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Joint Ventures Between Real Estate Majors And Construction Companies To Beat Financial BluesBy Sumit Kumar, Section Gurgaon Real Estate Property
There maybe a slowdown in the real-estate sector, but joint ventures between real estate majors and construction companies are still going strong. Timely delivery, cost saving and a competitive edge in the market is making many realtors think of such alliances.
Realty companies such as Omaxe and Indiabulls Real Estate are tying up with construction majors, following in the footsteps of biggies such as Ansal API, Emaar MGF and DLF. And some like Uppal Group have tied up with another real estate developer, Chadha Group, for specific projects. As per global real estate consultancy, Jones Lang LaSalle Meghraj (JLLM), some developers are giving turnkey contracts to construction companies to benefit from the lower borrowing cost at which construction companies can raise money from banks. "If developers try to raise finance from banks on their own, they would normally incur a borrowing cost of around 14-15%, whereas a construction company would be able to raise funding at lower rates, depending on various factors." Agrees Vipin Agrawal, executive director, Omaxe which is looking at JVs for the first time for its projects. "We are in talks with various national and international construction companies for a number of projects. Since we have a non-disclosure agreement with them I can not name the projects or companies. It will help us to focus better on construction of the projects and also their marketing." Cliuck on "Full Story" for more...
There are some like real estate developer Uppal Group which, in fact, in the past tied up with another real estate developer Chadha Group, called the Uppal Chadha Group for their Plumeria projects. An official of the company says that such partnerships help to offset costs, especially when the scale of the project is big.
India's largest real estate developer DLF had also set up a JV company with UK-based infrastructure major Laing O'Rourke in 2006 and formed DLF Laing O'Rourke. Last year, Ansal API formed a 60:40 JV with Malaysia's UEM Builders for it's 2,000-crore Lucknow project. Kunal Banerji, president, marketing of Ansal API says, "It helps in saving cost and also in timely delivery." "Foreign players get a foothold in Indian real estate and infrastructure industry, while real estate developers get good quality suppliers. Though slowdown can put pressure on the JVs that are in the pipeline," feels Ajit Krishnan, partner-global tax advisory services, Ernst & Young. However, not all feel that such kind of joint ventures necessarily work. "In this time of slow progress such tie-ups do not help. The feedback from the market is that many leading companies have done tie-ups but their experiences are not encouraging. None of the construction companies in present scenario are interested in sharing the cost of land and government dues, which are quite high and variable," says a senior official at BPTP. Source: Economic Times, 31 Aug, 2008
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