Shilpa Phadnis, TNN | Feb 11, 2012, 01.07AM IST
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.
URL: http://timesofindia.indiatimes.com/busi ... 842680.cms
Guyz, I know about group buying web sites but this is something knew to me. Any one has any idea about those 80 IT professionals and their venture? Can someone share details on how that deal went through?
TOI: LLPs offer a great way to buy property
Re: TOI: LLPs offer a great way to buy property
Even I am hearing it first time, In the article some RE consultancies are quoted, and seems like they are very keen in promoting this. As big developers are in cash crunch, these RE consultancies may not have enough orders, so they wanted Lawyers, doctors, bankers and IT professionals to start RE development. 
Re: TOI: LLPs offer a great way to buy property
These days corruption is everywhere. News papers are no exception. Out of the many forms of corruption publishing an article of a reporter out of personal friendship can be one of them. However, the reporter would have direct/indirect interest in RE. You have to exercise caution to such news report.
As far as I know of: 60% of the total income can be spent as partners' salary. Out of the rest 40% flat 30%(+edu cess) should be paid as LLP tax. And the partners will have to pay income tax as per their income.
The article is right in that there profit after paying LLP tax can be distributed as dividend without any tax liability. One more advantage is partners personal asset is not liable (however, if the LLP is proved to be formed for cheating, then personal asset can be attached).
While if you are running a sole proprietoryship firm you have to show only 8% as income upto total turn over of 60 lakhs. So it will depend on total profit you are expecting.
As far as I know of: 60% of the total income can be spent as partners' salary. Out of the rest 40% flat 30%(+edu cess) should be paid as LLP tax. And the partners will have to pay income tax as per their income.
The article is right in that there profit after paying LLP tax can be distributed as dividend without any tax liability. One more advantage is partners personal asset is not liable (however, if the LLP is proved to be formed for cheating, then personal asset can be attached).
While if you are running a sole proprietoryship firm you have to show only 8% as income upto total turn over of 60 lakhs. So it will depend on total profit you are expecting.