Equity based partnership to make project up to the finish product from scratch is known as Joint Venture. Joint venture as per Indian law under company act 2002 and company act 2013 is legal, a new legal entity is formed which are either Public or private sector companies.
In a joint venture, two or more Real Estate companies join together to collaborate on a particular Real Estate project. Through company’s collaboration, the companies share resources, profits, losses and expenses. The joint venture is a legal entity separate from the companies’ other business interests.
In a simple language a joint venture in a real-estate projects a combination of two or more parties that seek the development of a single enterprise or project for profit, sharing the risks associated with its development. The parties to the joint venture must be at least a combination of two natural persons or entities.
Objectives of joint ventures in Real Estate projects
Real Estate projects always have involvement of huge investments in the way of investment in Land purchasing, raw material purchasing, skill oriented man power required for development, Construction cost etc. In simple terms, the objective of Joint venture in real-estate projects is to create finish product for easy sale in the market at worth cost by distributing the tasks and investment & Profit and losses.
Many a times, due to huge investments, the Real-estate projects got stuck in mid stage which resulted into huge losses due to insufficient fund and resources. In Joint Venture, the team formation takes place to develop a specific Real Estate project. Like the Land owner offers land by taking some percentage of land cost and take some constructed areas out of entire constructed area. On the other hand Construction firm offer raw material, labour, liaison work and after construction hold some constructed area as per MOU created with mutual consent.
Sharing Risks and Rewards
The basic fundamentals of Joint venture is that multiple entrepreneur / individuals / firms/ companies / group of companies (depending upon the size of project) are sharing risk and rewards in completing the entire project by combining their resources and expertise. Investors bear the financial risk / profit of real estate investments. Additionally, joint ventures provide access to larger and more profitable projects that might be beyond the reach of individual investors.
Mutual terms Conditions in Joint Venture
Joint Ventures in Real Estate projects vary from project to project depending upon project size, location, type; residential / commercial/ institutional / industrial etc. Involved parties consider their interests, risks, profits and stake holdings. After legal drafting with terms and conditions and after a lot of amendments and reviews the execution of MOU takes place to execute the project in real manner jointly. It is mandatory to mention and understand the terms & conditions from every side before starting the project for better results and long run relationships.
Specialized partners – optimize Results in Joint Venture
Resource wise working
Let’s take an example of a small project which has the involvement of individuals to execute the project in joint venture. Similar Model can be followed for huge projects by the companies in joint venture to execute the huge project under joint venture.
Investor will invest the money, Contractor will take contract work, Vendors will do their appropriate work. In this manner, after execution of the entire project the position of all will be win-win position.
Joint ventures – Accountability of Responsibilities
Association of multiple individuals / firms / company having specific task are always accountable and responsible for their jobs.
Distributed Business
In joint venture the business also distributed amongst more than one entity. So risk and profit is also distributed to multiple entities.
Short & Long Term Profits
Joint venture can be done in various ways. Some have short term profits like take the contract and execute the contract and finish the joint venture. In long term joint venture, the association can be for long time after completing the projects and taking the benefits which are after completing the projects like maintaining project jointly, selling and renting specific areas jointly etc.
Some of the most renowned examples of joint ventures done in India include Blackstone and Embassy, ESR-Allianz Real Estate, JV and Sumitomo-Krishna Group JV are among others.