Real estate developers are increasingly turning to joint development agreements (JDAs) with landowners, a strategic shift which is being seen as a win-win for both parties amid surging land prices.
JDAs allow developers to access prime locations without huge upfront costs and landowners to monetise their land without losing ownership rights, said a report by Bengaluru-based real estate research firm Meraqi.
According to the report, titled ‘Our Landowner’s Guide’, an estimated 70% of real estate assets across residential and commercial segments in Bengaluru have been developed through JDAs.
It said land prices in Bengaluru, along with India’s other top real estate markets of Mumbai, National Capital Region (NCR), Pune, Chennai, Ahmedabad, Kolkata and Hyderabad, have appreciated sharply in the past three years. In Bengaluru, land prices have increased 40-60% during this period, as per the report.
“Joint development agreements are pivotal to the growth of the real estate sector in India. As Bengaluru continues to be a focal point for real estate developments, this guide is poised to become essential for top global business executives navigating strategic land monetisation,” said Gorakh Jhunjhunwala, managing director, Meraqi.
The development is primarily driven by IT companies and startups as well as rapid infrastructure development leading to robust growth opportunities for real estate firms.
“Before 2021, outright sale transactions were favoured for land monetisation. Bengaluru landowners prefer JDAs for residential and commercial projects owing to optimistic market and economic sentiments. JDA transactions are likely to yield two to 2.5 times higher returns than an outright transaction,” said Dhara Shah, head of Land Services & Research, Meraqi.
Sunil Pareek executive director, Assetz Group, said, “Instead of trying to bridge the buy-sell gaps, in JDA, landowners benefit from enhanced returns tied to sales price growth, while developers can optimise capital costs by sharing upsides with landowners.”
The real estate sector witnessed major policy changes between 2015 and 2020 on the regulatory front with the setting up of the Real Estate Regulatory Authority and introduction of the goods and services tax regime. During this phase, a few landowners struggled in JDA partnerships due lack of clarity on the new regime and lack of comprehensive understanding of tax, legal aspects and regulations.
“Land prices have made a big move over the last year or so, after being stable and subdued for a long while. Apart from the factors attributed, stable interest rates and infrastructure improvement like metro connectivity, new highways and roads have supported the increase in cost of land,” said Pavitra Shankar, MD-Brigade Group.
Residential real estate has seen high growth in the past two years, with builders looking at expanding their portfolio amid rapid reduction of inventory overhang or the time taken to sell the ready properties.
Bengaluru, for instance, saw a decline in the overhang period to nine months in 2023, against 20-25 months in 2015-2020. In comparison, the inventory overhang in other top real estate markets in the country in 2023 was nine to 12 months. Residential real estate prices were up almost 30% compared to those at the end of 2020, resulting in 10% average annual appreciation in Bengaluru, according to the report.