Real Estate Glossary

Whether you’re a seasoned investor or a first-time homebuyer, familiarising yourself with our simple ‘Real Estate Glossary’ can empower you to make informed decisions throughout your property journey.

Appreciation vs. Depreciation

• Appreciation: Increase in the value of a property over time. This can be due to factors like economic growth, location desirability, property improvements, and market demand.
• Depreciation: Decrease in the value of a property over time. This can be due to wear and tear, outdated features, or unfavourable market conditions. While common in many assets, real estate tends to appreciate in the long term.

Financial Management

• Assets & Liabilities: Assets are things you own that hold value, such as property, savings accounts, or stocks. Liabilities are debts you owe, such as car loans or mortgages. Understanding both is crucial for financial health.
• Cash Flow: The money remaining after all your expenses are paid in a given period. A positive cash flow indicates your income exceeds your expenses.

Buying and Selling Property

• Auction: A competitive method of buying property where interested parties bid against each other. The highest bidder wins, subject to a reserve price set by the seller.
• Body Corporate & Strata Fund: In strata schemes (units, villas, townhouses), a body corporate manages common areas. Owners contribute to a strata fund for maintenance and repairs.
• Contract of Sale: A legally binding document outlining the terms of a property sale, including price, inclusions, and settlement period.
• Cooling-Off Period: A timeframe (varies by state) where buyers can withdraw from a purchase without significant penalties (usually not applicable in auctions).
• Conveyancing: The legal process of transferring property ownership from seller to buyer. A conveyancer ensures a smooth and legally sound transaction.
• Exchange of Contracts: A crucial step where the sale becomes legally binding. Both buyer and seller must comply with state regulations.

Loans and Mortgages

• Comparison Rate: A percentage that helps borrowers compare different home loans by combining the interest rate with most upfront and ongoing fees.
• Fixed Rate Loan: A loan with a locked-in interest rate for a set term, providing predictability in repayments.
• Guarantor: Someone who agrees to repay your home loan if you default, typically a family member. This can help qualify for a loan with a smaller deposit.
• Interest-Only Repayment: A loan structure where you only pay the interest on the loan for a specific period. The principal balance remains unchanged during this time.
• Loan-to-Value Ratio (LVR) & Lenders Mortgage Insurance (LMI): LVR is the loan amount compared to the property value (e.g., 80% LVR). LMI is an insurance product that protects lenders if borrowers default on high-LVR loans (typically above 80%).

Investment Property

• Capital Gains: The profit made from selling an asset, like a property, for more than the purchase price. Capital Gains Tax (CGT) may apply depending on the asset and your country’s tax laws.
• Negative Gearing: When the expenses of owning an investment property exceed the rental income. While negative cash flow occurs, tax deductions can be claimed on some expenses.

Other Key Terms

• Equity: The difference between your property’s value and your outstanding mortgage balance. It grows as you make repayments and the property appreciates.
• Gross Rate of Return: The overall return on an investment without considering fees or expenses.
• Interest Rate: The additional amount charged by a lender on a loan.
• Offset Account: A transaction account linked to your home loan. Funds in this account reduce the loan balance for interest calculation purposes, helping you save on interest.