Home' API Magazine : June 2014 Contents 145
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Appraisals/valuations – a written
report of the estimated value of
a property, usually prepared by
Amortisation period – the length
of time a loan is calculated over
Appreciation – an increase in value.
Basic variable – a variable home
loan at a LWR rate and with less
features than a standard variable
Break costs – the fees incurred
when a loan is paid off ahead
Body corporate – an administrative
body made up of all the owners
within a group of units or
apartments of a strata building.
The owners elect a committee
which handles administration and
upkeep of the site. Also known as
Bridging finance – a short-term loan
used to bridge the gap between
buying a new property and selling an
Building approvals – the number
of dwellings approved to be
constructed in a given month,
quarter or year.
Capital gain – the amount by
which your property has increased
relative to what you paid for it.
Simplistically, if you bought a
property for $200,000 and it’s now
worth $350,000, you’ve made a
capital gain of $150,000.
Cash rate/bank rate – the cash rate
is the rate at which the Reserve
Bank of Australia sets interest rates.
It’s currently 2.5 per cent. The bank
rate is the interest rate that banks
offer and is above the cash rate to
allow for a profit margin.
Cash flow positive – you have a
cash flow positive investment if the
property returns you a cash flow
after you’ve taken tax deductions
and refunds into account.
CGT (capital gains tax) – the tax you
pay when you sell an investment
property if you’ve made a profit.
Conveyancing – the process that
legally transfers property ownership
from one entity to another.
Cooling-off period – a period of time
given to the purchaser to legally
withdraw from buying a property.
The length of time varies in each of
the states and territories.
collateralisation – when the
financial institution uses your
property (whether owner-occupied
or investment) as security for other
property you purchase.
Default – Failure to pay a debt by
the due date.
Density – the level of occupancy in a
given area, or the number of people
permitted to reside in an area.
For example, inner-city areas are
usually higher density than outer-
Depreciation – the decrease in value
of an item (eg. a building) over time.
Development application (DA): An
application to council seeking the
approval for further development
of a site.
Due diligence: Research undertaken
before a transaction goes through,
particularly when purchasing
a property, to ensure certain
requirements will be satisfied.
Duplex: Two dwellings that exist
on one lot as part of a strata
Easement: An easement is a piece
of land that’s registered on your
property title but can be accessed or
used by another party.
Equity – the difference between
your mortgage and your property’s
value. If your home is worth
$400,000 and you owe $150,000,
then you have equity of $250,000.
Feasibility: a feasibility study is
an evaluation of a project used to
determine its worth and investigate
any negative or positive impacts.
Fixed rates – where the home loan
is locked in at a specific interest rate
for a specified term, usually one to
Gross floor area (GFA): The total
area of all floor levels in the
building on the site to which the
development relates, measured to
the inside of the external walls.
Input tax credit: If an entity is
registered for GST, it can claim input
tax credits from the Australian
Taxation Office for any GST
included in the price paid for goods,
services or anything else bought for
Interest-only – only repaying the
interest charged on your mortgage,
not paying anything off the principal
or amount owing.
Joint tenants – each owner
has equal shares and rights in
LMI (lenders mortgage insurance)
– us u ally required by lenders when
you’re borrowing more than 80
per cent of the property’s value. It
provides insurance to the lender
in case the borrower defaults on
LOC (line of credit) – a facility
available from financial institutions
that gives you a credit limit that
you can draw down at any time. It’s
similar to a credit card, except you
don’t have to make set repayments
of the principal.
Low-doc loans – relatively new,
these are loans that don’t require
as much documentation to set up
the loan. They are popular with
self-employed people and those
who have not yet established a
LVR (loan-to-value ratio) – to
calculate it, divide the loan amount
by the value of the property then
multiply by 100 to get a percentage.
Banks and financial institutions use
this as a measure of whether you
can afford the loan.
Median – the median house price is
the middle price of all sales recorded
in a particular suburb, postcode, city
or state. If there were 100 sales in
a particular suburb, in ascending
order, the median would be number
50 on the list. It’s commonly
assumed that the median price is
the same as the average price, but
that’s not the case. To calculate the
average, you would add up the 100
sales and divide the total by 100
(the number of sales).
Negatively geared – this is where
the incomings are less than your
outgoings after all tax deductions
have been claimed. For example,
you receive rent on a property of
$600 a month, but your mortgage
repayments are $900 a month. Your
shortfall is $300 a month, which
you can claim as a loss when doing
your tax return. Many people on high
incomes use negative gearing to
reduce their taxable income.
Off the plan – when you buy off
the plan, you are buying a property
before it is built, having only seen
the plans. This is commonly used
for apartments or units under
construction or about to be built.
Passed in – when the highest bid
at an auction doesn’t meet the
reserve price set on the property.
In effect the property doesn’t sell at
Portfolio (as in property portfolio) –
the number and type of investment
properties you own.
Positively geared – you have a
positively geared property if it
generates a higher income than its
holding costs before tax deductions
and refunds are taken into account.
PPOR or PPR – principal place
POA – price on application.
You may see this in a real
Principal and interest – the amount
borrowed or still to be repaid, plus
the interest on the mortgage. The
principal is part of the repayment
that reduces the balance of
Property cycle – property values
usually follow a cycle of growth, a
slowdown, a bust and an upturn.
History shows this occurs every
seven to 10 years.
Refinance – to obtain new finance
for something on different terms,
usually involving the paying off of
an existing loan by means of a new
(and often cheaper) loan.
Reverse mortgage – designed for
seniors who are asset-rich (usually
with their PPOR) but cash-poor.
The facility allows them to access
the equity in their homes without
having to sell it. Most often the loan
is not paid out until the borrower
dies, moves into a nursing home
Rental yields (and calculations) –
the return on an investment as a
percentage of the amount invested.
Gross rental yield can be calculated
by multiplying the weekly rent by
52 (weeks in a year), then dividing
by the value of the property and
multiplying this figure by 100 to get
Reserve price – the minimum
amount a seller will accept at
Sold under the hammer – this
means a property that goes to
auction sells at the auction.
Serviceability – whether you can
manage your mortgage payments,
based on your income and expenses.
Stamp duty – a state government
tax on the transfer of property
calculated on the value of
Strata title – also known as unit
title. This title grants ownership of a
section or a ‘unit’ of a larger building.
This ‘unit’ can be sold or transferred
by the owner.
Subdivision – a parcel of land
divided into individual lots.
Supply and demand – the number
of properties on the market at any
given time determines the supply-
and-demand equation. If there are
lots of properties on the market, it’s
a buyers’ market. If there are few
properties on the market or those
that come on to the market sell
quickly, then it’s a sellers’ market.
Tenants in common – two or more
buyers own a property with unequal
shares and rights.
Vacancy rates – a measure of how
many dwellings are available for
rent over a specified time period. A
low vacancy rate means there are
not very many dwellings available
for rent, while a high vacancy rate
means there is ample supply of
Vendor – the seller.
Vendor’s terms – refers to instances
when a property owner is prepared
to offer a buyer finance or other
assistance such as staged payments
to assist with the purchase of the
property (also known as ‘wrapping’).
Yield – the return by an investor
on an investment, shown as a
percentage of the amount invested.
For newcomers to property investing or home buying, the
jargon can get confusing. API has compiled this guide to
commonly used terms.
GLOSSARY \\ DATABANK
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