Is Development Management Agreement A Boon For Home Buyers?

A developer management agreement (DMA) is generally signed between a land owner or a local builder and a developer. These pacts generally work on a revenue-sharing basis, where the higher the responsibility of the development manager, the more is his share, and vice versa.

Each party focuses on its core competencies, such as the local builder arranging the land, labour and approvals, and the renowned developer looking into project execution, designing, marketing, sales, etc.

Land-owner-turned-developers often find it difficult to sell property on their own in the absence of a brand value. These small developers, therefore, get associated with big names of the industry to sell their projects. The brands can avail of between 10 and 30 per cent of the total sale proceeds as their share. So, such arrangements are a win-win for both parties.

With the Real Estate Regulatory Authority (RERA) Act putting the onus on developers to either deliver their projects in time or face action, the builders who are unable to meet their project deadlines rope in other developers for the job. These new developers not only have to safeguard themselves from any financial liabilities but also have their reputation and brand value at stake. So, they do everything to meet the commitment made with the customer.

Consumers' interest is also better served by DMAs because the consumer gets an opportunity to renegotiate the terms with the new developer. So, a consumer gets to purchase a property developed by a premium developer at a lower cost. This enhances the property's value and the consumer can later sell the property at a premium.

Local developers might have the land parcels and the required approvals but need financiers or consumers for their projects. By associating themselves with a brand, they get the much-required expertise and technical know-how.

This concept could usher in the much-needed consolidation in the real estate industry.