What is a Joint Venture (JV) Deal?
Off late demand for joint ventures in real estate has been increasing exponentially. In real estate, JV means that a project is developed by two parties jointly. For example, one party is the land owner and the other party is a developer. Land owner either does not have funds and/or expertise to develop the property and developer does not want to block his funds by purchasing the land. Through JV land owner contributes land to the partnership and the developer builds the structure. When the project generates revenue, it is divided between land owner and developer in an agreed proportion.
The reasons behind forming a joint venture include business expansion, development of new products, opportunity to discover new market, accessibility to established markets and distribution channels.
Joint Venture model is mutually beneficial for both land owner and developer.
For example, consider a piece of land that is 10,000 sq ft in size located on 40 feet road. At INR1,000 per sq ft, this land is valued at INR1 crore. The land owner can sell this land for INR1 crore if he finds a buyer which is difficult in this market. The other option for the land owner is to get into a joint venture with a developer. If he forms a JV on 10,000 sq ft land on 40 feet road a G+3 building can be built. Approximately 26,000 sq ft that can be constructed by the builder on this land at a cost of INR 1,300 per sq ft. At this rate, the construction of the building will cost approximately INR3.4 crores. Based on the cost of land and construction cost, land owner will get INR10 lakhs as advance (that is 10% of land value) and 20% share in the building. And this building will take approximately 10 months – 1 year to be completed.
Joint venture property development is growing popular. For a landowner, developing a property with a joint venture agreement yields more profit instead of just selling the block of land directly to a property developer. Most property developers and landowners are used to sourcing funds for construction projects by means of traditional methods which typically involves raising capital either selling some part of the land or taking loan from a bank or a combination of both.
PMS Realtors
Melur-625106
Madurai, Tamil Nadu
Mob: 9042045934
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