For landowners, joint development of either a residential or commercial project works well

Owners of land and sites have several options before them to use their property lucratively. While those owning small sites often opt to build a house for their own use, others prefer to wait for capital appreciation and sell the plot at a later date for a tidy sum. The present realty situation has given rise to one more option that is proving to be very popular among large landowners - that of joint development.

As R Balaji, CEO, Propmart, puts it, "joint development of property can lift up the realty market in the city and it is heartening to see this kind of activity picking up especially in the central business district (CBD) and prime neighbourhoods like Koramangala and Bannerghatta Road."

What joint development means

In a joint development venture, the landowner enters into an agreement with a developer who will construct the building. The joint development of the property could be about a commercial or a residential building, depending on what the landowner wishes to use his land for.

This joint venture of property development works out well for both. While the developer gets the land easily, based on the percentage worked out, and can construct a building of his choice, the landowner on the other hand gets to continue owning a part of the built space. If it's a residential complex, the landowner stands to own his share of the number of apartments as agreed upon. He has the authority to sell the apartments at any rate he desires. In a commercial complex, he again benefits by owning some floor space in the building which he could rent out, lease, sell or use for personal benefit.

Residential or commercial?

According to Qasim Tanga, Director - Leasing & investments, AQ & Z Consulting, "An in-depth feasibility of the project, whether it is residential/commercial, will have to be undertaken based on several market drivers. These would primarily include demand & supply, target customer, average prevailing rentals, flat size for residential and floor plate size's for commercial, total cost of project, break even and finally return on investment (ROI). For family owned properties, advice from a reputed consulting firm can give immense clarity and bring about balanced expectations for both the joint development partners. The landlord should thoroughly assess the credibility of the developer and check if he has undertaken similar joint development projects before. "Most importantly, after evaluating both the qualitative (good will, reputation etc) and quantitative (joint development share, ROI, time frame of completion etc) parameters both the parties should share a feeling of trust and common objective, as this would ensure the smooth execution of the project."

Joint development good for landowners

"This is a very good time for landowners to go in for joint development with developers instead of leaving their land idle and waiting for appreciation," says Balaji. "And in a market like this, only the landlords stand to gain," he adds. This is because there is no risk involved for the landowner who only sells his land and gets ready-built space in return.

In a joint development venture, the share in the deal is based on the land value prevailing in the location. Also, the developer will assess the viability of the deal. Balaji explains that if a developer has to give more than 50 percent of the share to the landlord, he will mostly strike down the deal as unviable. But, if the project is in a premium location like Bannerghatta Road or the CBD, the builder will go in for the deal because of the profit he can make by selling the apartments or office space. Plus, the landowners too will not sell unless they get more than 45 percent of the share.

"Even those owning a 60x40 site can go in for a joint development venture with small developers who specialise in small property development," Balaji points out. "Owners of small plots could also opt to take a bank loan against the property and construct a building on their own which they could rent out, lease or sell when the market picks up," advises Tanga.