Govt keen to take ad­van­tage of in­crease in land val­ues around big in­fra projects

Cen­tre likely to in­tro­duce value cap­ture fi­nanc­ing model for all in­fra­struc­ture projects in 2017-2018, which in­clude smart cities, rail­way, road­way and in­dus­trial cor­ri­dors

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Vandana Ram­nani vandana.ram­nani@hin­dus­tan­times.com ■

The gov­ern­ment wants to profit from the in­crease in value of land around which metro, high­speed and high­way projects are com­ing up across the coun­try. As state gov­ern­ments also scram­ble to put in place a tran­sit-ori­ented de­vel­op­ment (TOD) pol­icy and plan to al­low ad­di­tional floor space in­dex (FSI – al­low­ing more con­struc­tion on a plot) for prop­er­ties lo­cated along high­ways and met­ros, the Cen­tre is likely to in­tro­duce a value cap­ture fi­nanc­ing (VCF) model for all in­fra­struc­ture projects in 20172018. This is ex­pected to in­clude smart cities, rail­way, road­way, power and in­dus­trial cor­ri­dor projects.

The ra­tio­nale be­hind the move is that ben­e­fits of in­creased value of land due to pub­lic in­vest­ments do not go to non-ur­ban ar­eas. Dif­fer­ent meth­ods, how­ever, have been used to cap­ture the ben­e­fits ac­cru­ing to pri­vate par­ties in ur­ban ar­eas through im­pact fees, bet­ter­ment charges, ready reck­oner or cir­cle rates, charges for reg­u­lar­i­sa­tion of unau­tho­rised de­vel­op­ment, con­ver­sion charges on land etc.

Ab­hilesh Ba­bel, CEO and head of in­fra­struc­ture ad­vi­sory, Feed­back In­fra, says the TOD scheme is one among many for gen­er­at­ing rev­enue in an area ben­e­fit­ing from metro projects. Both Noida and Gur­gaon have no­ti­fied the TOD scheme wherein higher FSI will be pro­vided on both sides of the cities’ metro cor­ri­dors to partly fi­nance the project.

The VCF model, which is likely to be an­nounced by the gov­ern­ment in Fe­bru­ary next year, will ap­ply to all in­fra­struc­ture projects. This in­cludes large projects such as rail­ways, Delhi Mum­bai In­dus­trial Cor­ri­dor to raise rev­enues.

The logic be­hind the planned move is that with mass tran­sit comes in bet­ter con­nec­tiv­ity which leads to ap­pre­ci­a­tion in prop­erty prices. The VCF model is meant to be used to meet the ex­penses of de­vel­op­ment of an area where there is ded­i­cated tran­sit for ease in com­mute.

The best global ex­am­ple is that of Hong Kong’s MTR (Mass Tran­sit Rail­way) Cor­po­ra­tion (with 76% gov­ern­ment own­er­ship). It has a unique busi­ness model , rail plus prop­erty, which helps it run on profit. Un­der the MTR model, the cor­po­ra­tion buys land from the Hong Kong gov­ern­ment for a pre-rail­way price, con­structs a rail­way line and de­vel­ops the land around it – lead­ing to in­crease in land val­ues. It utilises many forms of value cap­ture such as prop­erty tax and park­ing levies. Amit Bhatt from Em­barq India says the big­gest chal­lenge to im­ple­ment this model in India is co­or­di­na­tion ef­forts by mul­ti­ple agen­cies work­ing in states to drive the ini­tia­tive.

At­tempts in Pune to give ad­di­tional FSI to gen­er­ate value for the mu­nic­i­pal­ity were not suc­cess­ful as there was an over­sup­ply of real es­tate stock in the mar­ket. “De­mand and sup­ply dynamics have to be taken into ac­count be­fore im­ple­ment­ing VCF,” he says.

Also, VCF has worked only for mass tran­sit cor­ri­dors, where the aim is to pro­vide mo­bil­ity and en­hance ac­ces­si­bil­ity and not in stand-alone high­way projects where there is no job cre­ation or trans­port fa­cil­i­ties for peo­ple, says Bhatt. NoidaGreater Noida Ex­press­way is a case in point. It is an ex­cel­lent con­nec­tor but val­ues of prop­er­ties close to it have not im­proved be­cause in­vestors there out­num­ber ac­tual users. The up­com­ing metro is likely to change the dynamics as it will con­nect more ar­eas and en­cour­age more en­dusers to set­tle there, im­prov­ing land val­u­a­tions. VCF is also a good start­ing point for smart cities. “If smart cities have an in­trin­sic pro­posal around mass tran­sit and aim to re­vi­talise an area but has lim­ited re­sources, VCF can gen­er­ate ad­di­tional rev­enues,”adds Bhatt.

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