What is joint development Agreement?
A joint development agreement (JDA) is becoming commonplace in the Indian real estate ecosystem with the easing and clarity of the rules and regulations. In fact, the central government has even revised the tax on JDAs to ensure that all sections of society get access to affordable housing quickly. Basically, a joint development agreement in real estate is an official contract between a builder and a landowner. It’s a development accord that describes in detail the property’s ownership rights and guidelines for construction.The landowner provides the land, while the builder develops it according to the JDA’s guidelines, dividing the profits.
For instance, Godrej Properties have a competitive advantage in executing joint development projects in Delhi/NCR. This is especially true in Noida for its excellent projects such as Godrej Palm Retreat, Godrej Nurture, and Godrej Nest.
Developer’s contribution in JDA
The developer agrees to provide one of the following things in a JDA:
- Percentage of sales revenue
- A lumpsum consideration, or
- A percentage of the new project constructed on land specified in the agreement
The above depends on the terms and conditionsof the joint development agreement between the landowner and builder that both mutually agreeupon.
Things to keep in mind while JDA
With independent villas and homes giving way to high rises, realty projects are springing from joint development agreements. The following considerations need to be kept in mind:
- Registering the documents: A document’s authenticity and validity can only be proved if registered in the sub-registrar’s office. Merely getting it notarized won’t save one from any possible consequences in the future. This includes any supplementary agreements as well and is essential not only for both parties but also for potential buyers.
- JDA doesn’t transfer titles: A joint development agreement doesn’t transfer the title of the property. So, the landowner can’t sell the newly constructed property without an NOC (no-objection certificate) from the developer. Buyers should always remember that while the land belongs to the landowner, the power to market and sell the project rests with the developer.
- No home loan until registration: Another reason for appropriately registering JDA and other documents is that banks don’t sanction home loans on the property until that happens.
GST on a development agreement
After a JDA is registered and the transfer of development rights from the landowner to the builder has taken place, there are two scenarios:
- If the agreement was entered before 31st March 2019, the landowner needs to pay 18% GST on forwarding charges.
- If the agreement was entered after 31st March 2019 and the flats aren’t booked before the completion certificate, the developer needs to pay 5% GST on RCM (Reverse Charge Mechanism).
If it’s a construction service being provided to the landowner by the builder:
- If the agreement was entered before 31st March 2019, the developer needs to pay 18% GST on the value of the flat handed over to the owner.
- If the agreement was entered after 31st March 2019, the developer needs to pay 5% GST on the value of the flats handed over to the land owner.
If there’s been a sale of flats by the developer, and if the flat has been booked or part of the amount has been received before obtaining the completion certificate, the developer needs to pay 5% GST. If not, then GST isn’t applicable.
Finally, if there’s been a sale of flats by the landowner:
- If flats don’t get booked until the completion certificate comes, the developer needs to pay 5% GST under RCM.
- If flats are booked before obtaining the completion certificate, the developer needs to pay 5% GST.
Benefits of a Joint Development Agreement JDA,
So, after answering the question of what is a JDA, let’s see some of its significant benefits:
- There’s no initial investment required for procuring land.
- One can partially avoidstamp duty.
- The property’s development is fast-paced, as working capital is majorly needed for meeting construction needs.
- The landlord gets competent consideration.
Overall, the landowner and the developer’s efforts and resources are combinedto make it a win-win situation.
A joint development agreement basically helps pool the resources of both the developer as well as the landowner to get the best outcome for them both. It not only helps the developer save money on land purchase in Noida but also saves the owner from taking on the hassles that arise from property construction. Additionally, buyers need to ensure all documents and due processes are in order when buying property built on a JDA basis in Noida. That said, buyers won’t have an issue when investing in Godrej Properties’ premium Delhi/NCR propertiesmentioned earlier. After all, Godrej Properties was ranked the second-most trusted Indian brand in the Brand Trust Report by TRA.
