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Why Collaboration

A Joint Venture involves two or more businesses cluster their resources and expertise to achieve a particular goal. Joint Venture also termed for a venture or a project achieved jointly or combined.

 

In real estate joint venture or collaboration means that a project is developed by two or more parties jointly. This generally happen where one party would have his land and the other party (Mostly Developer) would be interested to develop a project on that land. Entering into a joint venture is a major decision.

 

This guide provides an overview of the main ways in which you can set up a joint venture, the advantages and disadvantages of doing so, how to assess if you are ready to commit, what to look for in a joint venture partner and how to make it work.

 

People who have invested in a site have many options. One is to retain the site for some time and wait for good capital appreciation.

 

Second option is to construct a house. The owner has to arrange for the finances, and supervise the construction of the property, apart from getting the required approvals.

A third, and now popular option, when the owner of the land could not develop it because of many reasons such as he doesn't have the expertise or he doesn't have the fund and likewise for the other party (Developer) who want to develop might not have a land in the prime location where he can build up a nice project. This option is to enter into a joint development agreement with a builder. The land is provided by the owner. The builder constructs the Residential project or Commercial project or it may houses, Villa or Flats. A certain percentage (means market value of land called land owners share) of the area is earmarked for the owner of the site.

The balance area or flats are sold off by the builder directly with legally bounded escrow arrangement. This way, it suits the needs of both the parties.

 

So, if these two parties join together on a mutual understanding they sign an agreement which is termed as development agreement. This agreement comprises legal understand like will there will be Interest Free Security Deposit money be paid by developer to land owner? Interest Free Security Deposit Advance is the amount which a developer needs to pay to land owner which would be interest free and refunded by the land owner after completion of the project.

 

Good-will money is the amount which a developer needs to pay to land owner for developing the project and this is not refundable. This would remain with the land owner even after completion of project.

 

The site owner has to execute an Irrevocable General Power Of Attorney (GPA) in favors of the builder. The GPA should be registered on a stamp paper of appropriate value with the registrar in order to be legally binding on both the parties.

The stamp duty payable for this kind of GPA given to the builder under a joint development agreement is 2% of DLC value of land. This may vary from state to state. After this, the parties enter into a joint development agreement. The builder then proceeds getting the necessary approvals and start construction of building.

 

In case there is a breach of contract on the part of the builder, either financially or otherwise, the site owner has a right to revoke the GPA. In case the builder breaches the joint development agreement, the site owner can revoke the power of attorney.

 

The owner needs to take measures to protect the property till the project is completed and handed over to him. Once the plan is approved, the owner should get an allocation agreement done recording the constructed area which comprises his share and the area going to the builder.

 

Once the building is ready and the allocation agreement is done, it is better that a deed of declaration is executed recording the constructed area. This should reflect the area constructed for the site owner under the joint development agreement. Builders usually insist that the land owner executes a single sale deed in favour of the prospective buyers identified by them in respect of the undivided share of land. The site owner or his legal heirs will be entitled to dispose off the constructed property delivered to him under the joint development agreement. The owner can retain his share of the built-up area or may sell it off at any time.

 

Now when the project is completed, the property will be divided between the land owner and builder, the ratio is worked out between both of parties as on investment basis. It may be any percentage like 60-40 or 50-50 or 80-20 also, which mean that builder will keep 60% and owner will keep 40% or both will keep 50% or builder will keep 80% and owner will keep 20%. Ratio mainly decided by landowners land value from current market price and builder’s perception of construction cost which depends on nature of project as well as builder proficiency.

We can understand above arrangement by example:

Case 1) supposes landowners land value is 10 Cr. As on current market price and builder decided to built a residential project (Group Housing Project) with optimize results (Under Legal By Low of Local authorities) and total cost of project perception

(Include Security Deposit + Capital Cost + Construction Cost + Advertisements Cost + Sales &Marketing Etc….) is Rs. 10 Cr. Then this arrangement make ratio of 50:50:: Landowner: Developers.

 Now understand Why Joint Venture is Fruitful?

Here in above case: Suppose Total Sales of project 40 Cr. come in 24 months and divided in 50:50 means both of parties get equal share means 20 Cr. Each. So landowner also gets 10 Cr. Profit within 24 months from his land which is wonderful result and developer also get 10 cr. profits from Collaboration Project.

Case 2) Supposes landowners land value is 20 Cr. As on current market price and builder decided to built a Commercial Project (Commercial Mall Project) with optimize results (Under Legal By Low of Local authorities) and total cost of project perception (Include Security Deposit + Capital Cost + Construction Cost + Advertisements Cost + Sales &Marketing Etc….) is 80 Cr.

Then this arrangement make ratio of 20:80:: Landowner: Developers.

 Now understand Why Joint Venture is Fruitful?

Here in above case: suppose total sales of project Rs. 250 Cr. come in 36 months and divided in 20:80:: Landowner: Developers means both of parties get own share means 30 Cr.> Profit within 24 months from his land which is wonderful result and developer also get 100 Cr. profits from Collaboration Project.

Here in above cases you must understand why Joint Venture is good for Landowner as well as for Developers prospect.

Here we also aware of that that mediator agency must be well qualified as well as professionally managed then only both of parties can get BIG PROFIT.

Some time collaboration mediator agency’s non professional attitude leads complete project failed.

 

Once you hire an agency then you should ask them there past project and background also.

Mediator Agency must be professionally managed with sound track record. Managing a joint Venture is a science.