Sell or Joint Venture, which is better for a landowner?

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What do you do when you have to choose between selling off your land and getting a joint venture developer on board to partner with you? We share with you some factors that you may have to consider to guide your decision-making process.

Selling Land

This refers to the transfer or disposition of a landowner’s legal or equitable interest in a piece of land, in exchange for monetary gains and/or any other pecuniary benefit(s).

Merits of Selling Land As is

1.Certainty of Capital Gains as long as you are able to find a willing and capable buyer

2.You as the seller have control over the sales procedure

3.You have the option to choose from an array of offers from interested buyers, giving you time to negotiate for the best possible price.

Demerits of Selling land As Is

1.Property may end up being on the market for a lengthy period of time

2.You may end up getting less that the value of your land if you are selling to raise cash for an emergency

3.You are likely to incur costs on marketing and agency fees

4.Constant inspections.

The Joint Venture Option

In very simple term, a joint venture development partnership involves a landowner and property developer forming an alliance where the common goal is the development of a property to be shared based on pre-agreed terms once the development is complete. The landowner contributes the land, while the developer brings their expertise/funding to the table.

Merits of joint Venture

1.The most obvious benefit of a joint venture to a landowner is improvement on their property.

2.More is achieved with fewer resources as both parties are able to take advantage of the other’s strengths while mitigating each other’s weaknesses.

3.You get more value at the end of the day in comparison to selling the land as is.

4.A premium may be involved in the transaction.

Demerits of Joint Venture

1.You give up a portion of your plot in exchange for the development of the property

2.Where the developer is not able to fulfill their end of the transaction, you may end up neither being able to dispose the property nor getting building units.

3.Misunderstandings and conflicts may arise at any point in the transaction.

4.Joint ventures usually involve a lengthy process from offer/counter offers, negotiation of terms and actual construction.

Consider the case study below

Mr. John has a 1000sqm plot of land at Adeniyi Jones Avenue Ikeja, he places an asking price of Three Hundred Million Naira (N300,000,000.00) on the property, but has over the past couple of months gotten offers not exceeding Two Hundred Million Naira (N200,000,000.00).

While he is still contemplating whether to sell at N200m or hold out for a better offer, along comes a developer offering a joint venture partnership. He (the developer) proposes to develop a twin block of 4 nos. 3-BR luxury apartments, further offering to allot a block of 4 nos 3BR apartments to Mr. John.

It is estimated that each apartment will sell for between N50m to N55m.

At a glance it can be deduced that:

1.Should Mr. Johnson decide to sell at the open market value, he receives remuneration to the tune of N200m.

2.If however, he accepts the joint venture offer, he gets 4 units of 3 BR apartments prices at between N50m to N55m.

3.Selling at N50m, he rakes in a total of N200m (equivalent to what he gets selling now), considering the time value of money, he will be better off getting that sum now that waiting until the development is completed in about a year’s time.

4.If he is able to sell at N55m or even more, he rakes in a minimum of N220m amounting to a ROI of 10%. Undoubtedly this is an attractive prospect.

Conclusion

The case study is highly simplified, but as seen from the scenario above, unless an owner’s decision to sell is hinged on a dire need for urgent cash, there exist a number of parameters that he has to put into consideration before reaching a decision on whether he should sell or go the joint venture development route.

It is always better to engage the services of real estate professionals such as JV Pulse to aid decision making. We specialize in Joint venture partnerships and can help you make that dream come true