Developers Joining Hands, What's In It For You?

Joint ventures, mergers, collaborations and consolidations are in trend as small builders are looking at offering better services and end product. The combined strength of a small builder and an established developer can help the ventures to achieve their targets better. Take the case of the Chinese real estate market. Currently, there are 50,000 developers in China and it is predicted that almost 8,000 would leave the market every year by 2020, there would not be more than 3,000 dedicated real estate developers.

One of the key reasons that make consolidations a preferred way is that big and reputed players had an easier way out with land acquisitions, financing, marketing and the way they can price their product. But when developers join hands, do homebuyers need to worry? Here are some facts:

How does it happen?

Consolidations can happen either when small developers monetise their land parcels or join hands with established developers and landowners to develop and market the project. The small developers, in order to earn better returns on investment, are nowadays tying up with established developers through Joint Development Agreement and Joint Venture models.

What do the experts say?

In an interview with Moneycontrol.com, HDFC's vice chairman and CEO, Keki Mistry said, “In the builder community, there are very strong builders, there are not-so-strong builders and relatively weak builders. What has changed over time is that there are more stringent regulations that have come into place. The real estate law is not only an important regulation, but also stringent as far as developers are concerned. A smaller developer may find it difficult to survive in this regime. So, it is possible to see some consolidation.” He expects such a consolidation to happen in the next three or four years.

Who can gain?

Consolidation means there is a good chance of smaller developers delivering quality and design. Such developers, who may not have had the expertise or repute to go in for a brilliant marketing strategy, could now team up with Grade A developers and channelise their energies.

The established developers can fine-tune their project delivery potential. And, the otherwise skeptical homebuyers can gain confidence in projects developed by small developers.  

The real estate law has brought in a sense of transparency within the sector. This will boost foreign and domestic institutional investors, too. The speed of consolidation also depends on the quantity of equity available for investment in the sector by domestic, foreign funds.

What to take note of?

While developers join hands to enjoy greater credibility or ease their development-related problems, homebuyers should perform their own due diligence and understand how developers are strengthening the new entity. For example, take note of when the consolidation is taking place – is it even before the project has started or when the construction is mid-way. Would formalities affect the possession timeline or legality of any of the documents you have with you? Check this with the firm or hire a property lawyer who can guide you.