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
1
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
2
INNOVATIVE FINANCING MODEL FOR SMART CITIES
1. Introduction
Planned 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
Figure 1: Urban Contribution to total GDP – Global
Comparison
clusters that
have swelled up due to
surge in migrants. Though
urban share of National
GDP is rising rapidly with
cities
contributing
60%,
investments
over
in
urban
infrastructure
remain low
2
. Figure 1
compares
GDP
contribution
across
of
US,
cities
Western
Europe, China and India.
India was more urbanized
Cities segmented by contribution to total GDP, 2010, cumulative %
of total
Source: McKinsey Global Institute Analysis
than China in 19503, but the
latter
has
aggressively
1
McKinsey, India's urban awakening, 2010
Ministry of Urban Development (MoUD) Draft concept note on Smart Cities
3
McKinsey, Comparing urbanization in China and India, July 2010
2
3
invested in urban development and the 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
infrastructure5.
in
terms
of Figure 2: Per Capita Annual Urban Capital Investment
on Infrastructure
Figure 2 shows China is ahead of
India by a wide margin in terms of
Per capita annual urban capital
investment ($)
per capita annual urban capital
391
investment.
Annual Survey of India’s City-
116
Systems (ASICS) 2014’s average
17
rank for Indian cities is pegged at
India
2.2 out of 10 on Urban Planning
China
UK
Data Source: McKinsey
6
and Design . 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.
4
Ease of doing Business 2015 Ranking, World Bank
The Global Competitiveness Report 2014–2015, World Economic Forum
6
Annual Survey of India’s City-Systems (ASICS), 2014, Janaagraha
7
High Power Expert Committee (HPEC): Report on Indian Urban Infrastructure and Services March 2011/MoUD
draft concept note on Smart Cities
5
4
1.1 What are smart cities and smart growth concepts?
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
8
CISCO
Draft Concept Note on Smart City Scheme, Ministry of Urban Development, October, 2014
10
Investopedia
9
5
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:
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).
11
Principles of Political Economy with some of their Applications to Social Philosophy, 1909
6
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

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
7
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

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.
8
4. Case Study
Figure 5 Sabarmati Riverfront Development Project
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
Ahmedabad
The 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
Ahmedabad have been
discharging
untreated
Source: Masterplan (Drawing: HCPDPM)
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
9
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
12
13

Event area and promenade

Urban forestry and public gardens

Installation of the sewage treatment system

Providing Water recreational activities
Sabarmati Riverfront Development Corporation Ltd. (SRFDCL)
Sabarmati Riverfront Development Corporation Ltd. (SRFDCL)
10
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
properties
15
World Bank
11
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 project
16
focuses 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)
12

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 Figure 7 Air Rights to increase Density
the tune of 180 million
Euros
policy
17
. The zoning
has
laid
the
parameters
and
conditions
for
redevelopment
land
and
monetization.
exchange
of
In
Source: 22barcelona
land
development rights or change in development density the following
monetization strategies apply:
17
22barcelona
13
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
18
"State of Execution," Ajuntament de Barcelona, December 2009
14
been achieved without offering any incentives to companies to locate
in the urban renewal zone.
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, China
4.3.1
Project: Public transport is the life line of densely populated HongKong. Over 90% of the motorized trips are by public transport 20 .
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:
19
20
Ajuntament de Barcelona
Ajuntament de Barcelona
15
MRTC operates without public financial support, deriving its profits from
real estate development.
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
21
MTRC Annual Report 2013
16
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: Gujarat
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
22
Public Private Partnership for Road Infrastructure Development, AUDA
17
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
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 Finance
Town 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
23
Public Private Partnership for Road Infrastructure Development, AUDA
18
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
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
24
Icrier, Report on Urban Infrastructure and Services, march 2011
19
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.
Figure 8: Overview of Case Studies (project status: completed)
Sabarmati Riverfront
Development Project,
Ahmedabad
Value
Capture
Tool
Urban Renewal of
Poblenou, Barcelona
PRIMARY OBJECTIVE:
Development of river front
as a public asset
SECONDARY 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 OBJECTIVE
Urban Renewal of Poblenou,
Barcelona – establishment of five
industry clusters
SECONDARY 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
Development of Mass
Rapid Transport
System(MRTS): HongKong, China
Value
Capture
Tool
Provision of Urban
Services/amenities through
Land Pooling: Gujarat
Value Capture Tool
i. Air Rights for
redevelopment
ii. Land Transfer 30% land given
to 22@BCN for
redevelopment
projects
iii. Development
levy
Value Capture
Tool
20
PRIMARY OBJECTIVE:
Expansion of MRTS in
Hong-Kong
SECONDARY 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
Road
SECONDARY 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 project
Investments
recovered by AUDA
by selling adjacent
plots fetching higher
price due to
infrastructure
development
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 Growth
As 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
21
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.
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
Resistance
22
Transparency 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.
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.
23
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.
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
24
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