The Advantages & Disadvantages Of Joint Ventures In The Real Estate Industry

Ithappensfrequentlythatregulatoryorganisationsreprimandrealestate developersfordeliveringprojectslate.Developershavebeencompelledtocreate jointventuresbythisconsumer-focusedregulatoryframework.Intheagreement, twounconnectedbusinessespooltheirresourcesandexpertisetofinishaproject. However,theseallianceshaveadvantagesaswellasdisadvantages.Continue readingtodiscovermoreaboutthem!

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Jointventures,mergers,andcollaborationsarewaysfortwoparties(inthis example,realestatedevelopers)toeffectivelyaddressmarketdemandsby combiningtheirresources,technologicalknow-how,andexperience.Realestate jointventuresgiveinvestorstheopportunitytodiversifytheirportfolioswitha varietyofincomesources,suchasmonthlyrentalreturnsandlumpsums. Developerscanalsoraisestockandwithdrawwithoutfilingforbankruptcy.

What exactly is a joint venture?

Ajointventureisacooperativeeffortbetweenseveralpartiestopooltheir resourcesandconstructarealestateproject.Themajorityofsignificantrealestate developmentsarefinancedandrunviaJVs.

ThefailureofnumerousrealestateprojectsinIndiahasforcedrealestateoperators (thosewithproject-executionskills)tocollaboratewithrealestatefunding providers.(capitalinvestors).

What are the benefits of a joint venture?

Realestatejointventuresprimarilyhelpsmalldevelopers.Smalldeveloperscan providehigh-qualityproductsthankstoconsolidation&mergerwithGrade-A developers.Smalldeveloperscouldnothaveaccesstosuchalargeamountof fundingoramarketingplan.Throughajointventure,theycanfocustheirefforts andtakeonissuesthatarebeyondoftheirownpurview.

Ontheotherhand,seasonedrealestatedeveloperscouldimprovetheircapacityfor projectdelivery.Evendoubtfulhomebuyersgainconfidenceastheprojectgainsthe backingofareputabledeveloper.

What disadvantages do joint ventures have?

Despitetheobviousadvantagesofarealestatejointventure,therearesome drawbackstotakeintoaccountbeforeestablishingone.Youwouldneedto accumulateandpolishyourexperienceinordertoputtogetheraportfolioof successesthatcanbeproven.Thecostofajointventurepartnershipmayoutweigh thecostofrecruitingskilledtradespeople.Evenbridgingloans,whichcanbemore profitablebutalsoriskier,areanoptionforsome.

What led to the rise in joint ventures in the real estate industry?

Transparencyandaccountabilitywereintroducedtotherealestateindustrywith thepassingoftheRealEstate(Regulation&Development)Act,2016,&the subsequentestablishmentofRealEstateRegulatoryAuthorities.Thesevere regulations,however,didnotsitwellwithindependentdeveloperswhocouldnot adheretothem.Thosewhocouldn'tmakeitfiledforbankruptcy.Thosethatwished toliveestablishedpartnershipswithsignificantdevelopers.

Despitebeingstrict,theregulationhasincreasedtransparencyandencouraged institutionalandforeigninvestmentinthesector.Additionally,ithasassistedthe sectorinsheddingitsnegativereputationasanunorganizedone.

What are some examples of cooperative ventures?

Blackstone&Embassy,ESR-AllianzRealEstateJV,Sumitomo-KrishnaGroupJV,and morewell-knownjointventureswerecarriedoutinIndia.

Things to remember

Itisalwayspreferabletobedoublycertainabouttheclaimsandstateoftheproject inquestion,eventhoughthedevelopersmaycreateJVsforgreateropennessandto addresstheirproject-relatedproblems.Makingwisedecisionswillbeeasierifyou askyourselfthequestionslistedbelow.

Creatingapartnershipwithanotherbusinessmightbedifficult.Ittakestimeand worktoestablishtheidealbusinesspartnership,andeventhen,itcouldbe challengingtoresolveeveryissue.However,thereareafewapproachesto accomplishtheintendedpurpose,includingstrongcommunication,awell-planned jointventurerelationship,&aclearjointventureagreement.

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