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.

The Reserve Bank of India (RBI) has left all the key rates unchanged in its recent credit policy. Taking into account the global economic crisis, inflation and growth expectations, the RBI has chalked out its monetary policy. What is a monetary policy?

The RBI announces a monetary and credit policy statement that aims to rein in economic turbulences. It manages money availability, inflation, money supply and interest rates, through its policies and norms.


Here are the key rates that the RBI toggles:

Cash reserve ratio:

Banks are required to retain a portion of funds with the RBI. When the RBI increases this percentage, the amount available with banks comes down. Increasing CRR draws out money from the banking system and controls prices. Home loans become dearer.


Repo rate:

It is the rate at which banks borrow from the RBI. If the RBI reduces the repo rate, it will be cheaper for banks to borrow money. If the repo rate goes up, borrowing gets expensive.


Reverse repo rate:

The RBI can borrow money from banks for a good rate. This is the reverse repo rate. Banks prefer to have their money with the RBI for a competitive rate as money is safer there. When the reverese repo rate is hiked, banks find it attractive to have their money with the RBI, and hence money is drawn out of the system.

Here are some home loan terms it helps knowing

CREDIT APPRAISAL

This is a process by which a lender evaluates the creditworthiness of the loan applicant. It involves assessing the borrower's past repayment history, establishing the sustainability of his current income and evaluating his capacity to repay. The applicant will be sanctioned a loan only after taking into account his savings, income, age, qualifications, period of employment and other outstanding debts.


EMI

EMI (equated monthly installment) is an unequal combination of two components - principal and interest. This is the amount of money the borrower owes the lender every month, through the tenure of the loan.


MARGIN MONEY

Also called down payment, margin money is typically around 10-15 percent of your loan amount. The bank does not disburse the entire cost of the property when you seek a home loan. It lends only around 85-90 percent of the project cost. The borrower is expected to bring in the remaining money. This is referred to as down payment or margin money.


HOME IMPROVEMENT LOAN

Some people may need money to repair, renovate, remodel or extend their home. Banks offer home improvement loans that you can use for making structural improvements, external and internal repairs, flooring, painting, improving plumbing, electrical work etc.


JOINT LOAN

A loan applicant can apply jointly for a loan with his spouse or parents. This way he can club the incomes. This increases his loan eligibility.


HOUSEHOLDER’S INSURANCE

This policy offers insurance for household belongings against fire, malicious damage, burglary and natural disasters like flood and earthquake. The householder's insurance policy is a comprehensive package that protects the house and its various contents against a variety of risks. It is a single policy that takes care of a number of contingencies.