The Property Collectives joint venture model - FAQs

The Property Collectives joint venture model - FAQs

Below are 40 FAQs on the Property Collectives joint venture model covering most of the questions we are regularly asked on just how these projects work? We’ve split the FAQs into the following sections:

  1. Design,
  2. Project costs & funding,
  3. Project timelines,
  4. Ownership structure & the model,
  5. Decision making, and
  6. Completed projects

Design

1. How much control and flexibility will I have in the design?

  • Members of the collective will be involved in defiing the project brief and endorsing iterations of the design as it evolves.
  • Our process means participants specific needs and wants will be catered for, while being mindful of designing an efficient building to take advantage of economies of scale and keeping to the project budget.
  • See FAQ #34 for more information on the design process.

2. What sustainability features do projects have? 

  • Ultimately this will be determined by the members of the collective.
  • We like to follow these key design principles for all our projects:
  1. Design for community – maximise activation but minimise noise; promote community through creation of shared spaces for residents to come together
  2. Adopt passive design principles – to enhance comfort and reduce consumption; target 6-8 stars.
  3. Authentic, high-quality buildings that age gracefully – use of robust, sustainable and locally sourced materials that patina and wear generously with use and exposure.
  4. Consideration for context – respect the natural and urban amenity; explore extensive and integrated outdoor spaces and landscaping, water capture and reuse.
  5. Provision for adaptation and innovation – so spaces can evolve and change over time with residents.
  6. Efficiency through modularity and repetition – achieve economies of scale to keep costs as low as possible to achieve agreed quality objectives.

3. Do projects have common space and shared areas?

  • The amount of internal and external communal space ultimately depend on site and budgetary constraints of the Collective.

4. Other than what potential members request, what determines the size of the property you can get?

  • Individuals’ budgets and site constraints are the other main factors.

5. How do different car parking requirements amongst participants get managed?

  • We will seek to provide the right amount of carparks needed for the residents.
  • If this results in some members having no carparks while others have 1 or 2 car parks, we address this through the apportioning of costs based on the proportional value of individual units. Units with car parks will be valued higher than units with no car parks. Therefore owners of units with car parks will pay a higher cost for their units then owners with no car parks.
  • See answer to FAQ #9 on how individual unit values and costs are determined.

Project Costs & Funding:

6. How are the project costs funded?

  • The project will be funded through a mix of members capital/equity and debt that will be borrowed by the collective but guaranteed by the members.

7. How can I fund my portion of the project costs?

  • The capital that members will need to contribute to the project will need to be contributed to the collective project account as cash.
  • Members can raise this cash via personal borrowings, divestment of assets like shares or property or via cash reserves. Unfortunately super cannot be used to contribute.

8. How much do apartments and townhouses cost?

  • Homes in our current projects cost between $600,000 and $1,200,000 depending on the location and size.
  • Participants need to be able to contribute around $200k-$400k in capital over the ~3.5 years of a project plus the ability to service a $400k to $800k mortgage at completion.
  • Its important to note that most banks will require all participants to be jointly and severally liable for the construction debt, although in recent years we have found some lenders who offer several liability.

9. How are costs of dwellings calculated where there is a difference in dwelling type and size?

  • The cost of each unit will be determined by the proportional value of that unit in respect of the value of the entire project.
  • This approach ensures fairness given that two units that are exactly the same size could have different values based on their position in the development.
  • We source a number of different valuations and appraisals prior to unit selection to determine the values and costs. These are shared with all members and the process of establishing exact values for each home is completely transparent.
  • For members that want to customise their home over and above the baseline specification for the project, there is an opportunity for them to do this albeit at their own expense.

10. How much money will be required and when will it be required?

  • A detailed cash flow forecast for each dwelling type (split by typology – townhouse or apartment – and size) is presented prior to site acquisition and prior to people becoming members of a Collective.
  • Our typical approach is to develop a monthly cash flow forecast based on our project plan and make capital every ~6 months. The monthly cash flow forecast and capital contributions forecast is shared with participants before they join.

11. What if costs go over budget?

  • The project budget established at the point of acquisition of the land will be budget we aim to achieve at completion.
  • The budget will incorporate a development and construction contingency to cover changes that may happen over the course of the project.
  • Members of the collective are the owners of the land and therefore the developer of the land. Therefore any cost overruns will be funded during the project by capital contributions from members and debt funding secured by the collective.
  • We use a thorough cost planning and design management methodolgy to ensure that there are multiple cost plans produced through the development process to ensure the project is on budget before we tender.

12. How will stamp duty work?

  • The collective will pay stamp duty upon purchase of the land as this will represent a change in the legal and beneficial ownership of the land.
  • The collective will own the land until completion of the project. At this point the single title will be subdivided into individual titles and transferred to individual members. If the individual members joined the project before purchase of the land then transfer of the individual titles will not be subject to stamp duty.

13. How does Capital Gains Tax work?

  • Capital Gains Tax will apply if individual members decide to sell their unit for a higher price than the cost of the unit.
  • This would most likely occur after completion of the project. Members can technically sell their unit during the project if an unforeseen circumstance necessitates it, however a sale during the project does not absolve members of their responsibilities to the collective.

14. How will GST work?

  • For members whose intention is hold their unit after completion (to live in or rent out) then these members cannot register for gst. This means that if these members need to sell their unit then this sale is not subject to gst.

15. How does debt funding for the project work?

  • Property Collectives has developed relationships with a number of banks including Bank Australia, CBA, Bank of Melbourne and Bank of Queensland who have funded our projects.
  • The collective will source two commercial loans during the course of the project. Members will be required to provide guarantees for both of these loans.
  1. Loan # 1 (land purchase) will be for the land acquisition. Typically a 50- 70% Loan to Value (LVR) ratio is achievable depending on the property & the bank. Members will need to provide joint and several guarantees for this loan.
  2. Loan # 2 (construction loan) will cover a percentage of total costs including build costs, land costs and other costs (including professional fees, council fees, funding costs and authority fees). Typically a 70% Loan to Cost (LCR) ratio is achievable. Most lenders require members to provide joint and several guarantees for this loan, although we have a few lenders that only require several guarantees.
  • Upon completion each member of the collective will be responsible for paying down their proportion of Loan # 2. This can be via a home loan secured against the individual member’s title or via cash.

16. Why are the stated cost savings only 15%?

  • Members of the collective are the owners of the land and therefore the developer of the land. This means that members receive their homes at cost. The gap between the cost of the units and the value of the units is the developer “profit” although this profit is not realized as members do not sell on completion. Therefore this “profit” is a cost saving if the alternative was to purchase the same home on the open market after completion.
  • Because members do not sell on completion we use a mix of appraisals and valuations to establish an estimate of value.
  • On our completed projects this gap between the estimated value and cost of the dwellings has been around 15%. This gap could be more or less on certain projects.
  • Ultimately we aim to achieve a circa 15% gap as this should ensure the best finance deal for construction.

17. Will there be an Owners Corporation and what will the fees be?

  • Yes there will be an Owners Corporation.
  • The fees will not be known until the final design is resolved but we always try and keep them to a minimum.
  • As the design process is participatory members will be involved in the decision making around the owners corporation.

Project Timelines:

18. How long do projects take?

  • From the point of securing the land approximately 3 to 3.5 years to completion assuming a 14 month build contract and planning is not delayed due to a VCAT appeal.

19. What are the phases of the project?

At a high level the key phases of the project are:

  1. Acquistion
  2. Strategic vision
  3. Strategic definition
  4. Concepts
  5. Town planning
  6. Design development
  7. Tender
  8. Construction
  9. Operation

20. What happens after completion?

  • At the point of subdivision an owners corporation is established and after titles are issued to individual members the JV terminates. The members of the collective become members of the owners corporation.

Ownership Structure & The Model:

21. Will I have my own title at the end?

  • Yes. The structure we use is a Joint Venture (JV) with a corporate manager that acts as the legal owner and effective Bare trustee. It is the corporate manager that purchases and owns the land on behalf of the JV.
  • Members of the collective have an interest in the JV and this gives them beneficial ownership of the land in the proportion they own.
  • Each member gets a vote on the management committee. Project decisions are made by majority by the committee. So control sits with the committee.
  • Being a member of the collective also gives you the right to receive a dwelling at cost on completion. At the end of the project the single title in the name of the corporate manager will be subdivided into individual titles and transferred to individual members.

22. How do you ensure the compatibility of participants?

  • We have found that the people that decide to join our projects share similar values and ideals to those that are represented in the vision of the project.

23. How do you ensure a future buyer doesn’t then sell to someone who doesn’t follow the ideals of the group?

  • We don’t set any rules on how things will work after completion of the build. This is down to each collective to decide on how they want their community and project to work.

24. How does this model differ to Nightingale?

  • Nightingale is an architect led developer model. The architect is the developer with the support of investors to provide the capital. Buyers are then secured via Off The Plan (OTP) sales contracts. So the developer risk, reward and control sits with the architect and their investors.
  • Property Collectives Joint Ventures (JVs) are a citizen led developer model. We facilitate and support the development as Development Manager but it is the members of the collective that become the developer. So the developer risk, reward and control sits with the members.

25. Do you have a caveat on the homes at completion like Nightingale does?

  • No. Things change and because projects can take over 3 years it doesn’t feel fair to us to potentially penalize people for having to sell their unit because of changed circumstances. Particularly in light of the fact members have taken on the additional risk of becoming the developer to make the project happen.

26. Does the Owners Corporation have a say in who moves in after the project is completed?

  • This is up to members of each collective to decide.

27. How are units selected/allocated?

  • Once the town planning outcome is known members of the collective select their units in the same order they joined the project. The order of selection is based on the date people joined the collective. So people that join the project earlier receive a higher pick and therefore enjoy more choice over the available dwellings.
  • To account for different type and size of dwellings members nominate which type of dwelling they are joining the project for (e.g. Type A, B, C, D or E). At unit selection members select from one of these dwellings Types they nominated when joining.
  • We use the approach outlined in FAQ #9 to ensure fairness when allocating individual costs per dwelling.

28. If there are too many applicants how do you decide which applicants participate in the project?

  • Membership of each collective is decided on a first in best dressed basis.
  • Eligible participants will need to have satisfactorily completed the finance assessment and indicated that they are comfortable with the structure and their motivations for participating are aligned with the vision of the project.

29. Is it possible to join the collective at a later point in the process?

  • If the project is not fully subscribed at inception yes you can join the project after the collective is formed.
  • However joining later in the process means you will have less input and control on the design and your choice of dwellings.

30. How do you work productively with a diverse range of joint venture members to ensure best fit for everyone?

We have found that the keys to working productively with any collective, regardless of size are:

  • Ensure all participants share the same vision and quality objectives for the project from the outset.
  • Conduct the project in an open and transparent manner and ensure all participants have access to project information so they can make informed decisions as the project progresses.
  • Ensure there is a clear framework for decision making and governance of the development process. We use a series of Endorsement Gates that enables participatory decision making but also provides the Development Manager enough flexibility & control to deliver the project efficiently.

31. Is it possible to purchase one of these homes as an investment, to rent?

  • Yes as long as you share the same design and quality objectives of the rest of the collective and intend to keep the home for the long term. We recognize that some peoples circumstances change and those that intend to live in these homes may at some point need to rent them out because of a change in circumstances.

Decision Making:

32. How are decisions made amongst members?

  • Each member of the Joint Venture (JV) owns an interest in the JV which gives them beneficial ownership of the land and 1 vote on the management committee.
  • Decisions are made by the management committee via majority and special majority depending on the importance of the decision.
  • The development process is governed via a series of Endorsement Gates that enables participatory decision making but also provides the Development Manager enough flexibility & control to deliver the project efficiently.

33. Is there a process/framework for making decisions?

  • We use regular monthly or bi monthly joint venture meetings for discussion and decision making
  • We also use regular project updates to provide members with the information required to make informed decisions.

34. How does the participatory design process work?

  • We start with a Client Design Brief and Principal Project Requirements that define the scope, vision and objectives for the project. These documents are endorsed by the members of the collective.
  • The design development process involves the architect evolving the design iteratively. Members of the collective are fully involved in reviewing each iteration and providing feedback.
  • We then use a series of cost plans at key milestones as the design evolves from a qualified Quantity Surveyor to guide design decisions.

Risk:

35. What are my main responsibilities as a member?

As a Joint Venturer (JVer) your main responsibilities are:

  1. To make yourself available for JV meetings or assign a proxy
  2. For the commercial loans secured during the course of the project provide guarantees.
  3. To have funds available to make capital contributions when they are called. Approximately every 6 months.
  4. On completion to pay out your proportion of the commercial construction loan.
  5. To be available to sign documents when required.

36. What risks should I know about?

  • Members should source independent legal advice on the Joint Venture agreement before deciding to participate. Members of each Collective become the developer, so they take on the risks and rewards of being a developer.
  • Members will also need to source independent legal advice when the collective takes on debt as guarantors.
  • We also ensure all members undertake an independent finance assessment before allowing people to join a collective.
  • In the event that an individual member’s circumstances change during the course of the project the remaining members may need to support the project on their behalf for a period of time until a replacement is found.

37. What happens if I need to sell my home to participate but cannot get the price I need when I sell?

  • We always recommend that participants are conservative and have a buffer/contingency available and a clear strategy for supporting the project till completion before they join.
  • At the gearing level we fund the project at the loan to value ratio (LVR) tends to be around 55% of the value of the completed dwelling. So if there is a shortfall it will most likely be that the shortfall will not be a large amount and some low gearing maybe possible to complete the project.
  • We start the process of organising individual members’ “take out finance” (see FAQ #15) at least 6 months before the construction is completed, so this allows all members enough time to organise their strategy.
  • Given members hold their own title then selling the new home is also an option.

38. What if we don’t get the right number of dwelling approved?

  • This is a low risk but if it did occur then if no member volunteers to exit, then the last member to join would be the first to exit. Their interest would be valued and the remaining jvers would purchase their interest and absorb this as an additional project cost.

39. What happens if my circumstances change part way through and I can no longer participate?

  • Members can transfer their interest during the project if their circumstances change. They can transfer their interest to an existing member or members or external parties for the value of their interest at that point of time.
  • This has occurred before on other projects and there is a clear framework for managing this type of change.

Examples of Finished Projects:

40. Can I see a completed project?

Yes. We have 3 completed projects:

  1. 132 St Georges Rd Northcote. 4 townhouses. Completed 2013
  2. 121 Clarke St Northcote. 7 townhouses. Completed 2018. An inspection of 12 Dalziel Lane Northcote can be organized on request.
  3. 4 Strettle St Thornbury. 6 townhouses. Completed 2019.