With the implementation of the Real Estate (Regulation and Development) Act (RERA), 2016, the real estate industry is witnessing a surge in the number of Joint Ventures (JV) and Development Management Agreements (DMA). Smaller developers are tying up with established players through JVs and DMAs to handle the complexities under the Real Estate Act.
Experts explain that RERA compliance will be an uphill task for small developers. It must be noted that RERA directs builders to maintain 70 percent of the funds collected from buyers of new projects in an escrow account to avoid fund diversion. Such provisions are likely to increase the liquidity burden on developers. In such a scenario, a JV or DMA will seek to give control of the project to the established developer, whose experience will benefit the project in terms of streamlined construction timelines as well as on the marketing front. Thus, DMAs and JVs will offer an easier path to smaller players, thereby leading to greater consolidation in the sector.
Experts assert that RERA has led to greater traction in such deals, especially from regional developers. Such alliances are a win-win situation for both the parties, wherein the landowner can monetise their land parcels by leveraging the bigger player’s brand value, development expertise, and ability to raise capital.