Property Investment – Glossary

Not sure how to communicate with the professionals? If you're new to property investment then your partner companies should be speaking to you in your terms – but if they let slip an occasional “property-speak” word or phrase maybe we can offer a little help!

Here are a few of the key terms to get familiar with...

Alternative investments
Any investment other than equities and fixed income, such as property, private equity and hedge funds.

Annualised net rents
Gross rents plus, where rent reviews are outstanding, any increases to estimated rental value (as determined by external valuers), less any ground rents payable under head leases.

Appraisal
This is the assessment of the likely future performance of an investment which can be used to assess risk or to determine current value.

Appreciation
The increase in value of an asset.

Bears
Speculators who think investments are going to fall, so they sell their investments in the hope of buying them back at a lower price. A bear market is a period of falling stock prices, over a period of time.

Benchmark
A target level against which investment performance can be measured. A benchmark, usually set up at the outset of an investment process, can be an equivalent product range or a similar market.

Bulls
Speculators who believe prices will rise, so they buy in the hope of selling them at a higher price than they paid. A bull market is any market in which prices are in an upward trend.

Capital allowance
One of several credits available to an owner against income tax or corporation tax for capital expenditure on particular building types.

Capitalisation
The value of an asset assessed in relation to the expected future income (rental) stream.

Capital gain
Capital gain occurs when an asset is sold at a higher price than originally paid.

Capital Gains Tax
The tax that is payable on the profits made on the disposal of most such assets.

Capital growth
Assets seeking capital growth aim to maximise the future value of the capital sum invested rather than producing any income.

Capital value
The value of an asset, freehold or leasehold, as distinct from its annual or periodic (rental) value.

Covenant
A subjective assessment of the character and quality of a tenant in terms of being able and willing to comply with the terms and conditions of the lease.

Currency hedging
The use of currency futures and options transactions to protect the value of investments and cash against fluctuations in exchange rates, relative to the currency in which the fund is denominated

Depreciation
Decrease in the value of property caused by obsolescence, deterioration in its condition, or other factors.

Developer
A company that builds houses, such as Paradise Property World or one of its Partners.

Development
Making any material change in the use of any buildings or other land, not including internal alterations that do not materially affect its appearance.

Development construction cost
The total cost of construction of a project to completion, excluding site values and finance costs.

Development pipeline
Typically the combination of a development programme, together with proposed schemes that are not yet included in the development programme but are more likely to proceed than not.

Development programme
A schedule of major development schemes comprising projects that are completed but not yet fully let, also developments on site and committed developments.

Estimated rental value (or rental value) (ERV)
The rent that a property might reasonably be able to command in the open market at a given time, subject to the terms of the relevant lease.

Financial Services Authority (FSA)
The main financial services regulatory body in the United Kingdom. FSA is the designated agency under the Financial Services and Markets Act 2000 and the regulator of exchanges, clearing houses, recognised professional bodies, banks, wholesale money markets and certain investment businesses.

Footfall
The number of pedestrians passing through a building or area, eg a shopping centre.

Freehold
The absolute ownership of land without burdens, encumbrances or which is overshadowed by a higher form of ownership.

Fund of funds
A fund that simultaneously invests in several funds, thereby reducing the performance risk inherent in any one fund. The manager of the fund selects which funds to invest in, but not the individual stocks.

Gearing
The use of debt financing. The debts of a company expressed as a percentage of its equity capital. If a fund is geared it means that it has the ability to borrow money and therefore take advantage of greater investment opportunities.

Gifted deposit
Where a developer contributes part of the deposit on a property.

Greenfield site
Land which is, or is potentially, available for development but which has not been developed before, eg agricultural land.

Hedging
A transaction that reduces the risk of an investment, or protects an existing position or commitment, by using one type of investment (eg a future or option) to cover adverse market movements.

Investment property
Any property purchased with the primary intention of retaining it and enjoying the total return (rental income and appreciation in capital value) over the life of the interest acquired.

Landlord
The owner of an interest in land who, in consideration of rents, grants the right to exclusive possession of that land to another person for a specific period by way of a lease or tenancy.

Liquidity
In a property context, this refers to the ability to readily convert an asset or investment to cash by sale at a fair price. Also used to describe the amount of cash held in a portfolio.

Market indicators
A variety of indices that give an indication of the overall direction and strength of the market.

Market value
The estimated amount for which a property should be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction.

Net rent
The income from a property after deduction of all outgoings, including repairs, insurance and management costs, but excluding taxes payable by the recipient.

Off-plan
Before the actual building work has finished. Buying Off-Plan means exchanging contracts to buy a property during the build period or immediately on completion

Over-rented
A property that is let at a rent which is greater than the current open market value (see estimated rental value).

Portfolio
The combination or spread of investments and assets held by an investor.

Prime property
A property investment regarded as the best in its class and location.

Prime yield
The current yield used in the valuation of property let at full market value and which is of the best physical quality, in the best location and with the best tenants covenant and contemporary lease terms.

Rack rent
The rent that represents the full open market annual value of a holding.

Redevelopment
Development of land which entails or follows the removal of all or most of the already existing buildings or structures.

Rental growth
The rate of growth, over a specified period, of the estimated rental value (ERV) of a property. Rental value See estimated rental value.

Rental void
A period when a property is untenanted

Return
The amount by which an investment may change due to a combination of capital growth and/or interest dividend income. This is normally expressed as a percentage. Risk Degree of uncertainty of return on an asset.

Risk/return factor
The relationship between an investment's growth potential and its exposure to loss.

Secondary units (property)
Properties that are not deemed to be prime, either because of poor location, configuration or tenant.

Site - a new housing development.

Speculative development
The construction of a building or buildings where there is no known buyer or tenant at the outset; the scheme is offered for sale or to let, usually at or near completion.

Total development cost
All capital expenditure on a project including the opening book value of the property on commencement of development, together with all finance costs.

Total investment property return
Valuation surplus, profit or loss on property sales and net rental income expressed as a percentage of opening book value of the investment property portfolio.

Total return
The growth in value of a share holding over a specified period, assuming that dividends are re-invested to buy additional units of the stock.

Underlying profit before tax
The profit on ordinary activities before taxation, after excluding trading profits, profits on disposal of fixed assets, one-off gains relating to other investments and exceptional items.

Unit - a single new-build property - either an apartment or a house. A unit that will 'wash its face' is a property where the monthly rental income is higher than the monthly mortgage costs - normally because the buyer puts down a small deposit i.e under 10%. A unit with a rental shortfall - where the monthly rental income is less than the monthly mortgage payment - normally where the buyer puts down a large deposit i.e over 30%.

Unoccupied rate (or empty rate)
The rate chargeable by an authority on empty non-domestic properties, presently limited to a maximum of 50% of the occupied rate and starting three months after the property becomes empty.

Vacancy rate
The percentage of a portfolio which is vacant, calculated as the total of rental value of the vacant property/properties divided by the total rental value of the portfolio.

Volatility
A measurement of how much variability there may be in the prices of an underlying security over a specified period of time.