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Joint Venture
 
   

Joint Venture - Frequently Asked Questions

[Q1.] I own a land and I am holding on to my investment in land in hope of appreciation. What is the advantage of giving the same to a Developer for development?

Ans. If you are holding a property in the form of a land and waiting for the appreciation which may or may not happen within the targeted period of time, the better option for you may be to develop that property/land by construction a building (which may leased or rented) through a Joint Development model.

In India, one cannot get finance from bank on land in the event of any personal need or for further investment. But one can easily get finance on a built up property particularly against property which is earning rent. The money so borrowed from the bank can also be utilized to buy another property where the returns in the form of rental income or appreciation is much higher than the interest one pays on borrowed funds. In such cases, the concept of leverage can be used to take the advantage of the arbitrage opportunity available on the differential between the rate of interest one pays on the borrowed funds and the returns one can get on the property investment made out of such borrowed funds in terms of rent plus appreciation and this way built a large property portfolio.

 

[Q2.] Can’t I do the development myself of my property? Why is it prudent to give the property to a Developer?

Ans. The development of a property, construction of a multi-storied building and selling of its apartments is a business which requires time and experience. It further requires the competent manpower and investment to carry out the proposed development. You also require the network of reliable contractors and reputation or brand equity in order to get the best selling price and terms from the intending purchasers of the apartment.

Most of the property owners do not have all these qualifications as well as facilities and therefore it is prudent to get the development of a property through a professional builder of good reputation and experience. If the owner decides to build or develop his own property he shall face all kinds of problems faced by an inexperienced amateur builder and would tend to make several mistakes which would prove to be costly. It is therefore best to get into a Development Agreement with a reputed builder after appraising all the offers for such a development.

 

[Q3.] How should I consider an offer from a Developer or a Builder?

Ans. The value of your share of apartments would depend upon the quality of the proposed building which includes the design as well as the specification or construction of the proposed building. A high percentage of the owner's share does not necessarily mean a better offer. While considering an offer, you should consider the reputation of the builder and his architect, together with the specification of the proposed building i.e. the quality of the building materials to be used e.g. windows, flooring, sanitary, plumbing, lifts and facilities like generator, intercom, fire fighting equipment, etc. Further time for completion of the project (i.e. completion of the proposed building) should be the essence of the contract with adequate panel and termination charges. The owner should have the right to terminate the agreement if the developer defaults on any of the terms of the development agreement and in the event the proposed development not completed in time to be able to get it completed through another developer/contractor (if necessary).

 

[Q4.] How do I check the track record of the Builder?

Ans. Check the Builder’s reputation for his competence, reliability and commitment by checking in the market or by (a) calling the land owners whose property has been developed in the past by them by (b) physically checking the quality of work undertaken in the past by visiting his already constructed buildings. Also check with the occupant who has purchased apartments in such buildings including the quality of post sales services.

 

[Q5.] I have given my land for development to a builder and am now caught chasing him as he is not developing the property. What damages if any can I seek? Can I go ahead for redevelopment with another builder?

Ans. Trust and faith are the back bone of any relationship, but it is important to document this carefully by way of a mutual and clear joint venture development agreement which protects your rights. It is very important to study the track record of the builder before choosing one based on the most profitable financial offer only. The only alternatives that can be followed are on the basis of the joint venture agreement. Landowners can also opt for development by way of a special purpose vehicle or a joint venture company with a written down share holders agreement to keep transparency and protect the rights of all the shareholders.

 
 

Landowners are free to get in touch with us for any opinion or advice on land related issues at info@ampuniversal.com