How Land Owners can generate income out of their vacant land

Land owners who have purchased land which is lying vacant for a while have reasons to rejoice as it can fetch them a regular income without the hassles of the owner having to develop the land. Many property developers are coming forward to take up land owned by such land owners on lease for a fixed period of time during which the property is developed by the developers and the profits earned on the developed property are shared based on a pre-decided contract.

It has been commonly seen hitherto that land owners keep property they have purchased, particularly in the outskirts of a city, as such. They wait in the hope that the infrastructure in the area will develop soon and the land they have purchased will fetch them a profit as a result of appreciation. However, this may not happen as soon as expected, thereby resulting in the land being a dead investment for a considerable period of time.  With property developers providing them with a lucrative option, land owners can heave a sigh of relief.

Joint venture with developer

While property in higher priced areas can naturally fetch owners considerable returns, those in the fringes are the ones that can provide land owners with respite. All they need to do is to get into a joint venture with property developers willing to take up such land on lease and develop it suitably so that the profits thus generated can be shared based on the contract signed between both parties. However, the profits that can be generated from such ventures will depend largely on the infrastructure developments in the vicinity. Not only can land owners be relieved that their investment is no longer a dead investment, they are also assured of regular returns based on the contract with the developer. Irrespective of the area where the land is situated, even a 2,500 sq.ft parcel of land, strategically located near a National Highway, Ring Road or any other major road can generate decent returns for the owner.

Profit sharing

The process involves a joint venture that is signed between the land owner and the developer which mentions the construction that is to be carried out on the land with its details, the time frame for which the contract will stand as well as the conditions and share of profit sharing for both parties. At no time during this process as well as during the period of the contract has the land owner required to shell out money. It is the sole responsibility of the developer to construct, market and sell the property, residential or commercial. The profit that accrues is shared either on a 50:50 or 60:40 basis, in favour of the developer. However, all the documentation work that includes sanctions, application and approval documents are done in the name of the land owner.

Terms of contract

As per the contract, the land owner is paid an advance amount of about 10 to 12 per cent of the deal, which is non-refundable and is also called ‘good-will payment’. Besides, an additional amount of about 10 per cent of the deal is given to the land owner. This amount is refundable and has to be returned by the owner after the construction is completed. In the instance of the owner having to move out of the property where he was living during the construction phase, it is the responsibility of the developer to pay for the rent of the land owner during the period of the construction or till that time when the owner is able to get an income from the land developed.

Clauses

In case of such contracts, there is also a penalty clause in case there is a delay in construction that can be attributed to the developer. In such cases, the developer has to pay an additional sum of money during the period of the delay. To ensure against delays and facilitate an even-playing ground, developers ensure that there is a bonus or exit clause included in the contract. As per this clause, the developer can claim a pre-decided per cent of the profit if the construction is completed before schedule.

As per the profit-sharing clause included in the contract for a 60:40 share in favour of the developer, for every 10 apartments constructed, the developer retains possession of six which he can sell. The remaining four goes to the owner who is free to decide on what he wants to do with them. He can sell or rent all of them or both. He can also retain possession of any of them for his personal use.