BANGALORE: Here's a new trend in realty shopping. Form a limited liability partnership (LLP), pool money, use that to buy land parcels and then partner with a developer to develop built-to-suit residential projects.
This model gives handsome discounts while buying and earns a profit when surplus inventory (property) is offloaded. It also provides tax advantages.
The LLP model defines the rights of the members and no one person gets singled out because of the liability emerging from the company. Hence, risks are spread out evenly. Any two or more persons with an intention to carry out lawful business for profit can form an LLP.
“Members of an LLP bring in land as equity and can make a profit of 15-20% on project development that gets distributed among members,” said Ram Chandnani, deputy MD-South India of real estate consultancy CB Richard Ellis.
Sajan Poovayya, managing partner in Poovayya & Co, said that with many individuals owning multiple realty assets, no one wants to expose themselves in every document.
Lawyers, doctors, bankers and IT professionals are among those floating LLPs to invest in residential projects in places like Bangalore and Chennai.
“Developers see this as a great opportunity as it provides a captive audience for their projects with minimum or no marketing costs,” said Shrinivas Rao, CEO of real estate consultancy Vestian Global.
”Recently, a group of 80 IT professionals in Bangalore pooled over Rs 60 crore and formed an LLP to invest in residential projects. Such deals are happening in areas like Whitefield, Sarjapur Road and Hebbal,” said a real estate industry source who did not want to be named.
LLPs are also a preferred vehicle for real estate investment from a taxation standpoint. “There is no tax liability when the profit gets distributed among members of a group. In contrast, when a corporate entity declares dividends, they pay a dividend distribution tax of 15.5%,'' said K R Girish, senior partner at BSR & Co.
