Sample Joint Venture Agreements and Proposals
Have a land or independent house in a hot location. Planning to sell or do a JV ?
While there are many things that one need to consider before entering a joint venture, one of the most crucial factors is the financial consideration.
There is always a doubt in land owners mind whether the deal is good for them.
I have seen few instances where land owners have negotiated well and landed in a good deal and seen few within my relatives who got a very raw deal.
Determining the right price
Arriving at a right deal takes time as there are various things to be taken into consideration. Broadly we can classify as below
- Land Area and market price per ground
- FSI possibility- FSI is Floor Space Index which gives an indication of how much build area can come up in the land. FSI is more if your property has a bigger road frontage. Your land will fetch more frontage / premium FSI if its on 100 ft or 200 ft road. FSI becomes less if your land is on 20 ft or less road. General FSI achieved is 1.5 + common area.
- Flat sale price – This needs to be taken into consideration to ensure you know the true value of your property.
- Contruction cost – This cost will tell the construction cost for on your land. This may include demolish /reconstruction cost.
- Assuming you have a land measuring 2400 sqft in Adyar.
- Lets assume the going rate per ground to be 3 crores
- Total Sale able area for the land would be 2400 * 1.8 = 4320
- Assuming rate per sqft to be Rs 12000. Final sale inwards = 4320 * 12000 = 5.1 crores
- Total construction cost = 4320 * 2000 = 88 lakhs. Average per sq ft construction cost as of now is 1700 -2000 per sq ft
- Marketing Cost = 5 lakhs (Approx)
- Legal Cost = 5 Lakhs (Approx)
- Approval Cost = 5 Lakhs (Assuming 6 kitchen flat).
- Miscellaneous cost = 5 lakhs
- Total cost outwards = 88 + 5+ 5+ 5+ 5 = 108 lakhs
- Net returns = 5.1 – 1.08 = 4 crores
While its clear that to achieve a return of 4 crores from your property, you have to do considerable investment of 1 crore and also work towards achieving it.
Joint Venture comes into play when the owners are not able do the construction themselves. So striking the deal midway will be a win – win situation.
In the above example, if you are thinking of outright sale, you can aim at anything above land’s market price of 3 crores ( 3.5 – 4 crores ) or evaluate JV options which can net you around 4 crore rupees.
Points to note : 1. 8 FSI is achievable but will come with deviation. Please note that CMDA never approves projects with deviation. It is usual for builders to increase the FSI from approved FSI (1.3 to 1.5).
Banks usually provide loan, provided the deviation is within their acceptable levels. Banks will never approve loans for flats which are not in plan i.e if the approval is for 6 flats and builders adds the 2 more, banks will not provide loan for such cases.
Always evaluate multiple quotes from different builders before inking the deal.
Attaching one proposal below which has high owner share.
Attached below is sample Joint Venture agreements. This is one more type of JV where land owner gets more money for their land.
Also attached a sample POA document usually signed between Builder and Land Owner.