Joint ventures - the flavor of the season

Expert EyeTapan Bhattacharya

Cranes are once again making their presence felt on the horizon, rekindling the old joke about the crane being the “national bird of Dubai,” and the din at construction sites is getting louder by the hour.

Plot owners are turning out to be the kings of the game as they have plenty on offer as choice in order to have their land developed. A large number of investors from across the seas are heading towards Dubai to plough in their monies, and are looking to join hands with landowners and developers who have the capacity to deliver projects.

One of the surest ways to put plans into practice is to form a joint venture with a local partner who has experience and capability in the field. Let us see, then, what makes joint ventures such a lucrative option for developers, landowners and investors alike.

Efficient deployment of funds
Investors who are looking to deploy their funds into the real estate market, many of whom come from different parts of the world, join hands with a partner owning a plot in a booming area as this helps get a greater share of profit, by virtue of shared land costs leading to larger-sized projects.

The same goes for the landowner who can reap better returns once the project on his land is completed rather than the profit that he stands to earn purely on a land transaction. The area of concern being the price of land that most landowners tend to jack up in order to have higher equity on the project. However, with an analysis of market trends, investors can negotiate a good deal that is a win-win for both parties.

Strength in numbers
This is the most important of all the benefits that an investor stands to gain by joining hands with a local partner.

After getting a piece of land, the next challenge is to get a local partner who can develop the land to realize its full potential. The partner may take complete responsibility for developing to include finding a contractor, consultant, architect, sales and marketing agency, handling of escrow accounts and, lastly, dealing with local authorities including DLD and RERA.

Some partners may come with a joint responsibility according to investment and have everything on agreed percentages. An investor who joins hands with a reputed partner may also get to leverage the brand name and get recognition in the market from the word-go.

Risk mitigation
In real estate market there is nothing called “surety” especially after what the market has gone through in the wake of the financial crisis. Sentiments may plunge at the slightest hint of uncertainty Almost all investors today demand to know the flip side of a deal no matter how lucrative the same may sound, and it makes better sense if there is a strong partner who knows the market well and is ready to share the consequences should the market take a hit.

A carefully worked out cash flow with realistic estimates of off-plan sales proceeds, coupled with a thoroughly worked out project cost estimate, goes a long way in bringing in a clear picture of the returns that all the stakeholders associated with the project can look forward to. A good JV partner will always help his counterpart keep his expectations in check and will share both risks and benefits equally.

A win-win for all
Whether it is a developer or an investor or a landowner, a joint ventures affords the flexibility of approach in putting a development venture together by virtue of the experience and expertise that each of the stakeholders bring to the table. Their collective strength assumes greater importance should the partners need each other’s support to tide over the rough weather. Needless to say, no one minds sharing the spoils of the market if it turns into a windfall.

Source: Tapan Bhattacharya, Director - Business Development Trafalgar Properties, Special to Freehold


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