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Joint venture development:
As property gets increasingly scarce in prime city areas, older homes are increasingly in demand by developers. One of the most common alternatives
to an outright sale is the joint venture development. Builders enter into an agreement with landowners where the latter retain ownership of the plot and
the builders demolish the existing structure, erect an apartment building in its place, and offer a few apartments or flats as compensation to the owner
along with an refundable advance amount. In the agreement drawn up, everything right from the plot size, construction materials, and time frame schedule
to the amenities and facilities, date of possession and the profit sharing in the percentage is written down. With more people opening up to the idea of
joint venture development, builders are making use of the opportunity.
The number of apartments offered to the landowner as part of compensation would be based on factors such as prevailing cost of the land, construction
cost and other related expenses required to demolish the old house and complete the new project. Additionally, constructing property for them on
the same land today is an expensive party. Joint ventures stemmed from the fact that they are beneficial to both parties.
Once both parties agree to the terms of the joint venture, the landowner has to hand over the “Power of Attorney” to the builder to begin the
process of obtaining approvals and beginning the construction. In most cases, the builder takes care of all the approvals and the required paperwork.
The plot owner does not invest anything apart from his share of the land. Apart from this in some cases, while the plot is being developed,
the landowners are accommodated in another house. In this case, the rent and other costs are borne by the builders until the flats are fully ready
to be handed over for occupancy.
For example, assuming the plot size is 5,000 sq. ft with a market value of Rs. 2.5 crore. The builder who intends to develop the plot and
convert it into an apartment building could offer to develop a four-storied building consisting of 16 individual flats, of which he would offer
four flats to the owners along with some cash consideration.
A formal agreement between landowner and developer is essential, although registering it is not mandatory. This document should have all the
vital points mentioned and signed by both the parties. Important points include the total number of floors and number of apartments or flats
being built, the number of apartments offered to the landowner, and the cash component, if any, mentioned clearly.