THEME: Smart Cities Smarter India

INNOVATIVE FINANCING MODEL FOR SMART CITIES

Author: Swati Sharma, YES Institute

ABSTRACT

Cities play a catalyzing role as engines of economic growth, places of innovation and inclusive

development. Developing globally competitive and vibrant Smart Cities in India will uplift the

country’s economic face and enhance the quality of life for our citizens. The High Power Expert

Committee (HPEC) on Investments has estimated requirement of INR 7 lakh crores over the

next 20 years to develop infra services in Smart Cities. While there has been progress in

attracting investments through PPP, the gap remains wide.

This paper will analyze inspirational value capture and land monetization models and practices

adopted in countries/cities around the world to augment fiscal resources for infrastructure

development. While we sketch the contours of Smart Cities in India, adopting Land Monetization and Value capture policies can play a pivotal role in providing amenities and smart infrastructure. Land values are determined by use (i.e. commercial, residential,

recreational etc.) and proximity to infrastructure assets such as roads and mass transit. These

innovative financing methods recover ‘unearned increment’ resulting from rise in land values

due to change in landuse or public investment in infrastructure.

Land based financing mechanisms leverage passive value accretion to finance infrastructure,

reduce dependence on debt, optimize land use patterns and improve urban land markets.

These tools also hold the potential to foster employment opportunities by channelizing private

investments for development, thus, providing a win-win proposition for the beneficiary

community and the government/developer.

With emerging spatial concepts such as multi-modal network optimization, multi-modal

corridors, nodal development, transit oriented development (TOD) at various spatial scales,

proactive approach towards value creation and capturing assumes greater importance. We shall propose pragmatic planning and management instruments for value capture and monetization of land assets for the development of Smart Cities. These market driven

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innovations will bring in private capital for development and provide a framework for resilient

and sustainable planning outcomes.

Key Words: Innovative financing, Efficient Cities, Land monetization, Value Capture

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INNOVATIVE FINANCING MODEL FOR SMART CITIES

1. IntroductionPlanned land development is a driver for urban development and economic growth. The

process of conversion of land from agriculture to urban and industrial use is inevitable in

growing economies. India is at an inflection point where urban population is expected to

rapidly multiply from the current 377 million to 590 million by 20301, calling for urgent

measures for planned urban development. However, financial constraints and land

development challenges have slowed the pace of urbanization and economic

development in India.

Indian cities are facing ever-tougher challenges to cope with rising population and

lagging public service delivery. Cities in India typically juxtapose formal and informal

settlements with underperforming infrastructure. Most of the census cities in India are

unplanned clusters that have swelled up due to surge in migrants. Though urban share

of National GDP is

rising rapidly with

cities contributing

over 60%,

investments in

urban

infrastructure

remain low2.

Figure 1

compares GDP

contribution of

cities across US,

Western Europe,

China and India.

India was more

urbanized than

China in 19503, but the latter has aggressively invested in urban development and the

1 McKinsey, India's urban awakening, 20102 Ministry of Urban Development (MoUD) Draft concept note on Smart Cities3 McKinsey, Comparing urbanization in China and India, July 2010

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Figure 1: Urban Contribution to total GDP – Global Comparison

Cities segmented by contribution to total GDP, 2010, cumulative % of totalSource: McKinsey Global Institute Analysis

comparison clearly brings out the fact that Indian cities are yet to unleash their potential.

These observations collaborate with the ‘Ease of doing Businesses’ index, 2015 findings

which ranks India 142 out of 189 countries analyzed4(compare US and China). Another

figure that draws attention is WEF's global competitiveness report that ranks India lowest

among the BRICS economies, and

ranks India 90/144 in terms of

infrastructure5.

Figure 2 shows China is ahead of

India by a wide margin in terms of

per capita annual urban capital

investment.

Annual Survey of India’s City-

Systems (ASICS) 2014’s average

rank for Indian cities is pegged at

2.2 out of 10 on Urban Planning

and Design6. This reflects the widening gap between demand and planned provision of

infra.

Provision of services, housing and infrastructure needs to be in pace with growth. The

Prime Minister’s vision of establishing 100 smart cities is expected to accelerate

development to accommodate the demographic shift. One of the biggest hurdles for

realizing this vision is lack of sustainable finance. Asymmetry in land development and

infrastructure provision has led to inefficiency and financial burden on planning

authorities. High Powered Expert Committee (HPEC) and Ministry of Urban

Development (MoUD) recognize the urgent need to augment financial resources for

infrastructure development7. The idea of land monetization or ‘value capture’ is not new

but this paper underlines the need of exploring these viable alternatives to the status

quo.

1.1 What are smart cities and smart growth concepts?4 Ease of doing Business 2015 Ranking, World Bank5 The Global Competitiveness Report 2014–2015, World Economic Forum6 Annual Survey of India’s City-Systems (ASICS), 2014, Janaagraha7 High Power Expert Committee (HPEC): Report on Indian Urban Infrastructure and Services March 2011/MoUD draft concept note on Smart Cities

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India China UK

17

116

391

Per capita annual urban capital in-vestment ($)

Data Source: McKinsey

Figure 2: Per Capita Annual Urban Capital Investment on Infrastructure

There are various interpretations of smart cities:

CISCO characterizes smart cities as those which use information technology to

adopt scalable solution to increase efficiency, reduce cost and enhance quality8.

The Ministry of Urban Development (MoUD) draft concept note on Smart cities

defines - “Smart Cities are those which have smart (intelligent) physical, social,

institutional and economic infrastructure. It is expected that such a Smart City will

generate options for all residents to pursue their livelihoods and interests

meaningfully and with joy”9.

Smart cities require investments in city services and planning procedures, human and social networks including public safety, transport, communication, energy, water and sanitation to make systems more efficient and resilient to urban challenges. Investments in these functions might not be financially viable even through Public Private Participation (PPP), thereby, laying stress on urban local bodies and financial planning agencies.

1.2 Need for evolving a framework for land monetization?

Cities draw people and firms together to reap the benefits of agglomeration

economies. Market value of land is defined as:

“The value of a piece of property includes both the value of the land itself as well as

any improvements that have been made to it. Land values increase when demand

for land exceeds the supply of available land, or if a particular piece of land has

intrinsic value greater than neighboring areas”10.

Land value is dictated by use, accessibility, infrastructure and service provisions.

Investments in infrastructure especially transport, appreciation of the value of land

over time or change in use of land notably increases market value of land. This

increase in market value of land/property is known as ‘unearned increment’. John

Stuart Mill (1848) coined the term and also developed tax theories to tap this11:

8 CISCO9 Draft Concept Note on Smart City Scheme, Ministry of Urban Development, October, 201410 Investopedia11 Principles of Political Economy with some of their Applications to Social Philosophy, 1909

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Before leaving the subject of Equality of Taxation, I must remark that there are cases

in which exceptions may be made to it, consistently with that equal justice which is

the groundwork of the rule. Suppose that there is a kind of income which constantly

tends to increase, without any exertion or sacrifice on the part of the owners: those

owners constituting a class in the community, whom the natural course of things

progressively enriches, consistently with complete passiveness on their own part. In

such a case it would be no violation of the principles on which private property is

grounded, if the state should appropriate this increase of wealth, or part of it, as it

arises. This would not properly be taking anything from anybody; it would merely be

applying an accession of wealth, created by circumstances, to the benefit of society,

instead of allowing it to become an unearned appendage to the riches of a particular

class.

As was rightly advocated by John Stuart Mill, unearned increase can be utilized for

the benefit of the society. Land monetization or value capture can significantly

recover investments in infrastructure by leveraging the increase in land value (Fig.

3).

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Figure 3: Value Capture

2. Objective of the paper

This paper aims to study public land management and value capture mechanisms. It

compares how public authorities in Barcelona, India and Hong Kong have leveraged

land monetization methods to finance infrastructure projects. It examines how these can

be evolved as a practical alternative for financing smart cities in India.

3. How Monetization Works: Tools for Value Capture

Land Transfer : Private/public land is provided for public use

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Government Action

Change in land-useInvestment in infrastructureChange in Floor Area Ratio (F.A.R)Natural

Growth

Appreciation in land Value

Value Capture

Infrastructure ProvisionAffordable HousingSocial, cultural & educational facilitiesCommunity Physical Improvements (Enhanced open space and streetscape/ quality pedestrian & biking connections)

Community Benefits

Smart Land Management

Value Creation Value Realization

Value Recycling

Private Sector Investment

Increase in Floor Area Ration (F.A.R) : FAR is the ratio of a building's total floor

area as compared to the size of the land upon which it is built. For example the

F.A.R for all projects located within 500mts of the proposed metro line to Greater

Noida have been increased by 0.5%. The authorities aim to raise capital for the

metro project by utilizing proceeds from the sale of additional F.A.R.

Land Pooling (LP) and Betterment Levy: Land parcels within an area are pooled

together, percentage of each land parcel calculated to determine a contribution to

public areas & roads (Fig. 4). A percentage depends on objective of the

development, size of the subject area & required public-uses. In Japan 70% of

the urban LP is carried out by the government and land owners association.

Around 300 projects cover up maximum built up area in the past 95 years.

Projects under land pooling scheme do not resolve land disputes but merely

transfer them, thereby avoiding project delay due to conflicts

Figure 4: Land Pooling and Readjustment

8

Map Landholdings for a designated area reorganize

land parcels or plots,provide access to each land parcel or plot

set aside land for public uses by taking a portion from each landholding

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appropriate increments in landvalues for infrastructure development. Detailed infrastructure is designed and cost estimates are prepared.

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Infra provision without additional cost

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Debt servicing/loan guarantee: The ability of a city to repay its debt is an

important indicator of its fiscal health. High debt service ratios can mean

excessive debt or an aggressive approach to debt repayment, just as low debt

service ratios can mean financial stability or a lack of necessary infrastructure

investment. Urban local body/developer can borrow against land as collateral

and repay debt by selling land whose value has been enhanced due to

investment.

4. Case Study

Value capture methods have

been adopted in various

cities such as Hong Kong,

London, Istanbul and

Barcelona among many

others. The paper analyses

five case studies on land

monetization strategies in

this section.

Monetization strategies

4.1 Sabarmati River Front Development Project:Financing Urban Infrastructure in AhmedabadThe Sabarmati River is a

major source of water for

Ahmedabad. Over the

years the river turned

into an isolated fragment

rather than an inherent

part of the city. Storm

water outlets in

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Figure 5 Sabarmati Riverfront Development Project

Source: Masterplan (Drawing: HCPDPM)

Ahmedabad have been discharging untreated sewage, chemicals from textile dyes

and industrial wastes into the river bed - posing a major health and environmental

hazard. The monsoon fed river divides eastern and western part of the city and often

flooded informal settlements along the river banks during monsoons. Thus, it

became imperative to look at riverfront development strategies for the city.

4.1.1 The Project

The Sabarmati River Front Development Project is an urban regeneration

program that envisages the water’s edge as a public asset. The project is aimed

at environmental improvement, social upliftment and urban rejuvenation. The

project was conceived in 1961 by the French architect Bernard Kohn. Work on

the project only started in 1997 after setting up of the Sabarmati Riverfront

Development Corporation Ltd. (SRFDCL).

Key features of the project:

The project covers a stretch of 11.3km on the eastern and 11.2km on the

western side of the river creating a promenade of 22.5kms.

The project channelized the river to a constant width of 275m12

202.79 hectares of Riverbed land has been reclaimed to create 11.25 kms of

riverfront on both sides of the bank13

The Vasna Barrage holds water channelized by the Narmada Canal to hold

and provide water year-long

Rehabilitation of Slum Dwellers: around 10,000 households were resettled

The project has created organized space for informal activities such as dhobi

ghat and Gujari Bazaar

Event area and promenade

Urban forestry and public gardens

Installation of the sewage treatment system

Providing Water recreational activities

12 Sabarmati Riverfront Development Corporation Ltd. (SRFDCL) 13 Sabarmati Riverfront Development Corporation Ltd. (SRFDCL)

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4.1.2 Key Stakeholders: Sabarmati Riverfront Development Corporation Ltd. (SRFDCL) was a special

purpose vehicle formed by the Ahmedabad Municipal Corporation for

implementation of the riverfront project.

4.1.3 Finance

The Ahmedabad Municipal Corporation (AMC) provided a loan to SRFDCL which

has been supplemented by AMC’s investment in the share capital of the SPV.

The Housing and Urban Development Company (HUDCO) has also provided a

loan for the Project (Fig. 6). 

Figure 6: Sources of Funds, Sabarmati Riverfront Development Project

Source of Funds

S.No. Source of Fund Amount in Rs. (crores)

1 Equity Share Capital 20.00

2 Preference Share Capital 220.00

3 Capital Reserve 1.31

4 Loan from HUDCO 416.96

5 Loan from AMC 445.15

TOTAL 1103.41

Data Source: SRFDCL

Land Monetization: The project envisions selling 14% of the riverfront area as

premium land for commercial use. Study by the World Bank estimates land

parcels along the Sabarmati as the most valuable land in the city. Evaluations

indicate land price as INR 54,000 per sqm by Jantri Rate14 and INR 100,000 per

sqm by market rate15.14 Jantri rate - The state government maintains a fiscal cadastre for land and property called the Jantri in Gujarati. In theory, the Jantri can be relied upon for calculating: (i) stamp duty/registration fees; (ii) tenure conversion charges; (iii) compensation under the Acquisition or GTPUD Acts; and (iv) rent and sale prices of government properties15 World Bank

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AMC estimates land monetization strategy would raise INR 1200 crore to

comfortably cover the investments in the project. To further encourage

monetization F.A.R of 5.4 has been allowed for commercial projects.

Addressing various interests:a. People: Creation of affordable housing

b. Business: Attract business to the Sabarmati Riverfront /designated space

for the informal sector

c. Administration: Recover cost of investments

d. Environment: sewage treatment plant/Creation of garden parks

4.2 Urban Renewal: Barcelona Districte de la innovació, Spain

Poblenou is located on the southeastern quadrant of Barcelona and borders the

Mediterranean Sea. Also known as the Catalonian Manchester, Poblenou was

the center of Catalan industry during the industrial revolution in the 19th century.

In 1960’s factories started relocating to outskirts leaving the area in a state of

decay.

4.2.1 Project: The District @innovation22 project16focuses on urban

regeneration in Sant Marti district in Barcelona’s formerly industrial area

of Poblenou. A new urban planning ordinance approved by the

Barcelona City Council aimed at transforming Poblenou in to a vibrant

economic center by promoting more productive use of land and

investments in infrastructure. The project covers 115 privately owned

blocks and envisions creation of an innovation district through

development of five key clusters - information and computer technology

(ICT), media, medical-tech, energy, and design industries.

Key features of the project:

Encouraging mixed use development to accommodate the

increasing population and business needs.

16 Land Use Designation: 22@(services) substituted tradition designation of 22a(industry)

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Investment in transport infrastructure

Creation of green space, production centers, and housing.

Establishment of five clusters of industry

Provision of research and development facilities

Foster collaboration among companies, universities, and cultural

institutions though various business programs

4.2.2 Stakeholders: Local Government: The city council created a municipal company

22@BCN which plays an important role in strategic planning of the

district and achieving its economic development goals by utilizing

government funds for provision of infrastructure to match the needs of

people and entrepreneurs.

People /private sector: The new planning ordinance created a

zoning policy for these areas facilitates redevelopment by private

developers.

4.2.3 Finance: Total investment in infrastructure plan is in the tune of 180 million Euros17.

The zoning policy has

laid the parameters and

conditions for

redevelopment and

land monetization. In

exchange of land

development rights or

change in development

density the following

monetization strategies

apply:

17 22barcelona

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Figure 7 Air Rights to increase Density

Source: 22barcelona

1. Air Rights: the policy allows landowners to exchange land (point 2)

for Air Rights (increase from 2 to 2.2-2.7). ‘Air rights’ means

landowners are allowed to build/rebuild more floors (Fig.7).

2. Land transfer to city: 30% of the total land to be developed is to be

or current monetary value of the land is transferred to city i.e. from a

100% privately owned plot, 30% is given for public purpose. This

transfer is compensated by granting air rights which helps in retaining

the original constructed floor space.

3. Development levy: the council also charges a development levy of

€80 per square meter of land developed which is updated annually.

These proceeds, levies and land transfers are given to 22@BCN, a

publically owned company which re-invests them into the district. The

landowners update their properties contributing to the city’s renewal plan

and on the other hand benefit from increase in land value. 85 plans out of

the 114 plans approved are driven by the private sector. The 30% land

transfer/monetary proceed to BCN is used for knowledge based

infrastructure, provision of housing and green space.

Addressing various interests:a. People

Part of the land ceded is utilized for development of affordable

housing. The development plan aims at construction of 4,000 new

state state-subsidized housing units for new young workers.

Keeping in mind historical conservation of the city 4,614 homes

have been preserved and renovated18.

b. Business

The district has an office space of 3 million sqm. Over 1,441 new firms

have created over 40,000 jobs by 2008. Economic revitalization has

been achieved without offering any incentives to companies to locate

in the urban renewal zone.

18 "State of Execution," Ajuntament de Barcelona, December 2009

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c. Administration

Barcelona Activa not only has a role in the strategic planning of the

district, but also provides businesses access to online resources to

start up and grow, in addition to basic training for entrepreneurs.

InnoActiva, a program sponsored by Barcelona Activa, aims to

increase access to public finance for research and development

projects, particularly for small and medium sized companies.

d. Environment: The project has created 114,000 square metres of

green spaces and 145,000 square metres of public facilities in the

area radically improving the living standards in the area19.

4.3 Development of Mass Rapid Transport System: Hong-Kong, China4.3.1 Project: Public transport is the life line of densely populated Hong-

Kong. Over 90% of the motorized trips are by public transport20.

Massive investments were required for this transport network, the key

medium being railways.

4.3.2 Stakeholder: MRTC: Supervises the work done by the private developer for

property development program

Government: facilitates development of mass rapid transit

through flexible rules, allowing MRTC to finance through value

capture of property adjacent to the railway line

Private developer: Shares profit from real estate development

with the MTRC

4.3.3 Finance: MRTC operates without public financial support, deriving its profits from

real estate development.

19 Ajuntament de Barcelona20 Ajuntament de Barcelona

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1. To develop a new railway line, MRTC assess the cost of construction

of the transport line and identifies suitable land development sites

along the railway.

2. Government has granted 'Land Development Rights' to Mass Transit

Railway Corporation (MTRC) for a period of 50 years for which

MTRC pays ‘land premium’ to the Government at the original cost of

the land. ‘Land Development Rights’ includes development of

property above the railway station as well as on adjacent land.

3. MRTC allocates property development rights to private developers

through a public tender.

4. The private developers buy land premium for acquiring the land, pay

all development cost and bear risks associated with development

and sale of residential and commercial properties.

5. Profit generated from real estate development is shared between

MTRC and the private developer as per the terms of the contract.

For residential units if the developer is unable to sell, MTRC takes in

charge of the unsold units and sells/leases them in the open market.

For shops and office units, MTRC leases them from the

developer/keeps a part of the property for future rental-income.

The MTRC business model is highly successful and over 1998 to 2013 has

generated almost twice the amount of money required for construction of railway

lines. Total profit stand at HKD 88 billion (approx USD 11 billion)21.

Addressing various interests:a. People and Business- Mixed Use Development: The process helps in

maximizing the land development potential and facilitates pedestrian

access to commercial amenities.

b. Administration: Recover cost of investments

c. Environment: High density settlement around transit lines encourages

transit ridership, thereby, reducing the dependence on private

transportation.

4.4 Provision of Urban Services/amenities through Land Pooling: Gujarat21 MTRC Annual Report 2013

16

Town planning schemes (TPS) have been effectively used by Gujarat to

manage urban growth. The approach replace ‘land acquisition’ model by

‘pooling land’ for planning, readjustment and infrastructure provision.

4.4. Project: Sardar Patel Ring Road Ahmedabad Urban Development Authority (AUDA) conceptualized the

plan to develop Sardar Patel Ring Road to address the problem of traffic

congestion within the city due to mixing of the regional and city traffic.

The Sardar Patel Ring Road is a 76 km arterial ring road planned in 2002

using TPS scheme 22(Fig. 9). A participatory approach was adopted for

the project minimizing the need for land acquisition and extensive use of

TPS. Only a stretch of 13.1km was acquired for the project, the rest was

taken through the TPS.

Source: A tool for aiming Planned, Fair and Equitable Urban Development,

Paresh L Sharma, Chief Town Planner, Gujarat

The project was divided into 3 phases:

a. Phase 1: Two-laning of the entire stretch of the ring road and

construction of 4 lanes for major stretches. (completed in 2006)23

b. Phase 2: construction of 4 lanes expanding the earlier 2 lane

network 22 Public Private Partnership for Road Infrastructure Development, AUDA23 Public Private Partnership for Road Infrastructure Development, AUDA

17

c. Phase 3: construction of flyovers and underpasses at major

intersections with national highway, state highway and important

roads. The project also includes service roads, bicycle tracks, and

exclusive bus lanes for Bus based Rapid Transit System (BRTS)

and walkways on both sides

4.4.2 FinanceTown planning schemes are self-financing schemes:

1. Investment in land acquisition is not required as the scheme recover

land from landowners for development of infrastructure.

2. Infrastructure is financed by selling a part of the ‘pooled land’ and

collection of betterment levy.

An amount of INR 230 crores was required for the construction of

phase 1 of the project.

a. AUDA: AUDA invested INR 130 crore from its own resources

b. Loan: the balance amount of 100 crore was taken as a loan from

consortium of six nationalized band.

Project Returns:

a. Toll Collection: Toll collection from the ring road amounts to INR

1 crore per month

b. Value Capture: AUDA reconstituted approximately 1 km wide belt

adjacent to the ring road. Out of the total land acquired for the

project 60% was returned to the land owners, 20-30% was used

to develop amenities like roads, schools and gardens, and the

rest was sold as separate plot. Due to development of

infrastructure the land value of adjacent plots increased and

AUDA earned about Rs 600 crores through the sale of plots24.

Addressing various interests:a. People: Provision of infrastructure and amenities

b. Administration: Recovery of cost of investments

24 Icrier, Report on Urban Infrastructure and Services, march 2011

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4.4 Sarai Rohilla Railway Station, Delhi

4.4.1 Project: RLDA was set up in 2006 to generate revenue for Indian

Railways through commercial exploitation of huge tracts of vacant rail

land by leasing it to developers. Indian railways have about 43,000

hectares of vacant land.

Commercial development of 38 acres of railway land around Sarai Rohilla

Railway Station in Delhi is of the key project of the Rail Land

Development Authority (RLDA). The station is centrally located and is

only 4 kms away the Connaught Place. Luxury air-conditioned Residential

apartments, commercial/ shopping areas, railway housing, railway service

building & common facilities, hospital/school and other amenities, club

with gymnasium and sports facilities, etc. will be developed under this

project.

4.4.2 Stakeholders: A competitive auction for a 90-year land lease was held in

2010. Parsvnath Developers Limited, the selected developer, bid INR

1,651 crore for the project and paid INR 334 crore as an upfront down

payment. Parsvanth has a 51% stake in the project; the rest is with Red

Fort Advisors Pvt. Ltd.

4.4.3 Challenges: In 2011, the project was in limbo due to the cabinet stay on

all public land transfers. It was announced that government departments

could not lease land without prior approval from the cabinet. The Sarai

Rohilla project was suspended as the developers were unable to take

possession of the land. The land was finally given to the developers in

2013 for development.

5 Observations

The above examples prove that value capture can be an effective tool to drive

sustainable development. Policy stimulus and clarity on value capture mechanisms can

effectively address risks and share the cost of urban infrastructure and affordable

housing development projects.

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Figure 8: Overview of Case Studies (project status: completed)

Sabarmati Riverfront Development Project, Ahmedabad

Value Capture Tool

Urban Renewal of Poblenou, Barcelona

Value Capture Tool

PRIMARY OBJECTIVE:Development of river front as a public assetSECONDARY OBJECTIVES ACHIEVED: Installation of Sewage

Treatment plant Rehabilitation of Slum

Dwellers Urban forestry and

public gardens Formal space

allocated for informal activities

Land Monetization – lease/sale of land for commercial use to cover project costs

PRIMARY OBJECTIVEUrban Renewal of Poblenou, Barcelona – establishment of five industry clustersSECONDARY OBJECTIVES ACHIEVED:• Mixed use development • Investment in transportation

infrastructure • Change in land-designation

policies facilitating Private sector participation in redevelopment initiatives

• Creation of green space• Heritage conservation• Promotion of Tourism through

marketing strategies

i. Air Rights for redevelopment

ii. Land Transfer - 30% land given to 22@BCN for redevelopment projects

iii. Development levy

Development of Mass Rapid Transport System(MRTS): Hong-Kong, China

Value Capture Tool

Provision of Urban Services/amenities through Land Pooling: Gujarat

Value Capture Tool

PRIMARY OBJECTIVE:Expansion of MRTS in Hong-KongSECONDARY OBJECTIVES ACHIEVED:

Mixed Use development: Development of houses and commercial spaces

High transit ridership

'Land Development Rights' given to Mass Transit Railway Corporation (MTRC): Cost of construction is covered by real estate development ( increase in property price due to provision of transportation infrastructure )

PRIMARY OBJECTIVE:Development of Sardar Patel Ring RoadSECONDARY OBJECTIVES ACHIEVED:

Reconstitution of plots and provision of roads in approx 1km belt around the ring road

Provision of social infrastructure for the same area as above

Land Pooling and betterment levy for provision of infrastructure and land for the projectInvestments recovered by AUDA by selling adjacent plots fetching higher price due to infrastructure development

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5.4 Benefits

5.4.1 Sustainable Financing Value capture offers a tool to effectively leverage underutilized assets

such as land and floor space for achieving broader goals of inclusive

development. It can also ensure profitability for the private sector in

PPP projects.

The mechanism can also cover risks associate with mortgage. For

instance, Sabarmati River Front Development Corporation can service

its loan by selling off commercial land and also ensure future income

streams for the corporation by providing commercial building floor

space on lease.

5.4.2 Inclusive GrowthAs the studies clearly bring out, value capture can finance development

across various landscapes - greenfield development to urban renewal.

The mechanism can be used to

1. Finance urban and regional transport as in the case of Hong-Kong

2. Promote mixed use development

3. Provide affordable housing

4. Drive business, skill and innovation programs e.g. Barcelona

5. Include informal economy in formal plans eg. Dhobhi ghat (washing

area) in Ahmedabad

6. Enhance service delivery and clean energy initiatives,

7. Improve public spaces e.g. Sabarmati Riverfront Development

Project

8. Cultural restoration

5.4.3 Scope for urban renewal/redevelopment

City developments plans/institutional arrangements need to be carefully

evaluated based on rate of return to provide optimum benefits to public

and private stakeholders. This can ensure public support and

adoptability of such models.

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5.5 Challenges

5.5.1 Poor administration & Lack of planning expertise Planning expertise is required for identifying land parcels and realizing the

benefits from value capture scheme to make infrastructure development

self-financing. Lack of planning expertise and inefficient land management

can adversely affect land markets making value capture difficult.

5.5.2 Sensitivity to market conditions Land values are linked to several factors including use, transport linkage,

access to facilities, recession and speculative markets among others.

Careful analysis of land markets is of utmost importance for value capture.

In cases where future value of land is offered as collateral for loans/ return

on private investments, bubble burst can jeopardize project delivery. Other

factors such as poor design and lack of employment hubs can also

adversely affect project outcomes.

5.5.3 Transparency & accountability problems leading to Community ResistanceTransparency in financial and land transactions is required to garner

community trust and address legitimate equity concerns. Also lack of public

accountability on use of revenues deters public participation in land

monetization schemes.

6 Conclusions

Urbanization and agglomeration economies will provide a plethora of opportunities to

expand employment potential as India embarks on its journey towards inclusive growth.

For the proposed 100 smart cities to be internationally competitive there is a need for

good quality spatial and economic infrastructure that offers an encouraging environment

for business, workers and residents. In order to achieve these objectives it is imperative

to augment fiscal resources by capturing the spillover effects of infrastructure

development.

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6.4 Policy Framework and administration

6.1.1 Fiscal Autonomy: Ahmedabad municipal government/AUDA has much

more fiscal autonomy as compared to other urban local bodies, and resource

flexibility to carry out fast-track megaprojects. Hence, financial autonomy at the

third tier of the government is an important factor to expedite infrastructure and

affordable housing projects.

6.1.2 Flexible framework to negotiate agreements: As is seen in the case of

Hong-Kong, flexible agreements are required to share risks to make PPP

ventures successful.

6.5 Reform Land Management System

6.5.1 Land inventory: Adopting GIS mapping and real time land monitoring

systems is the need of the hour to prevent valuable urban land from

being encroached and ensure planned urban development.

6.5.2 Tax revenues: An efficient land inventory system can also support

land and property taxation, thereby, increasing revenues for the urban

local bodies.

6.5.3 Develop and monitor land markets: It is essential to monitor land

markets to prevent land grabbing/ mitigate risk associate with

speculative land dealings. Efficient land management policies can also

leverage land as a mortgage collateral to provide security for credits

6.5.4 Urban vs. rural management – promote the concept of regional plans

or urban growth through land pooling mechanism to ensure planned

regional development.

6.6 Transparent mechanism: It is necessary to establish a framework for land

deals and public accountability for the use of revenues to prevent corruption

and ensure timely development of projects.

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6.7 Ease approval process – One web portal to host approval for various

ministries with clear guidelines for processes can expedite development

projects.

6.8 Planning expertise: Cities have to take the lead to invest money into skilled

manpower resources for positive project linked outcomes

6.9 Heritage management: Value capture schemes can also work towards

heritage conservation as is seen in the case of Barcelona.

6.10 Environmental conservation: Value capture can trigger projects aimed at

environmental conservation, e.g. creation of urban green spaces as in seen in

the case of Barcelona and Ahmedabad.

Value Capture is an exciting idea that offers an alternative to traditional financing

mechanism. If well designed, such tools can augment investments in urban

infrastructure and logistics, and facilitate development of affordable housing, public

places and green spaces

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