In property development, a joint venture (JV) means an arrangement between two or more parties who cooperate to achieve a common set of goals, outcomes or objectives. It is a structure commonly used within the industry and can provide significant value for all parties involved.

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One of the most common scenarios involving a JV with a land owner is where one party owns the land, and the other develops it to sell for a profit. The parties may negotiate an agreement such that the developer is remunerated based on a profit split paid as a project management fee for completing the project.

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This type of arrangement incentivises the developer to do their best as their remuneration will be directly proportionate with the amount of profit achieved from the sales of the products.

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Many properties have development potential out there, owned by people who aren't property developers, or worse; the owner thinks that developing is easy. They spend a lot of money on a project that doesn't work or make a big mistake due to a lack of knowledge or experience, which is extremely costly. All this can be avoided by partnering with an experienced property developer.

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One of the significant aspects of this strategy is that the land owner keeps their name on the title, which is the best security position to be in, and the parties will enter into a JV agreement outlining the roles and responsibilities of each party. Usually, the land owner will fund the approvals and put up the land for security for construction finance. As your development partner, Alpha Squared Property will conduct advanced due diligence and feasibility studies to extract the highest profit from the site.  We will obtain the development and construction permits by liaising with professionals and council, tender civil contractors and builders for construction, manage construction and finally oversee the sales process to project completion.

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When we reach the end of the project, and sales are made, we start to pay everyone back. The sales of lots, units or townhouses do this. The bank that financed the development is paid back first until the loan is paid in full. Then the land owner is paid the agreed amount for the land purchase. Then the rest of the sales proceeds are split between the developer and the land owner at the agreed profit share.

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Many different permutations and combinations of the project setup can be discussed to suit the needs of all parties. All documents are prepared by professional property lawyers, and tax advice sort by expert accountants to suit individual needs.

 

At Alpha Squared Property, we aim to create a win-win for both parties. Contact us to see how this strategy can work for you.

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