Unlock urban land values to beef up infrastructure

Unlock urban land values to beef up infrastructure
The Hindu Business Line, September 18, 2009, Page 17

The Railways should develop new growth centres and use transport corridors asset to contribute to urban renewal.

G. Srinivasan, New Delhi

Building infrastructure, both physical and social, requires huge investments and one of the effective ways of addressing this insurmountable obstacle is to unlock urban land values for infrastructure finance.

This is what experts contended here at a day-long deliberation on Wednesday, jointly organised by the Ministry of Urban Development, Infrastructure Development Finance Corporation, India Urban Space Foundation and National Institute of Urban Affairs in collaboration with Wolfensohn Centre for Development at Brookings.

Participants from different countries highlighted the unresolved paradox in that for most large infrastructure projects — those related to transportation and communications — infrastructure investments push the value of urban land more than the cost of the project.

If land-value gains so accrued exceed project costs, why has it been so difficult to ramp up infrastructure financing? Hence, the policy question to find a proper way out to capture part of the gain in land-values for urban infrastructure finance through land-based financing.

Land-based financing

Some experts opined that despite the incontrovertible arguments for the land-based instruments as part of the solution to urban infrastructure financing, initiatives on these lines often are met with political and popular opposition. The bursts of protests on acquisition of land for industrial projects in West Bengal or the special economic zones (SEZs) coming up in different parts of the country in recent period remain too strong to be set aside.

In fact, the provision in the yet-to-be tabled Land Acquisition (Amendment) Bill 2007 for private developers to acquire 70 per cent of land for an industrial project directly and the rest 30 per cent by the State Governments is a controversial one, provoking political parties to take sides and pot-shots to gain popular sympathy. Despite the obstructions, land-based financing proposals did surface in India, the example being auction of financial centre land by the Mumbai Metropolitan Regional Development Authority (MMRDA) and planned sale of excess land to finance access highway to the new airport built under PPP in Bangalore.

The obvious advantages for public sector companies possessing tracts of unused or waste land are that the land-based financing could generate revenue up-front, reducing dependence on costly debt. Making a case for using surplus lands vested with the Railways, the former Chairman of Railway Land Development Authority and former Member (Engg) of Railways, Mr. S.K.Vij, pointed out that developers seek 25 per cent return on projects. He said the emphasis should be on creating value for the land and not encashing it for immediate gains.

Rightly, he said, the pace of urbanisation, which was 25 per cent in 1991, is to reach 40 per cent by 2021, against 90 per cent urbanisation in advanced countries.

Growth centres

He said the Railways should give its land for developing agri-centres, warehousing, logistics parks, which could lend value to the railway land. Besides, it should develop new growth centres and use transport corridors asset to contribute to urban renewal.

In his presentation, the Executive Director, Faculty of Architecture, Universidad Catolica de Chile, Mr Pablo Allard, presented the Chacabuco plan case, disclosing how three municipalities were incorporated to form a big urban centre, using the National Ministry of Housing and Urbanisation as the nodal agency.

He recounted how the land was put to mixed use for productive activities, services and housing.

Experts said in some advanced countries, development fees now pay for a chunk of infrastructure costs as these fees are levied on developers who pass them on to buyers of residential and commercial buildings. Fee structure may be more or less fine-tuned, ranging from a uniform percentage of development cost to “impact fees” that capture the location of development and the costs of connecting to major infrastructure trunk systems such as water lines and road systems.

It was also pointed out that the highest payoff to infrastructure investment is for projects at the regional or metropolitan scale and instances include airports, metro (subways) and light rail systems, major bridges and light rail systems.

Ultimately, land being a polemical subject in India and its acquisition process being cumbersome, a reasonable middle-path could be arrived at safeguarding individual rights while letting some part of the value created by public infrastructure investment to be captured to help pay for such investments, experts said.