A joint venture in a good location will yield higher rentals and lower the costs

The new Master Plan came out with regulations that made it easy for people looking to invest in property for commercial activities. They could now look at various options to put up a structure that would work out commercially viable. One such option is joint ownership by amalgamation of property. In joint ownership, all the owners consolidating their properties will jointly own the land. However, their share and ownership in the built area will be to the extent of the share of land contributed by them.


Investing in joint ownership

Shop owners looking at expansion can lower their cost of construction and capital investment by this method. With the cost of land high and limited resources, you can get quality property and also distribute the cost and risk. An investor can bring in lesser capital but build a state-of-the-art building.

Another alternative is to go for joint development after amalgamation of properties. In joint development, the owners will only provide land to the builder or developer. He will bring in the funds and bear the cost of construction. In return, he will be given a share in the property developed. This portion can be rented out by him.

Capital gains tax will be applicable only on his portion of the property. The builder can also take up his portion on a lease basis till he recovers the cost of construction. Once the lease period is complete, the ownership will pass back to the owners.

The ratio of sharing between the owners and the developer depends on the location of the property. The land rates in K G Road and Sampige Road are very high, ranging from Rs 12,000-20,000 per sqft. The cost of construction for a commercial complex comes to Rs 1,500-1,600 per sqft. So, in these areas, the developer will be able to make up the cost of construction even by taking a lower built-up area ratio.
Who will benefit from a joint venture?

People in the retail business, IT sector, and corporates could get into such an arrangement. The owners could also build offices where they are rented out to multiple tenants. This will also work well for people who have clients regularly coming to visit them in their offices. It is good to go in for such a venture for businesses where the products have to displayed, like textiles. In such a case, location and presentation become very important.

Advantages

There are various advantages that small shop owners can avail of through amalgamation:

• High profile tenants:

When there is a bigger area, a state-of-the-art building can be constructed. This will pull in bigger clients due to greater visibility and a quality structure. A good location will ensure good clients. This in turn increases the rental potential of the building.

• Shared utilities:

The cost incurred for utilities used in the structure will be lesser since it will be shared. There will be a common generator, common staircases and elevators etc. Space saved: Instead of constructing different structures, amalgamation results in efficient use of space by having one superstructure and common spaces.

• Better quality:

The quality of construction and use of space will also be better in case of a large space.

• Higher FAR:

On amalgamation, an additional FAR of 0.25-0.5 is given, depending on the site area. With higher FAR, you can build more, garnering higher returns.

The floor area ratio (FAR) depends on the width of the road. Broader the road, higher will be the FAR. But to use the FAR and the additional FAR given, it is necessary to have a larger area. If there is 40x60 or even a 100x100 site, there has to be 16 percent space on the right and left and 20 percent in the front and back portions.

The higher FAR cannot be achieved in the space left. The site area should be at least 10,000 sqft or more to make best use of the FAR given.