Which is better – Owned Projects or JDA projects?

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Last evening my friend asked me “does it makes any difference to a project whether it is being developed on an owned land or in a joint development agreement (JDA) by the builder”. I said yes it does, not only before the launch of project but also post completion of the project. I always prefer to invest in a project where the land is owned by the builder. Let’s see why.

For Builder:

  1. Builder prefers to do JDA projects as it lowers their upfront capital investment in the project as well as lowers the risk associated with the land. Builders may choose to pass on the savings on financial expenses to the buyers. Hence, you might find a JDA project might be priced lower than a project where the land was acquired by the builder at market price (not historical land bank).
  2. In an owned land Builders have more control over the project as there won’t be any landowners to create problems during the construction. Landowners have never ending demands, right from wedding expenses to festival expenses, which have to be met by builders.

For Buyers:

You might think it doesn’t matter to a buyer whether the land is owned or in JDA. However it does. I have seen numerous problems in JDA projects post completion.

  1. Landowners seldom pay maintenance for unsold apartments. Hence, most of such projects have either high cost of maintenance or are shoddily maintained. Exception to this is when the builder manages the property even after completion e.g. Prestige Group which does maintenance for all its projects.
  2. Even for units that they let out many a times they won’t pay maintenance to the association even though they would collect it from the tenants.
  3. They usually have guests who will on few occasions utilise these apartments for temporary accommodation. So you have to deal with loud people and their disturbances occasionally. And to forget that the society ends up bearing the water and other utilities expenses.
  4. Not possible to fight with landowners for your rights and due expenses as most of them are local / rogue / semi-literate elements.
  5. If there is any fight among landowners family members (sometime there are 20, 30 or even 50 people) litigation would cause problems with the society and reduce the valuation of the entire property.

My Experience

My first two investments were in JDA projects. The society suffered like hell because landowners never ever paid for maintenance. In the first case the landowner happened to be the extended family of the local corporator. So there was no question of fighting with them or even complaining against them.

In the other property there was a litigation among the second generation family members of the landowner who had signed JDA with the builder. The family members put the case on the ownership of the land as well as distribution of units among family members as a part of JDA post the demise of the landowner. The entire society was shocked and scared as we were worried that we might lose the ownership itself. Luckily for us the builder was a well-known company and they sorted out the entire issue even though it took almost 4 years to resolve it.

Conclusion

In my experience I have seen buyers more worried during the construction of the project. However, as we can see from above, problems can crop up even after the builder has handed over the project to buyers with right intent. As a buyer we should be conscious of these subtle nuances of properties as well. Most of us shall be living in the community for decades and hence we should invest in the right community to have long term peace of mind.

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