Landowners who possess a vacant piece of land are now looking at generating revenue from their land, which may till recently, be a non-revenue generating asset. A property that is strategically located and highly priced can be a source of revenue to its owner, as these can be looked at for development of residential units.
The land owner has to identify a reliable builder / developer with whom he can enter into a joint venture. He can approach experts /consultants to guide him in his transaction. This is when the owner himself cannot venture into the Joint venture himself, due to lack of expertise and funds. Depending on the property prices nearby and the availability of funds for investment, a joint venture deal is formed.
While a JV is a profit making journey, there has to be a clear agreement on the profit sharing percentage, details of construction and the time frame. The land owner usually does not invest money in this venture, since his contribution is the land (capital asset) itself. A portfolio manager can advise the landowner and the builder on these terms and conditions to amicably move forward on the venture.
The consultant does the major tasks of arranging for investments for such ventures, approvals etc. It is to be noted that a land owner does not get more that 30-40% share of the completed property especially if the property is constructed on a land commanding a very high cost. In most cases a payment is made to the land owner as cash/ cheque and also in the form of completed apartments. The owner gets an advance payment of 10-12 per cent of the deal as a good will payment. This is usually a non-refundable payment. Certain cases see a refundable amount being given as an initial payment as well.
An irrevocable general power of attorney (GPA) is executed by the site owner. The GPA is registered on stamp paper, of suitable value, with the registrar so as to make it legally binding. However, all the documentations such as sanction applications, approval documents and document transfer, etc. are done in the name of the owner of the plot for legal purposes.
A consultant portfolio manager ensures that clauses regarding penalty, in case of delay etc are incorporated to ensure that the landowner does not suffer any losses. Payment clauses in the case of delay to compensate the loss of interest on the profit is calculated and incorporated. In case the land owner lives on the property and needs to move to another location during the period of construction, the necessary steps to are taken to compensate the land owner for the rent.
Joint ventures are excellent means of combining the expertise of Portfolio managers, investors and developers. The success depends on sound underwriting and careful preparation of the agreement that will also govern the relationship of the parties involved in such high-stake ventures.
Source: The Internet