Overview
What you’ll learn:
- Why property developers rarely fund projects on their own
- How joint ventures combine developer skills with capital partner money
- Why JVs help developers grow faster while managing risk
- How this commercial structure shapes the way accounting looks later
This episode focuses on business logic, not accounting rules.
Best for:
- Offshore finance teams new to property development
- Finance staff supporting JV month-end reporting
- Anyone who finds JV accounting confusing and wants to understand why it exists
- Team members who want context before learning technical accounting
No prior JV knowledge required.
- Estimated time: 6 mins
Listen
Read
Chapter 1 Why Property Developers Use Joint Ventures
Context: This note summaries the commercial and strategic drivers for utilising joint venture (JV) structures in property development, alongside high-level accounting implications under IFRS/AASB.
- Purpose of Joint Ventures
A real estate joint venture is an arrangement where two or more parties combine resources—such as capital, land, approvals, or expertise—to acquire, develop, or manage property. Unlike simple contractor relationships, JVs involve shared governance, risk-sharing, and profit participation.
These structures enable entities to execute projects that may be unfeasible individually due to capital constraints, risk concentration, or lack of specific expertise.
- Key Commercial Drivers
Capital Efficiency and Balance Sheet Management
- "Capital-Light" Growth: Developers utilise JVs to manage their capital position by introducing partners early in a project’s lifecycle. This reduces the developer’s equity requirement, allowing for capital recycling and diversification across multiple projects.
- Leverage and Gearing: Structuring a project as an equity-accounted investment (EAI) allows the developer to present the investment as a single line item on the balance sheet. This "netting" of assets and liabilities generally keeps project-specific debt off the developer's consolidated balance sheet, potentially improving gearing ratios and debt covenant compliance.
Risk Sharing
- Execution Risk: Large-scale developments involve significant execution, planning, and market risks. JVs allow these risks to be shared among partners rather than concentrated in a single entity.
- Market Entry: Investors use JVs to access new geographies or asset classes where they lack local expertise or operational capabilities.
Income Generation (Fees vs. Profit Share)
- Fee Streams: Developers acting as the service provider within a JV can generate revenue streams distinct from investment returns. These include development management fees, construction margins, and funds management fees.
- Asset Creation: Developers use JVs to originate and manufacture high-quality product (e.g., office towers, build-to-rent assets) for their investment management platforms, thereby growing Funds Under Management (FUM).
- Typical Roles and Responsibilities
The Developer (Operator)
- Contribution: Typically contributes industry expertise, site acquisition capabilities, planning approvals, and project management skills.
- Objective: Seeks returns on equity, management fees for services rendered, and "promote" fees (performance-based profit sharing) for successful delivery.
The Capital Partner
- Contribution: Typically contributes the majority of equity funding and balance sheet support to secure debt financing.
- Objective: Seeks financial returns (yield or capital appreciation) and access to assets without the operational burden of direct development management.
- Common JV Structures
The legal structure selected impacts liability, tax, and governance, which in turn influences accounting classification.
- Incorporated JV (Company): A special purpose vehicle (SPV) where parties hold shares. Offers limited liability and is familiar to lenders. Often governed by a Shareholders’ Agreement.
- Unit Trust: A trustee holds assets on behalf of unitholders. Preferred for flexibility in profit distribution and tax flow-through characteristics.
- **Unincorporated/
Key Takeaways
- Joint ventures exist because developers usually have skills, not enough cash
- JVs allow developers to share risk and work on bigger or multiple projects
- JV accounting looks different because control is shared, not because the business is broken
Common Mistakes / Watch-outs
- Thinking JVs are created for accounting reasons (they are commercial decisions)
- Assuming owning 50% automatically means full control
- Jumping straight into journals without understanding the business structure
Quick Links
- Next episode → Episode 2 – Control vs Joint Control