-To-Let
Buying a property to be rented out to generate passive income.

By-Laws
Rules and regulations which govern land use and application in a specific area and include restrictions as to what an owner or tenant can and can’t do with or on a property. For example, municipal by-laws may prohibit certain activities on a property or a Body Corporate may prohibit animals within the complex.


Cancellation Attorney
The cancellation attorney attends to the cancellation of the bond for the bank and is a conveyancing attorney appointed by the financial institution that holds the seller’s bond. The fees for the cancellation attorney will be included in the seller’s bond cancellation fees.
Related Topic: Attorney, Registering Attorney (Bond), Transferring Attorney.

Capital Gain
The increase in the capital value of an asset over time which is realised when the asset is disposed of.

Capital Gains Tax (CGT)
The tax payable on the capital gains made on a property when the property is sold. Certain exceptions apply to a primary residence.

Capitalisation Rate
A ratio representing the relationship between the future cash flow that an asset can generate and its current market value, normally determined by estimating the present value of the future cash f lows. It is the rate at which the future cash flow of the building is capitalised to derive market value of the property taking into account the amounts, security and timing of the future income.
Related Topic: Income Capitalisation Approach, Net Operating Income (NOI), Yield (Initial).

Capped Rate
The interest rate on a home loan can be capped at a certain rate and the interest on the home loan will not exceed the capped rate regardless of interest rate increases. However, if the interest rates drop below the capped rate, the borrower will still pay the higher capped rate.
Related Topic: Interest Rate, Interest Rate Cap.

Cash Flow
Is a schedule or net amount of the cash inflows generated by an asset less all cash outf lows pertaining to the same asset.

Cash-on-Cash Return
Is a ratio expressing the total amount of cash generated by an asset compared to the amount of cash invested to acquire such an asset.

Caveat Emptor
Is a ratio expressing the total amount of cash generated by an asset compared to the amount of cash invested to acquire such an asset.
Related Topic: Return on Equity (ROE).

CBD
Central business district or downtown. This is an area of concentrated high economic activity. The user can differentiate between the metropolitan CBD (e.g. the Johannesburg CBD) and a decentralized CBD (like the Sandton CBD).

Ceiling
The maximum allowable interest rate of a variable rate mortgage.

Certificate of Occupancy
A certificate issued by the local municipality or housing authority indicating that the new dwelling is suitable for occupation and complies with local building, safety and health bylaws. Required by Law for the property to be transferred to the buyer’s name.

Cession
The transfer of any contractual or other rights to another person, for example, the transfer of rights of ownership of a property or land transferred by treaty.

Civil Construction
the construction of physical infrastructure like roads, bridges, dams, the laying of stormwater pipes, electricity and water reticulation.
Related Topic: Building Construction.

Close Corporation
A business entity registered in terms of the Close Corporations Act 69 of 1984, which can, for example, conclude agreements of sale or leases in its name.

Collateral
Assets, such as a property, shares, fixed deposits, bank, company or government guarantees, debt free immovable property and life insurance policies, which are pledged as security for a loan.

Commercial Property
Property used in the production of goods and services, often categorised as retail, office and industrial, depending upon its primary current or potential use.

Commission
Remuneration paid to professionals for their services, for example, a negotiable commission is paid to an estate agent for leasing or selling a property.

Common Area
The area in a sectional title development owned by and for the use of all unit owners, such as swimming pools, gyms, passages, etc.

Common Law
The law which applies automatically, unless excluded by legislation or in terms of an agreement concluded between the parties to an agreement. The South African common law is Roman Dutch law.

Company
A business entity registered in terms of the Companies Act 61 of 1973 which can, for example, conclude agreements of sale or leases in its name.

Comparative Grading of Industrial & Office Space

   Industrial Offices
   Prime + A
   Prime B
   Prime - C
   Secondary D

Comparative Market Analysis (CMA)
Appraising the value of a property by comparing the prices of similar properties in the area that have been sold recently.
Related Topic: Approaches to Value, Assessed Value, Income Capitalisation Approach, Net Operating Income (NOI), Valuation.

Conditional Offer
An offer conditional upon the occurrence, or non-occurrence, of a specified, uncertain future event, such as the buyer obtaining a loan or an appraisal above a certain amount.

Conditions Precedent
Related Topic Suspensive Condition

Conditions of Loan
The terms specified by the bank, which governs and regulates the granting of the bond amount, which must be agreed to in writing.
Related Topic: Bond, Loan Agreement

Conditions of Title
Restrictive conditions limiting an owner’s rights over his/her property which is recorded on the title deed such as servitudes, building limitations, mineral rights, etc.

Consolidation of Debt
Combining different loans into one consolidated loan, with the objective of achieving a lower monthly repayment.

Contract
A legally enforceable agreement, such as an Agreement of Sale.
Related Topic Addendum, Agreement of Sale.

Conveyancer
A conveyancer is a lawyer or attorney who is qualified to attend to the transfer and registration of property transactions at the deeds office.
Related Topic: Attorney, Transferring Attorney.

Cooling Off Right
In terms of the Alienation of Land Act 68 of 1981 certain purchasers of immovable property have the right to revoke an offer to purchase or terminate a sale agreement within 5 days after the offer or sale agreement was signed by the purchaser. This is generally referred to a 'cooling off right'. The right to cool off applies only in respect of properties which are used (or intended to be used) mainly for residential purposes and only if the purchase price is R250 000 or less (a higher amount may be prescribed by the Minister of Trade and Industry from time to time). The right does not apply in certain instances, for example where the buyer is a company, close corporation or a trust.
Related Topic Addendum, Agreement of Sale, Contract.

Costs/Cover Clause
Provision in a home loan document securing an amount over and above the purchase price of the property, to cover additional costs such as legal fees, penalties, interest, repossession costs, and fire premiums.
Related Topic Agreement of Sale, Agreement of Loan, Contract, Loan Agreement.

Credit Report/Profile
A report detailing the credit history of a person, used by lenders to verify the borrower’s creditworthiness.

Credit Score
Creditworthiness can be calculated through a statistical method using credit-scoring models which take into account credit history; the amount of outstanding debt; the type of credit used; bankruptcies or late payments; collection accounts and judgements, etc.

Cyclical Trend
A short-term growth path of an economic variable. Normally refers to the business cycle, as distinct from a secular trend.


Damp Proofing Certificate
A clearance report from a qualified, registered contractor pertaining to a specific property, stating that any previous damp problems have been addressed and should not occur for at least a specified future period of time.

Debt Equity Ratio (of a Property)
A ratio expressing the borrower’s total mortgage debt in relation to the owner’s equity in the property.

Debt Financing
Obtaining finance through raising a loan (i.e. incurring debt) as opposed to raising finance through selling a part of ownership interest (equity f inancing). For example, a company would get a loan against a property as a form of debt financing as opposed to selling shares in the company which would constitute equity financing.

Debt Ratio
A ratio, expressed as a percentage, of a borrower’s total liabilities (debt) in relation to his/her total assets.

Declaration of Trust
A written acknowledgement by one holding legal title to propert y that the property is held in trust for the benefit of another.

Deed of Sale
Related Topic: Agreement of Sale, Contract.

Deed of Trust
A formal legal document that contains the terms and conditions for the establishment and operation of a trust.
Related Topic: Beneficiary, Inter Vivos Trust, Investment Trust, Trust, Trustee.

Deeds Office
A government department who is responsible for the registration and transfer of immovable property.

Deeds Office Registration Fees
Fees charged by the Deeds Office for registering the transfer of immovable property from one owner to another, as well as to record the existence of bonds over such property. The fees to attend to such registrations are payable by the buyer/purchaser.

Default
Failure to meet legal obligations in a binding, valid contract, including failure to make the required payments on a loan in terms of the loan agreement.
Related Topic: Breach of Contract.

Default Judgement
A judgement awarded by a court in favour of a creditor, where a summons is issued against a debtor for monies due to the creditor, and the debtor subsequently fails to defend such a summons, for instance, in a case where a debtor fails to appear incourt at the scheduled time.

Defect
A fault or flaw in the property. There are two types of defects – latent defects and patent defects. A patent defect is a fault or flaw that clearly visible and not hidden from view upon a reasonable inspection of a property. A latent defect is a fault or f law that is not immediately detectable, or is hidden from view, upon a reasonable inspection of the property. The ‘voetstoots’ clause is applicable - see ‘Voetstoots’.

Deflation
Deflation occurs when prices are declining over time. This is the opposite of inflation and could be catastrophic. When the inflation rate (by some measure) is negative for a period, the economy is in a deflationary period.
Related Topic: Disinflation.

Deposit
An amount, which is part of the purchase price of the property, which is paid in cash up front by the buyer.

Depreciation
Is the systematic decrease in the value of an asset due to ‘wear and tear’ and ‘obsolescence’.
Related Topic: Obsolescence.

Deseasonalized
Seasonal fluctuations have been removed. In the case of retail sales, this is essential in order to be able to compare sales pertaining to different months of the year, as opposed to comparing sales of one quarter or month with the same quarter or month a year earlier.

Developer
A person who develops residential or commercial premises on vacant land with the aim of selling or renting the property for future gain.

Development Rights
The legal ability to develop a parcel of land, usually as confirmed by the applicable town planning scheme.

Disbursements
Payments made, usually by the transferring attorneys in relation to the transfer, during the course of a transfer or at closing of a transfer of a property, for example, for the Deeds Office fees.

Discount Rate
The rate used to express an expected future cash stream in present value terms. In most instances, the discount rate is equal to the hurdle rate. Mathematically, the hurdle rate of a property is the sum of its market capitalization rate and the expected constant growth rate of its cash flow in perpetuity.
Related Topic: Hurdle Rate.

Disinflation
Disinflation occurs when the inflation rate is declining over time.
Related Topic: Deflation.

Diversification
In property, spreading ownership over a wide geographic area and holding a variety of property types to reduce overall risk.

Domicile
The legal term signifying a place where a person has his permanent home or residence and the delivery address for legal notices.

Domicilium Citandi Et Executandi
The physical or postal address to which legal documents and notices must be delivered. Documents or notices delivered to this address are deemed to be received, even if the addressee did not in fact receive it.

Due Diligence
A process undertaken by purchasers to confirm various financial, physical, technical and legal aspects of a property asset before a purchase.


Electrical Compliance Certificate
Certificate issued by a qualified electrician and registered with the local authority, verifying that installation complies with the by-laws. The cost of the certificate and any electrical repairs that need to be made are for the sellers account and is required by law for the property to be transferred to the buyer’s name.

Electric Fence Compliance Certificate
A Certificate of Compliance in respect of the Property, in terms of the Electric Fence System under the Occupational Health and Safety Act, issued by an electrical contractor who is registered in terms of the Regulations. The cost of the certificate and any repairs that need to be made are for the sellers account and is required by law for the property to be transferred to the buyer’s name. Furthermore, Insurance claims may be declined in the event that this certificate is not held.

Encumbrance
Any right, interest or other claim against land, which is registered on the title deed of the relevant property which affects the title rights of the property such as the owner’s ability to sell the property.

Endorsement
In respect of title deeds, this refers to a note made on the title deed of a property by the Registrar of Deeds.

Entomologist Certificate
A certificate to be obtained by law before transfer of a property can take place confirming that its structure is free of wood borer or termite infestation.

Equity
The difference between the outstanding bond amount and the market value of the property. Positive equity means that the current market value of the property is more than the outstanding bond amount. Negative equity means that the outstanding bond amount is more than the market value of the property.

Equity Loan
A loan granted based on the significant equity contained in the mortgaged property. The creditworthiness of the borrower is not the major determining factor in the granting of the loan.

Escalation Rate
The rate by which a rental is hiked once a year in terms of a lease. The ruling market escalation rate can be seen as an attempt by the market to forecast the growth in market rentals over the duration of the lease, but this attempt is obviously rarely successful. Thus it is important to differentiate between an escalated rental and a market rental.
Related Topic: Basic Rental, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Escape Clause
Also known as a Ratification Clause. A condition in an Offer to Purchase giving the seller the right to cancel it if a higher offer is obtained.

Estate
Assets own in a personal capacity such us a house, a car, furniture, clothing, investments, etc. When a person dies, all their assets and liabilities will be placed in their deceased estate, which is administered by an executor.

Estate Agent
A professional in an estate agency, bringing buyers and sellers together and assisting in negotiating property sale and lease contracts. In terms of Law, an Estate Agent requires a Fidelity Fund Certificate from The Estate Agencies Affairs Board in order to receive fees on transactions.

Estate Duty
Taxes payable on the value of assets in a deceased estate.

Eviction
A court order authorising the forced removal of occupants from a property, commonly referred to the removal of a tenant.

Execution Sale
A sale of property under execution by a court.

Exposure
The degree to which an investor is geared financially. An investor with a relatively high exposure to debt will carry a higher risk profile and might not obtain finance easily.

Expropriation
The procedure in terms of which a property is taken over, usually by local authorities, for specific purposes in the public interest. Compensation must be paid as provided for in terms of the Expropriation Act 63 of 1975.


Feasibility
A comprehensive study conducted before a project is undertaken, to determine the probable financial success of the project by taking into account the risks involved compared to the returns expected.

Fica Documents
Documents required in terms of the Financial Intelligence Centre Act (FICA), aimed at eliminating money laundering activities in South Africa. These include proof of address and ID documents.

Fidelity Fund
A fund managed by the Estate Agents Affairs Board (EAAB) providing compensation for consumers if an attorney or estate agent misappropriates or steals funds in a property transaction.

Fiduciary
An expectation or duty of good faith and trust between certain parties regarding financial transactions

Finance
Money borrowed to pay for the acquisition of a property.

Finance Charges
Interest charged by the bank on a loan i.e. the cost of obtaining the finance.

Financial Statement
A comprehensive set of documents detailing the financial position and results of a person or company for a specific historical period at a specific date.

Fittings
Items such as curtains or carpets, which are not fixed to a building and are not included in the sale of the property unless specifically included as such in the deed of sale.

Fixed Costs
Property expenses not affected by use or occupancy, for example, property taxes would be fixed while maintenance costs would vary with use and occupancy.

Fixed Interest Rate
An interest rate on a home loan which is set from the inception of the loan and does not fluctuate with any increases or decreases in the prime lending rate of the bank.
Related Topic: Variable Rate.

Fixed Repayment
A home loan repayment that does not change with fluctuations in the prime lending rate of the bank.

Fixtures
Items, such as shelves or built-in cupboards, that are fixed to a building and are included in the sale of the property unless specifically excluded.

Floor-Area-Ratio (FAR )
The ratio of the total floor area of a building to the total area of the land upon which it stands. A maximum FAR is usually specified in the specific zoning use right of the property.

Force Majeure
A French phrase meaning “superior force” which is a common clause in contracts absolving all parties to the contract of any liability in the event of an occurrence that cannot be resisted or is beyond the control of the parties involved such as acts of God, riots, strikes, arson, etc.

Foreclosure
A legal process in which the property is repossessed by the mortgagor or bank and sold off on auction to redeem the outstanding bond amount.

Forward (Income) Yield
A bourse term, hence it is typically applied to listed properties. In the non-listed property market, its approximate equivalent is the capitalization rate. It represents the expected net income of year 1 (the following 12 months) divided by the current price/value. It stands to reason that existing leases would largely determine the net income of year 1.
Related Topic: Historic or Trailing (Income) Yield.

Franchise
A business which trades under another company’s name and using its business model. An estate agency may be a franchise of a wellknown national estate agency and have an agreement with the latter to trade in a particular area under the latter’s name.

Freehold (Free) Title
Unlike sectional title, freehold or full title means that the property rights accrued to the owner are comprehensive and free of restrictions.

Full Disclosure
Revealing all the known facts which may affect the willingness of the buyer or tenant to enter into the contract.

Fundamental Value (FmV)
It is a subjective value based on the investor’s own, subjective forecast of rentals and maybe the investor’s unique or different in-house discount rate/capitalization rate. A FmV higher than the objective market value (MV) is a buy signal to an investor. The calculation of the FmV is especially indicated where the economy, or property market, changes gear, e.g. a secular change in inflation rate or the real-rental cycle bottoming out. These are instances where any market is notoriously poor at forecasting trends. An alternative term is intrinsic value.

Further Loan
An additional loan or second bond on a property.


Gaap
Generally Accepted Accounting Principles.

Gas Compliance Certificate
A Certificate of Conformity issued by an authorised person as defined in the Pressure Equipment Regulations 2009 made by the Minister of Labour under section 43 of the Occupational Health and Safety Act 85 of 1993, to the effect that the gas installation on the property conforms to the required health and safety standard. The cost of the certificate and any repairs that need to be made are for the sellers account and is required by law for the property to be transferred to the buyer’s name.

Gearing
Also called leverage. The degree to which an investor or business is utilising borrowed money to acquire income producing assets. Negative gearing refers to a situation in which the income generated by an asset does not cover the interest on the loan. Positive gearing means the asset produces sufficient income to cover the loan to acquire the asset.

General Lien
A lien such as tax lien or judgement lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to specific property.

Geometric Mean
A measure of central tendency calculated by multiplying the series of numbers and taking the nth root of the product, where n is the number of items in the series. The geometric mean is defined only for sets of positive numbers. For example, the geometric mean of 6 and 7 is the square root of (6*7). The geometric mean of 6, 7 and 8 is the cube root of (6*7*8); and so forth.
Related Topic: Arithmetic Mean, Median.

Geometric Mean Return
It is also called the time-weighted rate of return or the average compounded rate of return. It is calculated by taking the geometric mean of a portfolio’s sub-period returns. Where there is a great variance in sub-period returns, this is a better return measure than the arithmetic mean return. Unlike the internal rate of return, it is not influenced by the timing and weights of money-flows.

Grant
The transfer or cession of an interest in a property, in part or entirely. A grant may be a lesser interest such as an easement, where only a certain right of use is granted.

Grantee
The person to whom rights are granted in a Power of Attorney.

Grantor
The person granting rights in a Power of Attorney.

Green Buildings
Energy-efficient and environmentally-friendly buildings.

Gross Income
Total income before taxes or expenses are deducted.

Gross Leasable Area (GLA)
The total usable, rental space in a building.

Gross Lease
A lease whereby the tenant pays a single monthly rental and the landlord remains responsible for the payment of all costs associated with the ownership of the property.
Related Topic: Basic Rental, Escalation Rate, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Gross Rental
The total rental payable by the tenant, excluding VAT, the tenant’s own electricity and water charges, but including other operating costs recovered by the landlord as well as promotion expenses payable by the tenant in the case of shopping centres.

Guarantee
In a property transaction, it is a formal letter issued by the financial institution undertaking that the loan amount will be paid to the transferring attorneys, for payment to the seller, on registration of transfer of the property into the name of the buyer.


Haylett Index
A measure of the movement of all input costs in the building industry, especially material and labour costs. Designed to recompense the building contractor for in-contract rises in input costs. Official designation: JBCC CPAP Haylett Formula (Work Group 180). Does not include profit margins for contractors.

Height Density
A zoning term referring to the regulation of maximum building heights for structures in given areas.

Highest & Best Use
Highest and best use

Historic or Trailing (Income) Yield
A bourse term, hence it is typically applied to listed properties. It represents the net income of year 0 divided by the current price/value. In a market of rising net incomes the historic yield would be expected to be lower than the forward yield.
Related Topic: Forward (Income) Yield.

Homeowner's Association
An association of homeowners in a given area, formed for the purpose of improving or maintaining the quality of the area. Similar to a body corporate.

Homeowner's Assurance
Also called homeowner’s insurance or cover. Comprehensive insurance covering loss or damage to buildings, required by all banks on mortgaged properties and which is ceded to the bank as security against future damage to the property.

House Rules
Rules governing the control and management of the property in a Sectional Title development.

Household Contents Insurance
Insurance against loss or damage to the contents of a residence such as furniture, appliances, clothing, etc.

Hurdle Rate
The minimum total return (income yield plus expected capital appreciation) required by potential investors to induce them to invest in a property. Also known as the required rate. As such this is normally the correct rate to use when doing discounted cash flow (DCF) analyses. This is a similar concept to a company’s cost of capital, and it is not to be confused with the cost of money (say, overdraft interest rate). One way of measuring the total return on an investment, ex post or ex ante, is the internal rate of return (IRR) method.
Related Topic: Discount Rate.

Huur Gaat Voor Koop
A Dutch term which means ‘lease goes before sale’. Where leased premises are sold before the lease has expired, the tenant may in terms of the huur gaat voor koop rule occupy the premises until the lease expires. In the case of a long lease (i.e. a lease for a period of 10 years or longer), this applies only if the lease is in writing and registered against the title deed of the leased premises, or if the purchaser at the time of conclusion of the sale knew that the lease was a long lease.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Hypothec
The right of security over movables. In the case of a lease, the lessor has a hypothec (right of security) over the lessee’s movable goods on the leased premises in order to secure payment of rent.


Identification Certificate
A Certificate issued by a Surveyor General certifying that the building complies with the municipal approved plans and with the conditions of title contained in the Title Deed

Immovable Property
Land, buildings and everything that is permanently attached to it.

Improvements
Buildings, parking areas, drainage works and so forth added to vacant land with the view to increasing its value.

Income Capitalisation Approach
Estimating value (V) by dividing Net Operating Income (NOI) by an overall capitalisation rate (Ro). Thus V = NOI / Ro. This method of determining the value of property is normally applied when valuing commercial property with long term commercial leases and the benefit lies in that the valuation of the revenue the property can produce is used and not just the valuation of the property only. The capitalisation rate is determined by risk factors such the current interest rate and the duration of the existing leases.

The Income Capitalisation method can be more fully understood by downloading our Commercial Property Financial Model here:
Commercial Property Financial Model: The DeskTop Tab reflects the methodology

Related Topic: Approaches to Value, Assessed Value, Assessment, Capitalisation Rate, Net Operating Income (NOI), Yield (Initial).

Income Property
A property which is acquired for the purposes of producing income for the owner, usually from rental.

Index
Describes the method of standardizing the base for comparative data in a time series, usually equating the initial measure to 100 and then expressing all other data in exact relation to that base, e.g. the index for office rentals in any year by comparison with a base-year value of 100 might stand at 90 or 110, indicating a fall or rise of 10% respectively.

Industrial Park
An industrial park is a multi-tenanted complex of industrial buildings, typically surrounded by a security fence with access control and possibly some greenery.

Industrial Property
Land zoned specifically for industrial use, for example, factories.

Industrial-Building Grades

Prime
A property in which space is easily lettable because it satisfies each of the following prerequisites:

a. Generally in a good condition;
b. Satisfactory macro access (i.e. access to freeway);
c. Satisfactory micro access (i.e. from street to building);
d. Proper loading facilities;
e. Eaves >4 m (excluding micro/ mini units);
f. Clear spans;
g. On ground level;
h. Adequate three-phase electrical power.

The eight conditions above are prerequisites for space to be considered prime. However, a building may possess additional enhancements that could improve lettability through increasing the size of the potential tenant pool. Such enhancements could include sufficient office accommodation, adequate parking, sprinkler systems, masonry up to sill height, adequate floor loadings, roof insulation, sufficient yard space and a good location (as opposed to access).

Secondary
This is industrial space which is not classifiable as prime because it does not satisfy all eight prerequisites for prime space listed above. Such space is typically old buildings or structures, which have been haphazardly renovated. It would have poor access, too little yard space or office accommodation, inadequate goods lifts, no three-phase power and obsolete electrics and ablution facilities. Such space is often (but not exclusively) found in highly urbanised areas.

Inflation
The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a rand decreases, since one rand will buy much less in future than it previously could.

Infrastructure
Essential services and facilities, such as streets, bridges, transport routes, utility generation and delivery, etc.

Initial Yield
The first year’s expected net operating income (based on existing leases and other income reasonably expected) divided by the purchase price. Therefore the initial yield and the capitalization rate are only the same in those rare cases where a building is let at open-market rentals.

Initiation Fee
A once-off payment levied on new home loans to cover administrative costs of providing a new home loan.

Insolvent
A person unable to repay debts and whose estate is declared insolvent in terms of the Insolvency Act 24 of 1936.
Related Topic: Liquidation.

Inspection Fees
Also known as valuation fees or assessment fees. The fees charged by the bank for assessing a property prior to granting the finance applied for.

Instalment
The monthly amount payable on outstanding debt. In terms of a home loan, it is also known as bond repayments. It includes the interest on the home loan, a small portion of capital (loan amount) repayment and other costs such as insurance and fees. These monthly repayments are usually payable by debit order and can increase or decrease as the interest rates increase or decrease.

Instalment Sale
A property sale in which the purchaser pays the purchase price or a protion thereof to the seller in instalments, usually monthly.

Institutional Investors
Organisations which pool large sums of money to invest in companies. Institutional investors include banks, insurance companies, retirement or pension funds, hedge funds and mutual funds

Insurance
Protection of assets against unforeseen loss or damage. A monthly fee (premium) is payable to an insurance company for a guarantee that the insurer will pay out a certain amount of money for unforeseen loss or damage to the insured property, as defined in the insurance policy.
Related Topic: Acquisition Costs.

Inter Vivos Trust
A trust which is set up and operates during the life of the founder, as opposed to a trust that is created upon the death of a person.
Related Topic: Beneficiary, Deed of Trust, Investment Trust, Trust, Trustee.

Interest
The amount charged by a lender for the lending money to a borrower, calculated as a percentage of the remaining balance of the amount borrowed.

Interest Bearing Account
An account in which attorneys and/or estate agents hold money for clients until the money has to be paid out to third parties, for example, a deposit paid by a purchaser which will be paid to the seller. The interest on the money in the account accrues to the person who paid the money into the account, unless otherwise stipulated in a contract.
Related Topic: Trust Account.

Interest Rate
The annual rate charged to a borrower on a loan by a lender, expressed as a percentage. The interest is calculated on the daily balance of the loan and capitalised monthly.
Related Topic: Capped Rate, Interest Rate Cap.

Interest Rate Cap
The maximum interest rate increase an adjustable mortgage loan may be subjected to. An interest rate cap could refer to a specific value or a specific range. For example, a loan with a 12% interest rate and a 5% interest rate cap, would have maximum interest rate of 17%. Or, simply stated, the interest rate cap could be stated as 17%. Interest rate caps are used as a risk hedging tool, in times where large fluctuations in interest rates may occur.
Related Topic: Capped Rate, Interest Rate.

Internal Rate of Return (IRR)
A performance measurement that takes cognisance of the time-value of money. Technically, it is that rate which equates the inflows with the outflows of a cash flow. Also known as the money-weighted rate of return because the timing and weights of the money-flows influence the return.
Related Topic: Geometric Mean Return.

Intrinsic Value
The value of an item itself, rather than the value that may be attributed as a result of the buyer or seller’s perception. It thus excludes by definition any enhancements or defects that may influence its ‘market value’. For example, the intrinsic value of a painting is the value of the canvas and paint, rather than the value to an art collector

Inventory
A detailed list of assets such as fixed property in possession of a person or a business.

Investment
The purchase or exchange of any asset or right to an asset by an investor with the aim of making a profit. For example, an investor ‘purchases’ a fixed deposit at a bank with the intent of earning interest thereon and so making a profit.

Investment Property
Any property purchased with the aim of producing economic gain for the buyer, either from income generated, such as rental, or from the appreciation in value, realised through refinancing or resale.

Investment Trust
An entity that pools the resources of its shareholders and invests the proceeds in stocks, real estate, or other investments with the aim of increasing the equity of the shareholders.
Related Topic: Beneficiary, Deed of Trust, Inter Vivos Trust, Trust, Trustee.

Ironclad Contract
A colloquial term referring to a well-structured contract which makes provision for all eventualities.


JBCC 2000 Contract
The Joint Building Contracts Committee, "JBCC”, was formalised in 1997 with the registration of a Non Profit Company. The committee concentrates on the compilation of current contract documentation with an equitable distribution of contractual risk in the building industry. The suite is approved by the CIDB (The Construction Industry Development Board) and is used by national and provincial state sectors.
Regular revisions to the JBCC contract documentation suite ensure that documentation remains current.
Related Topic: Tripartite Agreement

Johannesburg Interbank Agreed Rate (Jibar )
The Johannesburg Interbank Agreed Rate is a 3 month deposit rate. It is a South African money market rate which is determined by a number of local and international banks, and updated on a daily basis. This rate is published each day by 11h00 on Reuters on the SAFEX page.

Joint & Several Liability
If two or more people buy a property together and agree to be jointly and severally liable, they agree that each person will become liable for the repayment of the whole debt, and not just their portion of it. In other words, if two people are jointly and severally liable and one person defaults on the bond repayments, the other becomes responsible for the entire amount outstanding, not just his/her share.

JSE
JSE Securities Exchange South Africa.

Judgment
Is a legal recording of an inability to honour a debt.


Not Topics


Landlord
A real estate owner who rents or leases land or a building to another party, known as a tenant. The landlord will often provide the necessary maintenance or repairs during the rental period, while the tenant is responsible for the cleanliness and general upkeep of the property.

For real estate investors, becoming a landlord can be a profitable venture. It often provides a steady stream of income from the renter, while maintaining ownership over a property that is likely to appreciate in value.
Related Topic: Absentee Landlord.

Land Use Planning
Municipal guidelines for the use of development of land within its boundaries.

Latent Defect
A fault or flaw that is not immediately evident, or is hidden from view, during a reasonable inspection of the property.

Lease
An agreement signed between a landlord and a tenant, giving the tenant the right to occupy property for a fixed period of time, in return for a monthly rental. The lease agreement details the rights and obligations of the landlord and the tenant during the agreed period of lease.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Lease with Option to Purchase
A rental contract that allows the tenant to purchase the property during the period of the lease. Payments under the lease may be credited, in whole or in part, against the purchase price.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Leasehold
A long lease of more than 10 years in which the registered owner of the property (usually land) gives the lessee the right to treat the property as his/ her own for the length of the lease. It reverts back to the registered owner at the end of the lease.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Legislation
Also referred to as statute law. Legislation is passed by the South African parliament, which is the supreme law-making body in the country. Apart from statutes, which are Acts of Parliament, other forms of legislation are ordinances and proclamations of the provincial councils. The term may refer to a single or collective body law.

Lender
A bank, finance institution, company or person providing finance to a borrower. In the property industry, usually the bank providing the home loan or bond, or development finance

Lessee
Also known as a tenant. A person who does not own the property but pays rent to occupy the property.

Lessor
The person who rents out the property to a lessee. A lessor can be the owner or a landlord letting the property on behalf of the owner.

Levy Clearance Certificate
A certificate issued by the body corporate of a sectional title scheme stating that the levies have been paid to a future date in respect of the property.

Lien
The right of retention. Where a person has improved someone else’s property or has incurred certain expenses in respect thereof, he may retain possession of such property until the debt due to him has been discharged. This right to retain possession is called lien.

Life Insurance
Also known as life assurance. An insurance policy that pays out a specific amount of money following the death of the insured, subject to numerous terms and conditions. Financial institutions require, as a condition of the loan grant, that the borrower cede an adequate insurance policy to the bank to cover the loan in the event of the borrower’s death or disability. The bank cannot insist, however, that the borrower do this through the bank’s own insurance company.
Related Topic: Bond Assurance.

Limited Real Right
A registered right over someone else’s property, for example, a servitude or a mortgage bond.

Liquidation
The legal process leading to the dissolution of a company or close corporation. A company or close corporation that is declared insolvent, or is ‘wound-up’ for other reasons, is said to be ‘in liquidation’.

Loan Agreement
An agreement which must be signed by the bondholder and sets out all the details of the loan offered by the bank, as well as the bank’s conditions in granting the loan.
Related Topic: Agreement of Loan, Bond, Building Loan.

Loan Plus Costs
A home loan, particularly first time homeowners, that allows the borrower to obtain a loan for more than 100% of the property value to cover the additional costs of buying a property, such as bond, registration and transfer costs, which they would otherwise have to pay from their own pockets.

Loan-to-Value Ratio (LTV)
The amount of the loan in relation to the current market value of the property. For example, if the market value of the property is R500 000 and the bank offers a loan of R500 000, the LTV is 100%. If the loan offered is only R400 000 the LTV is 80%. The calculation is made as follows: LTV = [home loan amount required divided by assessed property value] x 100.

Location, Location, Location
A popular adage referring to the fact that location is generally considered the most important factor in property acquisition decisions. The real question is what characterises a good location at any time, since the characteristics can change by city, by investor and over time. This term has been criticised for ramping property prices recently.

Lodgement
Handing in the necessary documents at the Deeds Office for verification and registration.

Long Lease
A lease for a period of not less than 10 years; or for the natural life of the lessee or any other person mentioned in the lease; or renewable from time to time indefinitely at the will of the lessee; or for periods that, together with the first period of the lease, amount to not less than 10 years.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.


Mandate
A Manadate is a contract between the seller/lessor of a property and an estate agent giving the agent the right to market and sell/lese the property within a stated period of time and at a predetermined price/rate.

Open Mandate
Many different estate agents can have a mandate to market your property, meaning that one estate agent cannot claim to have the sole right to market it.

Sole Mandate
Giving an estate agent a sole mandate to market your property, means that you cannot confer a similar mandate on another estate agent before the expiry of a determined period. If another estate agent sells or lets your property during this period, the estate agent with the sole mandate can claim damages from you, which may be equal to the commission that he could have earned if he sold the porperty.

You however, can sell or let the property yourself without any implications during this period as long as you make sure the wording in the mandate does not state that the estate agent has 'sole and exclusive selling rights' or 'sole right to sell' or 'sole authority to sell'.

Sole and Exclusive Mandate
Nobody (including you), except for the estate agent holding the sole and exclusive mandate, is allowed to market your property before the expiry of the determined period of the mandate. This means that should anyone other than the mandated estate agent sells your property, you will still have to pay commission to that estate agent.

The estate agent, to whom the sole and exclusive mandate was given, is still entitled to his commission if he introduced a buyer to your property during the mandated period, depending upon the wording of the mandate document, and this buyer only pruchases your property after the expiry of the madate, perhaps through you as the owner or through another estate agent.

Market Rental
The most probable rental that a voluntary, informed and prudent lessee will pay a voluntary, informed and prudent lessor in a normal open-market (arms-length) transaction, when neither party is under any compulsion to rent or let, other than their normal desire to transact.

Market Value
The most probable price that a voluntary, informed and prudent purchaser will pay a voluntary, informed and prudent seller in a normal open-market (arms-length) transaction at the date of valuation – after allowing for proper marketing prior to the valuation date — when neither party is under any compulsion to sell or to purchase, other than their normal desire to transact.
Related Topic: Fundamental Value (FmV), Price.

Mean
Related Topic: Arithmetic Mean, Geometric Mean, Median.

Median
Midpoint of a series of observations when arranged in order of magnitude. Thus it is a measure of central tendency that divides the data set into halves. Less affected by outlier observations than the arithmetic mean. For example, the median of 5, 6, 7, 8, 9 is 7. And for 5, 9, 15, 16, 17, 21, 23 the median is 16.
Related Topic: Arithmetic Mean, Geometric Mean, Mean.

Metro
Metropolitan.


Natural Vacancy Rate
The normal, average or traditional percentage of rental properties in a community that are not leased or occupied.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Net Lease
A lease with a provision for the tenant to pay, in addition to rent, certain cost associated with the operation of the property. These costs may include property taxes, insurance, repairs, utilities and maintenance. There are also “NN” (double net) and “NNN” (triple net) leases. The difference between the three is the degree to which the tenant is responsible for operating cost.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Net Rental
The amount payable by the tenant, excluding VAT and excluding operating costs recovered by the landlord.

Net Operating Income (NOI)
NOI is Potential Gross Income less Vacancy Provision plus Recoveries less Operating Costs. It is the basis upon which the value of the property is determined using the Capitalisation Method.
Related Topic: Approaches to Value, Assessed Value, Assessment, Income Capitalisation Approach, Valuation, Yield (Initial).

NHBRC
The National Home Builders Registration Council, with which all builders must be registered. The NHBRC ensures that builders provide a five-year warranty on their work to protect consumers from bad workmanship.

Notarial Deed of Lease
A Lease exceeding 10 years must be registered against the Title Deed of the Property in order for the Lease conditions to be enforceable for the period that exceeds 10 Years. Such Lease must be Notarised, hence a Notarial Deed of Lease.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Nominee
The person nominated or appointed by another for a specific purpose. Sae agreements are sometimes drawn up on the basis that the property is sold to the purchaser or his/her ‘nominee’

Non-Liquid Assets
Assets that cannot be easily converted into money. For example, shares can be sold and converted into money fairly quickly and easily, whereas a property could take months to sell.

Notice of Default
A written notice to the borrower to inform him/her that there has been a default on the terms and conditions of the contract - for example a monthly repayment was not made on the due date - and that legal action may be taken since a default is a breach of contract.

Null & Void
A legal expression for the final cancellation or lapse of an agreement. Once an agreement is declared null and void, it has no legal effect and cannot be enforced by either party.


Obsolescence
An impairment of desirability and usefulness caused by new inventions, changes in design, improved processes for production, or other external factors that make a property less desirable and valuable for a continued use. A cause of depreciation.

Occupation
Physical occupation of the property. Occupation can be ‘vacant’, meaning that the buyer can move in or put a tenant in; or ‘subject to tenancies’ meaning that the current tenant has a right to occupy the property until the lease agreement expires. Occupation is not ‘possession’ - only an owner can possess, but anyone, including a tenant, can occupy a property.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Occupation Date
The date on which the buyer can occupy or move into the property.

Occupation Declaration
A declaration that the borrower will personally occupy the property being so purchased or that a third party will do so with the owner’s consent. The banks require such a declaration to be signed with the aim of reducing the risk of illegal occupiers, who are difficult to evict, from taking possession of the property.

Occupational Consideration
Also referred to as ‘occupational interest’ or ‘occupational rent’. If the registration of transfer does not coincide with the occupation date, occupational consideration is paid for occupation of the premises, either by the buyer to the seller or vice versa. It is payable monthly in advance and is refundable on a pro-rata basis once the registration occurs. For example, a purchaser, who has taken occupation of a property before it is registered in his/her name, is usually required by the seller to pay a monthly amount for such occupation. Rental should be considered a fair rental rate.

Occupational Interest
A document usually drawn up by an estate agent, in which the buyer offers to purchase the property from the seller subject to certain conditions. The Offer to Purchase will detail the address, the names of the parties, the sale price and how it is payable, the estate agent’s commission, the arrangement for the bond to be taken out by the buyer, and the periods in which things may happen - the most important of which is the presentation of guarantees, which provide certainty to the seller that he/she will be paid. The Offer to Purchase will often include suspensive conditions or ‘subject to’ clauses. These specify events that must take place before the Offer to Purchase becomes enforceable, for example, a common suspensive condition is that the buyer can obtain a bond, or can sell his/her existing property. Once signed by all parties, it becomes a legal and binding contract between the buyer and the seller.

Offeree
The person to whom an offer is made. In sale transactions, a purchaser usually makes an offer to a seller of a property. The seller is then the offeree, and the purchaser the offeror.
Related Topic: Offeror.

Offeror
The person who makes an offer. In sale transactions, the purchaser is usually the offeror, i.e. the person who makes an offer to the seller of a property (the offeree) to buy the property.
Related Topic: Offeree.

Office Building Grades

P-Grade
Premium office space. P-Grade office space is top-quality, generally modern space which is a pacesetter in establishing rentals and which includes the latest or a recent generation of building services, ample parking, a prestige lobby and good views, or a good environment.

Grade-A
Generally not older than 10 years, unless renovated; prime location; high-quality finishes; adequate on-site parking; air-conditioning. Commands a gross market rental as indicated in the accompanying table.

Grade-B
Generally 10 to 20 years old, unless renovated; accommodation to modern standards; prime location; air-conditioning; on-site parking. Commands a gross market rental as indicated in the accompanying table.

Grade-C
Generally 20 to 30 years old, unless renovated; in fairly good condition, although finishes are not up to modern standards; good location; may have onsite parking; unlikely to be centrally air-conditioned; commands a gross market rental as indicated in the accompanying table.

Grade-D
A building reaching the end of its functional life; old and in poor condition; near the bottom of the rental rate range; typically no air-conditioning and no on-site parking; may have good location. These grades might be further sub-divided into sub-grades A+, A-, B+, B-, C+ or C-.

Office Demand
Office stock less office space vacant (space on the market for renting irrespective of whether there is still a valid lease over the space). In other words, demand is office space occupied.

Office Stock
Total rentable office space.

Office Take-Up
Change in office demand. Where take-up is positive, it can also be called the growth in demand.

Office Vacancies
This is the floor area available for leasing at any given time, irrespective of whether there is still a valid lease over the space. Often expressed as a percentage of the stock in rentable m².

Operating Costs
Often referred to as ‘op costs’, ‘operational expenses’ or ‘outgoings’. Usually include property management fees, security and cleaning services, insurance and municipal charges. This periodic expenditure is necessary to maintain a property and continued production of the effective gross income, assuming prudent and competent management. Relative to occupancy, cost can be fixed (security, non-recoverable rates and taxes, insurance, audit fees) or variable (cleaning, repairs and maintenance, management, leasing expenses) in nature.
Related Topic: Outgoings.

Opportunity Cash Flow (OCF)
A valuation term introduced by Rode. The OCF quantifies the amount gained or foregone by the landlord in that the property is either over rented or under rented. More precisely, for each lease and the space that such a tenant occupies, it is, until expiry of such a lease, the present value (PV) of the contractual rental less the open-market rental (as at the valuation date) escalating at the open market escalation rate (as at the valuation date).

Option
An offer including an undertaking by the person making the offer (the offeror) not to revoke the offer for a specified period. The person to whom the offer is made (the offeree) is then said to have an option. The option is exercised when the offer is accepted timeously. An option falls away if the offer is not accepted by the offeree before the expiry date.

Outgoings (Operating Costs)

In the case of office buildings, the following items are included under total gross outgoings, irrespective of who pays for these:
Cleaning Repairs & maintenance Common-area electricity & water (not tenant’s own) Security Management (excluding head office overheads) All leasing expenses: broker’s commission and in-house payroll, advertising, tenant installations & relocations (unless recovered), buy-outs, etc Municipal tax Insurance (fire & SASRIA) In the case of self-insurance, the landlord’s provision should be included Refuse & sewerage less recoverable amount External & common area repairs & maintenance Audit fees

The following items are excluded:
VAT Head office overheads Tenant’s own electricity and water Tenant installations/relocations recovered Internal maintenance, Recoverable refuse & sewerage

Owner–Occupier
The owner of the property is also the main occupier.


Participation Quota (PQ)
The participation quota is used in a sectional title property to determine each individual owner’s monthly levy. It is calculated by dividing the size of each section into the total floor area of all the sections.
Related Topic: Sectional Title.

Patent Defect
A fault or flaw that is detectable, and not hidden from view, during a reasonable inspection of the property.

Percentage Lease
Refers to a provision of the lease calling for the landlord to be paid a percentage of the tenant’s gross sales as a component of rent. There is usually a base rent amount to which ‘percentage’ rent is then added. This type of clause is most often found in retail leases.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

PLS
Property loan stock, also known as variable loan stock (VLS) (type of listed property fund).
Related Topic: Property Loan Stock (PLS), PUT, Real Estate Investment Trust, REIT .

Plumbing Compliance Certificate
Required prior to tranfer of property. A certificate issued by an accredited Plumber certifying that the water supply to the property conforms with the requirements stipulated in the Water By-Laws The cost of the certificate and any repairs that need to be made are for the sellers account and is required by law for the property to be transferred to the buyer’s name.

Positive Equity
Positive equity exists in a property bond or home loan if the value of the property exceeds the amount owing on the home loan. There are an increasing number of financing products that allow homeowners to access positive equity, including home income plans for retirees.

Possession
When the buyer takes over legal control of the premises, as only an owner can, as opposed to taking occupation, as a tenant would. On registration of the transfer of the property, all obligations and rights to the property are passed from the seller to the new owner.

Power of Attorney
A legal document authorising one person to act on behalf of another in all matters, including opening bank accounts, buying and selling shares or immovable property and generally carrying out business duties.

PPP (Public Private Partnership)
Public Private Partnership is a joint venture project between Government and the Private Sector

Pre-Approval or Prequalification Certificate
Banks and even some bond originators can provide a preapproval or prequalification certificate confirming that the buyer qualifies for certain bond amount. This means that a bond is not yet granted, but the bank has made a commitment that if a loan is required, it will be willing to provide a loan up to the value of the pre-approval. The pre-approval is based on a preliminary credit screening based on the information provided by the buyer, which will be verified when a formal application is made. This gives a buyer more leverage when negotiating with a seller.

Price
The amount actually paid for an asset. Not the same as market value, because special circumstances may have applied when the transaction was concluded.
Related Topic: Asking Price.

Prior Occupation
A buyer’s right to take personal occupation of a property before transfer takes place. A rental, called occupational rent or occupational consideration, is agreed to in advance between the parties, and is payable by the buyer until registration of transfer. See ‘Occupational consideration’.

Property Loan Stock (PLS)
Also known as a variable loan stock – a type of listed property fund with the weight of nearly all the funds within the sector.
Related Topic: PLS, PUT, Real Estate Investment Trust, REIT .

PUT
Property unit trust (type of listed property fund).
Related Topic: PLS, Property Loan Stock (PLS), Real Estate Investment Trust, REIT .


Not Topics


Raising Fee
A Fee charged by a Funding Institution for raising the finance on a property transaction, usually a % of the loan amount.
Related Topic: Acquisition Costs, Administration Fees.

Rates & Taxes Clearance Certificate
A certificate issued by the municipality or local authority to confirm that all the rates and taxes for the property are paid up to date. The documentation is required before a property transfer can take place.

Real Right
A right over or in respect of property. Real rights over or in respect of immovable property are registered against the title deed of the property.

Redlining
A term describing a lending institution’s refusal to lend money to owners or prospective buyers of property in certain locations. Banks in South Africa are no longer allowed to use redlining but can still reject a loan on legal grounds.

Refinancing
Accessing the positive equity, i.e. the amount by which the market value of the property exceeds the outstanding bond amount, in a home loan or bond.

Registered Right
A right over property registered in a deeds office against the title deed of the property. The purchaser of immovable property is bound by the rights registered over the property whether or not he knew of their existence at the time of sale.

Registering Attorney (Bond)
A conveyancer appointed by the bank, which will hold the new mortgage bond (home loan) over the property. The attorney attends to the registration of the new bond into the name of the buyer. The registration attorney or bond attorney can be nominated by the buyer.
Related Topic: Attorney, Cancellation Attorney.

Registration
The process of recording the transfer of the property into the purchaser’s name at the Deeds Office, which ensures the purchaser is noted as the legally registered owner of the property. The home loan is secured at the Deeds Office by registering it over the property as a mortgage bond.

Real Estate Investment Trust
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Equity REITs
Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.

Mortgage REITs
Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.

Hybrid REITs
Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
Related Topic: PLS, Property Loan Stock, PUT, REIT .

REIT
A REIT is an entity that invests primarily in real estate and qualifies for special tax status, so there is single taxation at the investor level.
Related Topic: PLS, Property Loan Stock, PUT, Real Estate Investment Trust .

Renewal Option
A right contained in a clause in a lease contract which takes effect at or near the termination date of a contract. The party who enjoys the right may choose to continue the agreement on terms as set out in the option clause or to treat the contract as at an end on the termination date.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Rental Types

Basic Rental:
A set amount used as a minimum rent in a lease which also employs a percentage of turnover or other allocation for additional rent.

Gross Rental:
The total rental payable by the tenant, excluding VAT, the tenant’s own electricity and water charges, but including other operating costs recovered by the landlord (if any), as well as promotion expenses payable by the tenant in the case of shopping centres.

Net Rental:
The amount payable by the tenant, excluding VAT and excluding operating costs recovered by the landlord (if any).

Nominal Rental:
This has a dual meaning Firstly, it refers to rentals where the analyst or valuer assumes no incentives like a rent-free period, free relocation, cash upfront, or balance-of-installation allowance. It also excludes amortisation of tenant-installation costs. Secondly, it can also mean actual rental values (i.e. not deflated).

Pioneer Rental:
The highest rental actually achieved – and could be a once-off outlier deal; hence “pioneer” is not “market”. The difference between pioneer and the highest market rentals may be used as a blunt tool to gauge the prospects for market rental growth in the short term. If the differential is positive, it is an indication of growth prospects in the node. If the differential is negative, it is an indication that landlords are finding it difficult to find new tenants at the going market rental rate.

Real Rental:
Deflated rental, typically observations (values) over time (a time series) from which the relevant inflation has been removed.

Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Rent-Free Period
No rent is payable by the tenant for an initial portion of the term of a lease. It is offered by a landlord as a rental concession to attract tenants.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Repossession
A legal process by which the bank may take possession of a property and sell the property to pay off the outstanding bond amount, if the bondholder defaulted on the repayments.

Required Rate
Related Topic: Hurdle Rate.

Reserve Price
The amount set prior to an auction which must be met in the bidding for a particular item before the item will be sold. Also known as ‘reserve bid’.

Resolutive Condition
A clause in an agreement of sale or lease which has the effect that the agreement will terminate on the occurrence of an event specified in the clause. The contract is immediately binding and will remain binding unless the condition is realised. A typical example of a resolutive condition is a condition in an agreement of sale of a proposed sectional title unit stating that the agreement will terminate if the sectional title plan is not registered before or on a certain date.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Restrictive Conditions of Title
Conditions stipulated in the title deed of a property prohibiting the building of certain improvements on the property, or limiting the use of the property. A typical example is a condition in a title deed stating that a house must have a tile roof.

Retail Price
In the context of property syndication, this means the price at which a property-holding company’s shares are sold to the public or the price at which these shares trade.
Related Topic: Wholesale Value.

Return on Investment (ROI)
The return on an investment consists of any dividend, interest, rent or other income added to the increase in the value of the asset over a certain period - usually as an annual percentage of the original investment.

Return on Equity (ROE)
Same measurement as ROI except that it is based on the amount contributed by the Investor and not the cost of the asset purchased. Leveraging is one of the primary advantages of investing in property. Leveraging (Gearing/Debt) is not available to other asset classes, hence ROE on property will outstrip any other asset class over time.

The Leveraging Effect can be more fully understood by downloading our Commercial Property Financial Model here:
Commercial Property Financial Model
The Financial Statements Tab reflects the ROI vs ROE

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Reverse Mortgage
Also known as a home income plan. A reverse mortgage is essentially a cash loan available to retirees against the value of their paid-up property.

Right of Pre-Emption
A contractual right entitling a person to make the first offer to purchase a particular property. Also known as ‘right of first refusal’. Lease agreements sometimes provide that should the lessor wish to sell the property, the lessee has a right of pre-emption to purchase it.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Sale & Leaseback, Triple Net Lease, Turnover Rental.

Risk Profile
Risk profile refers to a borrower’s credit worthiness, including whether the borrower earns enough money to repay the loan, whether there is any record of bad payments in the past, or if the borrower has been ‘black listed’ by other creditors. The risk profile influences a person’s eligibility for a loan.
Related Topic: Underwriting.


Sale & Leaseback
A financing arrangement where a property is sold by its owner-user and simultaneously leased back from the buyer for its continued use. This type of sale cannot be Zero Rated for VAT purposes.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Triple Net Lease, Turnover Rental.

SAPOA
South African Property Owners Association.

SARB
South African Reserve Bank (viz. the central bank)

Second Mortgage Bond
An additional mortgage or bond registered over the property. The money could be used for renovations, to buy another property or for expenses such as a holiday or university fees.

Sectional Title
A property divided into individual units, usually townhouses or flats, which are sold separately. Thus, tenure is held by the property owner over a section of the property, not the whole property. The sectional title property has common areas, such as stairways and lifts, that belong collectively to all the owners of the units. The sectional title complex is managed by a body corporate, who takes care of the day-to-day management of the complex e.g. employment of maintenance staff, upkeep and collection of levies. All the owners of the individual units are members of the body corporate and pay monthly levies to contribute to the day-to-day running expenses.
Related Topic: Freehold (Free) Title, Leasehold, Share Block Schemes or Developments.

Secular Trend
A long-term growth path of an economic variable, around which there might be short-term (business cycle) or other fluctuations.
Related Topic: Cyclical Trend.

Securitisation
The use of securities such as shares and bonds that enables investors to lend directly to borrowers, with minimum risk, and without using banks as intermediaries. An example of securitisation would be if an investor purchases shares on the securities exchange in a listed company – the investor (lender) transacts directly with the borrower (company) via the security exchange (such as the JSE) by purchasing the security (share).

Security
Collateral for the bank, which can be called on in case a client defaults on payment.

Sequestration
The use of securities such as shares and bonds that enables investors to lend directly to borrowers, with minimum risk, and without using banks as intermediaries. An example of securitisation would be if an investor purchases shares on the securities exchange in a listed company – the investor (lender) transacts directly with the borrower (company) via the security exchange (such as the JSE) by purchasing the security (share).

Service Fee
The monthly fee banks charge on a home loan for the administration costs of maintaining the loan.

Servitude
A registered right one person has over the property of another, registered against the title deed, which usually entitles the holder of the servitude to do something on the property. A common example is a right of way to travel over the property. It could also, for example, be a registered right of access, which allows the local authority access to a property for inspection or installation of pipes, sewerage lines, electricity cables, etc. A servitude is registered against the title deed.

Share Block Schemes or Developments
Under a share block scheme, a purchaser buys shares in a company that owns a property and the shares entitle the purchaser to use and occupy a unit/house/designated area of the company-owned property. Since no title deed can be registered, the bank cannot register a bond. The operation of a share block scheme is regulated by the Share Blocks Control Act 59 of 1980, as well as by the provisions of the Companies Act 61 of 1973.
Related Topic: Freehold (Free) Title, Leasehold, Sectional Title.

Shoppertainment
A retail concept that brings shopping and entertainment facilities together in a single shopping mall. The term is not used in South Africa because an American company holds copyright on the name.

Shopping Centre Configurations

Shopping Mall:
Typically enclosed with common walkway between two facing strips of stores. This is the design mode for super regional, regional and most community shopping centres.

Strip Centre:

Is an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking, usually located in front of the stores. Store-fronts may be connected by open canopies, but there are no enclosed walkways linking the stores. Store configuration is either a straight line, “L” or “U” shaped. This is the design mode for most neighbourhood, convenience and value (power) centres.

Shopping Centre Types

Super Regional Malls
More than 100.000 rentable m² of shop space; substantial comparison-shopping; principal tenants are three or more major department stores; more than 250 shops. Examples are: Eastgate and Sandton City (Johannesburg); Menlyn Park (Pretoria); Gateway (Durban metro); Canal Walk (Cape metro).

Regional Malls
30.000 to 100.000 rentable m² of shop space; principal tenant(s) are one or more major department stores; approximately 40 to 250 shops. Examples are: Westgate, Fourways Mall, Cresta (Johannesburg); Brooklyn Mall (Pretoria); The Pavilion (Durban metro); Sanlam Centre in Parow, Tyger Valley, Kenilworth (Cape metro); Greenacres (Port Elizabeth); Mimosa Mall (Bloemfontein); Vincent Park Shopping Centre (East London).

Community Centres
10.000 to 30.000 rentable m² of shop space; principal tenant is typically a variety store (e.g. Clicks) or a discount department store (e.g. Dion or Game); approximately 30 to 60 shops. Examples are: Sunnypark (Pretoria); Musgrave Centre (Durban); Middestad Mall in Bellville, Meadowridge, Goodwood Mall, Constantia Village (Cape metro); Constantia Centre (Port Elizabeth); Brandwag Centre (Bloemfontein); Beacon Bay Retail Park (East London).

Neighbourhood Centres
3.000 to 10.000 rentable m² of shop space; principal tenant is a supermarket; 15 to 40 shops.

Convenience Centres
300 to 1.200 rentable m² of shop space; principal tenant is a café or grocer like Kwik Spar; 5 to 15 shops.

Retail Warehouse
Stand-alone; single tenant; >10.000m²; air-conditioned, no ceiling, warehouse-like finishes, e.g. Makro, Hypermarket, Game, Dion.

Value Centres
Multi-tenanted strip centre; >10.000m²; warehouse type finishes in order to deliver lower prices to consumers.

Smallholding
A property situated within a 150km radius of a built-up area that does not exceed 20 hectares and can be connected to a local authority’s water supply, or which has a borehole.

Smoothing
Removal of shorter-term fluctuations in a time series, by e.g. moving averages, exponential smoothing, or curve fitting.

Solvency Affidavit
An affidavit signed by a borrower with the bank’s conveyancers, confirming that he/she has never been sequestrated.

Speculative Development
A high risk development that takes place without a secured tenant or without pre-selling - an indication that the market is buoyant and developers are confident. Speculative transactions are often associated with the high returns due to the risk involved.

Speculator
A person who buys property for the sole purpose of selling it at a profit within a short timeframe, based on an expectation that the value of the property will increase significantly over a short period of time.

Standard Capitalization Rate
It is the expected net operating income for year 1, assuming the entire building is let at open market rentals, divided by the purchase/transaction price, normally expressed as a percentage. This calculation ignores VAT, transfer duty and income tax, and assumes a cash transaction (in contrast to a paper-based sale).

Standard Deviation (SD)
A measure of dispersion in a set of data. For instance, assume a mean of R10 and an SD of R1,50. This means there is a 68% chance the values will lie between R10 - R1,50 = R8,50 and R10 + R1,50 = R11,50.

Stats SA
Statistics South Africa, South African government’s statistics department. Previously known as Central Statistical Services (CSS) and even earlier as the Department of Statistics.

Statutory Law
The body of laws created by legislative statutes, i.e. the written law of the country.

Subdivision
The division of a property, according to a specific legal and technical procedure, into two or more portions.

Subject-to-Sale
A suspensive condition used in Offer to Purchase documents when the buyer must first dispose of an existing property before he/she can buy the new property. The clause states that the sales contract will only become unconditional between the parties if and when the buyer sells his/her own property within a certain time period, usually 60 days.
Related Topic: Suspensive Condition.

Subsidy
A housing allowance that forms part of an employee’s remuneration package. The employer deducts bond repayments directly off the employee’s salary. Government employees usually receive subsidies.

Surety
A guarantee for a loan provided by a person other than the borrower. Signing surety on a loan means that the person signing surety agrees to be personally responsible for the debt if the borrower cannot repay it. The term ‘co-principal debtor’ means that if anything goes wrong, the person who signed the surety is considered to be as responsible as the debtor and will be called on to pay the debt. In fact, in most cases, the bank can decide to simply claim the money from the strongest financial party.

Surveyor General's Diagram
Shows subdivisions, servitudes, expropriations in relation to a property. It becomes a condition of loan when the assessor cannot identify the property to be bonded on the latest municipal map.

Suspensive Condition
A clause in an agreement of sale whereby the validity of the contract is made subject to the occurrence (or non-occurrence) of a future event. Usually, but not limited to, Due Diligence for commercial property or the granting of a finance or the sale of another property before a certain date. Only if and when the suspensive conditions have been fulfilled will an enforceable contract exist.
Related Topic: Subject-to-Sale.

Switching
Cancelling a bond with one bank and taking out another bond on the same property with another bank. This may be done to access equity or to obtain a better interest rate. Note that there are cancellation fees charged for cancelling a bond. The main reason you would consider switching bonds is to save money.


Take-Up Rates
The rate, expressed as a percentage, at which available space in the marketplace is leased during a predetermined period of time i.e. the speed with which the market in a specific area absorbs empty space, indicating demand. Also known as ‘absorption rate’.

Tax Certificate
A breakdown of the home loan account over a certain period, usually a year, which details the interest and insurance amounts paid, as well as the total repayments over the period, for tax purposes.

Timeshare
A form of ownership or right to the use of a property. Timeshare properties are typically holiday units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time in which they may use the property. Timeshares may be on a part-ownership or lease/’right to use’ basis, in which the sharer holds no claim to ownership of the property.

Title Deed
A legal document registered at the deeds office, which is proof of ownership of a property. It also contains details pertaining to a specific piece of land. These include: the names of the existing owner as well as the previous owner; a full description of the property, including its measured size; the purchase price of the property paid by the existing owner; conditions restricting the use or the sale of the property; limited real rights registered in respect of the property and their nature, for example, a mortgage bond in favour of a financial institution. When transfer of the property into a new owner’s name takes place, the existing title deed is superseded by the new title deed. This takes place in the deeds office by way of signature by the conveyancer and the Registrar of Deeds. The title deed is evidence of ownership and is held by the owner of the property, unless a bond is registered over the property, in which case the bank will hold the title deed until the bond is repaid in full.

Title Deed Restriction
A clause in a title deed that limits the use of the property in certain respects. Also known as a condition of title. See ‘Condition of title’.

Total Return
Normally measured over a year, in which case it is the income yield for the applicable year (net income in year 1 divided by the purchase price or value in year 0) plus the change in capital value over that year. Also known as the combined return because it combines the income yield and capital return in one measure.

Transfer
Ownership of a property is transferred to the buyer and registered in the Deeds Registry.

Transfer Costs
Consist of transfer duty or VAT, conveyancer fees and deeds office registration fees. A buyer may be able to obtain a bond that covers these costs in addition to the purchase price. A separate agreement has to be signed for the transfer costs, which have to be repaid within a much shorter period than the loan itself.
Related Topic: Acquisition Costs.

Transfer Duty
A tax payable to the Receiver of Revenue on the registration of transfer of immovable property. The amount of the transfer duty is determined according to the value of the property and the entity which buys the property, i.e. an individual, a company, a trust or a CC. If the purchase price includes VAT, that is, when the seller is a VAT vendor, no transfer duty is payable.
Related Topic: Acquisition Costs.

Transfer Fee
A fee payable to the transferring attorney for the transfer of the property from the seller’s name into the name of the buyer.
Related Topic: Acquisition Costs.

Transferring Attorney
The transferring attorney is nominated by the seller and handles the transfer of ownership of the property from the seller to the buyer.
Related Topic: Attorney.

Tripartite Agreement
A business agreement between three separate parties. This type of contract is commonly used to secure bridge loans for the construction of a home or other real estate.

Tripartite agreements extend credit for construction to the buyer from the construction provider. The provider in turn holds the property as collateral. The primary lender will then pay off the construction loan and assume full liability for the loan upon completion of the construction.
Related Topic: JBCC 2000 Contract.

Triple Bottom Line
A development project’s ability to generate benefits in the social, environmental and economic spheres.

Triple Net Lease
A fully repairing and insuring lease; Tenant pays all operating costs, including but not limited to, Rates & Taxes, Levies, Insurance and Internal & External Maintenance.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Turnover Rental.

Trust
a structure to which property is transferred, and is then administered by trustees on behalf of one or more beneficiaries, in accordance with the trust instrument (which could be a trust deed or a will)

Alternatively in the context of estate planning, a trust can be described as a legal relationship which has been created by a person (known as the founder, donor or settlor) through placing assets under the control of another person (known as the trustee) during the founder’s lifetime (an inter vivos trust) or on the founder’s death (will trust, testamentary trust or trust mortis causa) for the benefit of third persons (the beneficiaries).
Related Topic: Beneficiary, Deed of Trust, Inter Vivos Trust, Investment Trust, Trustee.

Trust Account
When attorneys and/ or estate agents hold money for people, it is deposited into a separate interest bearing trust account until it is paid out. Every estate agency business must have a trust account, which is audited by an auditor every year. The governing bodies of attorneys and estate agents have created a guarantee system to protect the public against the misappropriation of their funds by attorneys and estate agents.

Trustee
A trustee is a person appointed to manage the assets of the trust for the benefit of the beneficiaries.
Related Topic: Beneficiary, Deed of Trust, Inter Vivos Trust, Investment Trust, Trust.

Turnover Rental
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.

A turnover rent is calculated by reference to the turnover generated by the tenant. It goes without saying that if the landlord is to be able to calculate the turnover rent, it must have access to accurate turnover information but tenants do not always provide the information or provide it on time. Careful drafting of the terms of the lease and early negotiations with the tenant can encourage tenants to produce the information and reduce the delay in receiving rent and potential litigation costs.

Turnover rent leases come in many shapes and sizes e.g.:

The “classic model” with a principal rent based on a percentage of open market rent (usually 75 per cent or 80 per cent) plus a fixed percentage of the tenant’s turnover to the extent it exceeds the principal rent;

A rent based solely on the tenant’s turnover but with the tenant guaranteeing a minimum amount of turnover although, in many cases, the landlord will receive no benefit from turnover above a certain figure;

A rent based on the tenant’s turnover, the tenant paying an agreed base rent with annual uplifts or “ratcheting” of the base rent payable. The uplifts will be based on any increase in turnover for the previous accounting period.

The classic model provides the landlord with a large degree of certainty as to the rent it will receive. Other forms of turnover rent leases provide less certainty. The lack of certainty can have knock on effects e.g. upon a valuation of the relevant property. The landlord will want to ensure that, so far as possible, lack of turnover information will not deprive it of the ability to demand and recover rent.
Related Topic: Basic Rental, Escalation Rate, Gross Lease, Huur Gaat Voor Koop, Lease, Lease with Option to Purchase, Leasehold, Long Lease, Natural Vacancy Rate, Net Lease, Notarial Deed of Lease, Occupation, Percentage Lease, Renewal Option, Rental Types, Rent-Free Period, Resolutive Condition, Right of Pre-Emption, Sale & Leaseback, Triple Net Lease.


Underwriting
When an application for a home loan is processed, the bank will underwrite the applications by determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.
Related Topic: Risk Profile.

Unrehabilitated Insolvent
An insolvent whose estate is controlled in terms of Insolvency Act 24 of 1936. Generally stated, an insolvent automatically becomes rehabilitated (i.e. ceases to be an insolvent) 10 years after having been declared insolvent.

Urban Sprawl
An insolvent whose estate is controlled in terms of Insolvency Act 24 of 1936. Generally stated, an insolvent automatically becomes rehabilitated (i.e. ceases to be an insolvent) 10 years after having been declared insolvent.


Vacancy Rate
Indicates the level of empty space in a specific area or building and is usually expressed as a percentage of the gross rentable area. It also refers to the period of time that a residential buy-to-let property is vacant during a year.

Valuation
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.

This valuation basis represents the current exchange value of the property if placed on a similar market as exists today but was placed on that market long enough ago to be properly marketed and the best price obtained as at the valuation date.
Related Topic: Approaches to Value, Assessed Value, Assessment, Comparative Market Analysis (CMA), Income Capitalisation Approach.

Valuation Fees
The amount that the bank will charge you to assess the property prior to granting you the finance for which you have applied.
Related Topic: Acquisition Costs.

Variable Rate
A fluctuating interest rate, as opposed to a fixed rate, that is pegged for a certain period of time.

If the prime rate changed by the banks rise or drop in response to a change in the repo rate set by the Reserve Bank, the borrower’s home loan rate will rise or fall accordingly. You can protect yourself from these fluctuations in the interest rate by capping your interest rate.
Related Topic: Fixed Interest Rate.

Variation Agreement
States that the bank may change the interest rate at any time without giving its client notice and that the client may not appoint their own insurers.

VAT (Value Added Tax)
A government levy, charged by vendors who are VAT registered, on the supply of goods or services rendered. It is currently calculated at 14% of the cost of goods supplied or services rendered, and added to the value of these good or services. With immovable property, the purchase price is deemed to include VAT if the seller is a VAT vendor. If the seller is not a VAT vendor, transfer duty is levied.
Related Topic: Zero Rated.

Vendor Loan
In a property transaction, the seller is the Vendor and in some instances the purchaser requires a loan over and above what the Bank is prepared to lend. When such loan is granted by the seller to be settled with interest over a predetermined period, it is referred to as a ‘Vendor Loan’
Related Topic: Bond, Building Loan, Loan Agreement .

Voetstoots
A standard clause in the agreement of sale, which stipulates that the property is sold “as is”, without any guarantees from the seller as to the condition of the property. If there are any defects in the property of which the seller was unaware, the buyer will acquire the property with such defects. The seller can therefore not be held responsible for defects at a later stage. However, all known defects must be mentioned to the buyer upfront. The voetstoots clause does not protect the seller if defects in the proper y are intentionally hidden to mislead the buyer. Purchasers should carefully inspect the property and not rely on any oral assurance which is not actually guaranteed.


Waiver of Lien
A legal document in which a contractor waives the common law right to hold control over a property if payment is not received in full.
Related Topic: Lien.

Waterproofing Certificate
A guarantee by a waterproofing contractor that the item certified has been adequately waterproofed in terms of the instructions specified by the manufacturer.

Wholesale Value
In the context of property syndication, this means the estimated price that a share or shares of a syndicated property-holding company would fetch (excluding winding-up costs) should the holding company be dissolved and the underlying property sold as a normal, non-syndicated property.
Related Topic: Retail Price.


Not Topics


Year 0
Refers to the year ended at the present time.

Year 1
Refers to the period from year 0 to the end of the first year thereafter.

Year-Growth
Percentage by which figures have changed compared to the same month, quarter or year of the previous year.

Yield (Initial)
The Net Operating Income (NOI) of the first year, divided by the Price at which it was purchased. This can be used as an indicator of risk; when using the expected net operating income of the first year.
Related Topic: Capitalisation Rate, Income Capitalisation Approach, Net Operating Income (NOI).


Zero Rated
A Transction is Zero Rated for VAT purposes (not VAT paid or Received) where the Property is defined as a Going Concern (Income Producing) and both the Purchaser and Seller are VAT vendors as at the date of transfer of the property. Hence the property has to be at least 50% let to qualify as a Going Concern. Sale and Leaseback Property does not qualify as a Going Concern.
Related Topic: VAT (Value Added Tax).

Zoning
The description of primary uses permitted, as well as uses permitted with consent, for a property. It is set out in the town planning scheme of the local authority and/or the scheme schedule applicable to a property. Examples of zonings include Business 1, Residential 2 or Industrial.

 
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