The Advantages & Disadvantages Of Joint Ventures In The Real Estate Industry
It happens frequently that regulatory organisations reprimand real estate developers for delivering projects late. Developers have been compelled to create joint ventures by this consumer-focused regulatory framework. In the agreement, two unconnected businesses pool their resources and expertise to finish a project. However, these alliances have advantages as well as disadvantages. Continue reading to discover more about them!
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Joint ventures, mergers, and collaborations are ways for two parties (in this example, real estate developers) to effectively address market demands by combining their resources, technological know-how, and experience. Real estate joint ventures give investors the opportunity to diversify their portfolios with a variety of income sources, such as monthly rental returns and lump sums. Developers can also raise stock and withdraw without filing for bankruptcy.
What exactly is a joint venture?
A joint venture is a cooperative effort between several parties to pool their resources and construct a real estate project. The majority of significant real estate developments are finance and run via JVs.
The failure of numerous real estate projects in India has forced real estate operators (those with project-execution skills) to collaborate with real estate funding providers. (capital investors).
What are the benefits of a joint venture?
Real estate joint ventures primarily help small developers. Small developers can provide high-quality products thanks to consolidation & merger with Grade-A developers. Small developers could not have access to such a large amount of funding or a marketing plan. Through a joint venture, they can focus their efforts and take on issues that are beyond of their own purview.
On the other hand, seasoned real estate developers could improve their capacity for project delivery. Even doubtful homebuyers gain confidence as the project gains the backing of a reputable developer.
What disadvantages do joint ventures have?
Despite the obvious advantages of a real estate joint venture, there are some drawbacks to take into account before establishing one. You would need to accumulate and polish your experience in order to put together a portfolio of successes that can be proven. The cost of a joint venture partnership may outweigh the cost of recruiting skilled tradespeople. Even bridging loans, which can be more profitable but also riskier, are an option for some.
What led to the rise in joint ventures in the real estate industry?
Transparency and accountability were introduced to the real estate industry with the passing of the Real Estate (Regulation & Development) Act, 2016, & the subsequent establishment of Real Estate Regulatory Authorities. The severe regulations, however, did not sit well with independent developers who could not adhere to them. Those who couldn’t make it filed for bankruptcy. Those that wished to live established partnerships with significant developers.
Despite being strict, the regulation has increased transparency and encouraged institutional and foreign investment in the sector. Additionally, it has assisted the sector in shedding its negative reputation as an unorganized one.
What are some examples of cooperative ventures?
Blackstone & Embassy, ESR-Allianz Real Estate JV, Sumitomo-Krishna Group JV, and more well-known joint ventures were carried out in India.
Things to remember
It is always preferable to be doubly certain about the claims and state of the project in question, even though the developers may create JVs for greater openness and to address their project-related problems. Making wise decisions will be easier if you ask yourself the questions listed below.
Creating a partnership with another business might be difficult. It takes time and work to establish the ideal business partnership, and even then, it could be challenging to resolve every issue. However, there are a few approaches to accomplish the intended purpose, including strong communication, a well-planned joint venture relationship, & a clear joint venture agreement.
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