Everything about joint venture you need to know
This article shall tell you the very basics of joint venture. So, if you are perhaps looking to get into a joint venture with a construction partner, or enthusiastic about learning the real estate market trend, this piece of content is just for you.
Basically, what is a joint venture?
It is an agreement made between two parties, minimum. The JV is agreed upon with the aim of obtaining certain return on investment which is very obvious. Setting against regular business agreements, these joint ventures are time-specific which means, they are terminated once its attributes are achieved.
The basic joint venture model between real estate developer and a building owner is as follows:
Generally, either of these parties get into a joint venture with the mutual expectation of arriving at an investment return. Due to the size of property, its location or total capital involved in the property, an individual investor might not be interested in taking up a real estate venture. This is where a real estate joint venture waves in where the risk is shared between either parties.
In a joint venture, the capital amount is generally sourced from a single or multiple sources. Plus, it may additionally involve assimilating various parties altogether while each having their own expertise in the industry such as leasing, management, capital, land acquisition, etc.
The JV benefits
As many people buzz the word, it must certainly be super beneficial, and yes, it is. A joint venture is particularly helpful for start-up real estate developers. As a novice company, it might be tough to acquire high budgeted projects. However when they get into JV with larger industry players, these star-ups get the opportunity to show their capability and build a strong profile.
Factors to consider before opting for a joint venture
As a land owner, you ought to consider a couple of aspects in mind before you go for a joint venture. First of all, you got to check out the developer’s credentials and inspect his success rate.
Once you have entered into a joint venture, it has to be registered as a private limited company as per the Indian law called company’s law act of India. As the joint venture is signed with the building construction company, the agreement has to be between two companies which are:
Company that offers land for the real estate development
Company that constructs the real estate project
Finally, you got to have a decision on the profit sharing which is very important which may be 1/3rd or 2/3rd depending on your personal preferences and discussions with the developer.
Land owners also need to be avid about the total number of housing units they will get upon project completion. For instance, if it is a housing project, make sure to ascertain the housing unit number, its dimension, flooring, etc. well ahead.
In case, for an assumption, a property is being developed in a 20 acre land area where there is going to be 500 units constructed here, as a thumb rule, we may assume 150 units be shared with the land owner. And this has to be clearly mentioned in the joint venture agreement well ahead.
The verdict
It is ideal that you hire a professional legal assistance in case you have doubts or apprehensions about getting into a real estate joint agreement. As professional advice will be of huge help in avoiding unwanted discrepancies in the future.
