Till date, joint venture (partnership) has been an interesting aspect of real estate success both in Nigeria and in the world over. A terse definition of joint ventures will be “a synergetic contract between individuals or group of persons (corporate bodies) that have agreed to work together to achieve a certain set goal for the common benefits of the parties.
It can also be referred to as the practice where a landowner puts forward his/her land for a developer, who puts up buildings on the land and proceeds of the sale of these buildings are divided among the land owner and the developer on a pre-agreed basis. In some cases, premium amount is paid by the developer to the owner before the commencement of the project; such cases are common where the land value is high and unobtainable.
So, getting into a real estate development joint venture must have a good ‘payback’ for you … actually, for both parties. Whatever you lack is usually the reason for entering into a Joint Venture.
It would take me an age to cover all the types of real estate development joint ventures, so I will concentrate on the following situation…
For example: The other party may have a wonderful property (site) and wants to develop it, but does not have the knowledge or the facility to move on with the project since so many factors must be considered to proceed.
You “love” the site and know that you could make it a very successful and profitable real estate development joint venture.
Typically, the land is valued and the valuation figure is considered as the landowner’s cash injection into the development, while the construction costs are equated to the developer’s cash contribution. The ratio of their contributions is the basis on which the proceeds of the sale of the properties will be shared. In other instances, it would be the basis on which units of the apartments are to be shared.
In Nigeria, joint venture is not very common in the real estate sector unlike other sectors like oil and allied. There are also joint venture partners between developers financed by banks and some individuals or group of individuals who own land in strategic locations and do not want to sell. Developers get into partnership with such people and agree to develop such place for their use for a definite period of time after which the land is returned to the original owners.
In the same vein some big time real estate firms get into partnership with government and some communities for development purposes not differing on the prevailing terms as mentioned in other examples.
Basically, whatever is lacking is usually the reason for entering into a Joint Venture. With this understanding, we come to realize that there are needs on both ends (parties), they have a common interest to work together, there is high possibility of profit on top of the list, a good frame work for the relationship (Memorandum of Understanding, (MoU) and also a timeline.
Consequently, a successful Joint Venture Partnership in Real Estate will demand/entail factors that will be dwelt on, sequel to intelligent pre-engagement enquires that has direct bearing on the purposes for which the partnerships is contracted.
These factors are as follows:
- A)Both parties must establish the importance of the Joint Ventures and what they stand to benefit from it. This is anchored on the grounds that the parties come to terms with what they have to invest in their various capacities which will form the basis of further terms of contract.
- B)On the premise of the above, there is the need for a substantial legal framework for proper agreement that will be put in the books empowered by legal instruments and signed by a reputable lawyer. This is then considered as the confluence of the partnership and a working tool.
- C)Everything on earth works with the currency of time. In other words a timeline is very important as it will serve as a guide and that will determine and measure the success of the Joint Venture.
- D)Another very important factor is profit or reward of the use of land and a working percentage of how this is shared among the parties based on their inputs. This very factor is about the cardinal purpose for which the Joint Venture partnership is established.
Even though these are not the exhaustive checklist of what Joint Venture Partnership entails, the above will create the necessary platform. They are not without drawbacks at various stages but fundamentally working on these will provide sufficient security needed.
Should you require further clarifications or you want a Joint Venture on your undeveloped land or an obsolete house on land up to 1000sqm within Lekki Phase 1, Magodo Phase 1 & 2, Omole 1 & 2 or any other estate with good title, Call us at Real World Homes on 08033834432