Apr 22 2017 : The Times of India (Mumbai)
joint Ventures (JVs) or as they are commonly called as Limited Liability Partnerships (LLP), are frequently used jargon in the real estate industry. It is a mutually beneficial partnership for all the parties involved, as a joint venture helps developers share profits and risks associated with the project, by easing the financial burden. “Additionally, JVs also provide the developers with access to new markets and share critical experience and expertise.They are advantageous to both, developers and buyers. Developers stand to benefit with the additional funds and expertise and these benefits are then passed onto the end-user,“ says Maulik Sheth, director, Sheth Corp.
WHY ARE JVs A GREAT OPTION?
Most landowners may not have the expertise and resources to develop and market a project. On the other hand, it can be an extremely capital-intensive decision for most developers to invest in land.“JVs thus, become a win-win proposition for both, as each partner focuses on his her own key strengths and their roles complement each other. The project benefits are shared between the JV partners in a pre-determined manner,“ says Mohit Malhotra, executive director, Godrej Properties Ltd.
This is more prevalent and useful during demanding market conditions (for instance, the current times when several government regulations have been introduced).
“Along with certain government restrictions, limited availability of resources also curbs the ambitions of many developers. It becomes challenging to meet the expectations of the clients with so many limitations. In such situations, offering a good quality living space at affordable costs, becomes possible through joint ventures,“ says Vihang Sarnaik, director, Vihang Group.
Secondly, special expertise projects also need a JV; for e.g a develop
er who has already started a project but for some reason, does not have the capacity of sus taining it due to some financial crunch. Elaborating it further, Manju Yagnik, vice-chairperson, Nahar Group says, “Such developers are more likely to enter into a JV. They would then come under the umbrella of a big brand through the JV and will hence, be able to complete the project on time. By associating with a brand, the sales get better and the expertise in construction quality improves. Hence, both the parties benefit to a large extent and the profit is shared as per the agreement.“
THE BUDGET PROPOSAL
Among the several budget announcements for the real estate sector in the Union Budget 201718, the tax reforms for Joint Development Agreements (JDAs) are expected to provide the much needed boost to the sector.“Capital gains on JDAs, currently the most prevalent form of land development in the real estate sector, will be taxed only after the completion of the project. This step will improve land transactions, bring in more supply of land into the property market and allow more private participation into the sector. Tax reforms will enable cash flows into the project, which in turn, will benefit home buyers with better deals and pricing,“ says Rajeeb Dash, head corporate marketing, Tata Housing.
Realty experts state that in a JV, both the partners ought to have a similar mindset, vision and commitment towards work, to create a successful joint venture. If any of these three factors are missed out, the collaboration will not be successful. This mismatch of ideologies may eventually lead to hurdles in planning, execution and completion of the project.
“It creates a questionable impression about the whole project not only within the developer community but also in the market.The credibility goes down and it creates a negative impact on the brand value of the organisation. If there is even a slight imbalance in the levels of expertise, investments or assets brought into the venture by the different partners, it leads to breakdowns at multiple levels. Different work cultures and management styles result in poor integration and co-operation. In many cases of imbalanced JVs, the partners don’t provide enough leadership and support in the early stages, thus causing low integrity across the board,“ adds Sarnaik.
It takes time and effort to build the right relationship and partnering with another business can be challenging at a certain point.It is important to communicate the objective of the venture with complete transparency with everyone involved. The joint venture partners must ensure that the parties involved in the project understand the advantages of cooperating.
“If this is not achieved, the organisation will spend time and energy defending its territory, which decreases the likelihood of a profitable cooperation,“ concludes Yagnik.
Publication / Source: Times of India.com