Unlocking land values

Background
large financing requirements of urban infrastructure
and the strained finances of urban local bodies as well
as state governments,
instruments such as tax increment financing,
betterment levies, development charges and their
potential in unlocking urban land value in India’s
urban infrastructure development.
Different approaches
Need for efficient use of land for developing urban
infrastructure in a socially inclusive and
environmentally sustainable manner
Different approaches
 Public acquisition of land,
 Public private partnerships,
 land pooling and town planning schemes
Models of Land Assembly
 Compulsory public acquisition of land under the Land Acquisition Act of 1894.
 Different state governments have experimented with different land assembly models to
accommodate the growing demand for urban space.
 For example, Delhi Development Authority has involved government monopoly in
acquisition and also monopoly in infrastructure and housing development. There is growing
disenchantment with this model because of its inefficiency, apathy to the demands of the
users, and the potential for rampant corruption in the absence of competition.
 Some state governments have encouraged private sector initiatives and public private
partnership for land assembly and land development, e.g., in Gurgaon (Haryana), NOIDA
(Uttar Pradesh),Greater NOIDA (Uttar Pradesh), Hyderabad (Andhra Pradesh) and
Bangalore (Karnataka).
 In Gurgaon, the cost of land development is met through private developer’s equity,
instalment payments by purchasers of plots/houses, and commercial financing. Internal
infrastructure provision is the responsibility of the private developer, while external
infrastructure is to be provided by the Haryana Urban Development Authority, financed
through levying external development charges.
 In NOIDA and Greater NOIDA, acquisition of land and providing infrastructure is the
responsibility of the Development Authority but public private partnership is extensively
used. These models have posed their own problems resulting in large scale speculation in
land.
Models of Land Assembly
 The Town Planning Schemes (TPS) of Gujarat,
Vijayawada model of land-sharing in Andhra Pradesh,
Magarpatta model of township development in Pune,
Town Planning Schemes of Gujarat
 Town Planning Schemes of Gujarat have successfully pooled land
for city expansion with minimal displacement of people, active
participation of landowners in town planning and without any
strain on the public exchequer. In a two-step process, the first step
consists of preparing a “Development Plan” which is a broad-brush
vision for the entire city – a dynamic document that is detailed
gradually and marks clearly the new areas to be opened up for
development. At the second stage, these areas are divided into
smaller areas ranging between 100 and 200 hectares, typically
involving 100 to 250 landowners. Each such area is called a Town
Planning Scheme (TPS). Land parcels belonging to different
farmers are first pooled under a TPS. After reconstitution of the
plots within a TPS framework through extensive consultations and
making
 provision for public amenities, infrastructure and housing for the
poor, the developed plots are returned to the original owners in a
reduced proportion of their original plot.
Town Planning Schemes of Gujarat
 Thus, a TPS provides for the laying out of land and its development,
making allowance for installing the infrastructure needed for water
supply, drainage, sewerage, street lighting, etc., and allocating land for
different uses. It typically allots 15 per cent of the area for roads, 5 per
cent for parks, playgrounds, gardens and open spaces, 5 per cent for
schools, dispensaries, fire brigades and public utilities, and 15 per cent
for sale by the appropriate authority for residential, commercial or
industrial uses. Such sale helps meet the cost of infrastructure in the
Scheme area.
 Conserving heritage and protecting the natural environment is also
given consideration under TPS, while 10 per cent of the total area has
to be reserved for accommodating socially and economically weaker
sections of society.
 More than 1200 Town Planning Schemes had been approved, of which
close to 800 have been implemented. Inclusion and self financing are
two significant features of Town Planning Schemes, although the
process itself tends to be very time consuming.
Vijayawada model
Vijayawada Municipal Corporation in Andhra Pradesh
provides an example of land pooling under public private
partnership (PPP) without pursuing the traditional land
acquisition route. Inassembling 226.5 acres of land at
Gollapudi and Jakkampudi villages in Vijayawada in
2007-08, the land-owning farmers joined hands with the
state government and provided 40 percent of their land
(i.e. 96.56 acres) for provision of infrastructure and
housing the poor and low-income segments of the
population. More than 9000 houses have been sanctioned
for the poor and low income groups, and the related
infrastructure is also in place. More than 5000 houses
have been finished and allotted.
land pooling of Magarpatta
 land pooling of Magarpatta city in an area of 430 acres in the outskirts of Pune in
Maharashtra.
 Farmers with their ancestral land in Magarpatta have shown that it is possible to
become partners in urban development. They have created a world-class township
based on ‘walk to work, walk to school’ principle.
 The land in Magarpatta was in the jurisdiction of the Pune Municipal Corporation
since 1960 even though it was designated as an “agricultural zone” earlier. A
community of 120 farmers came together to set up the Magarpatta Township
Development and Construction Company which prepared a city plan for
Magarpatta, and approached the government of Maharashtra with an integrated
township proposal under the Maharashtra Regional and Town Planning Act, 1966.
 After receiving approval for change of land use and for the project, the township
was started in 1994. The city has been developed as a modern sustainable urban
habitat with emphasis on environment-friendly development, high quality urban
services, excellent modern facilities for education and health, and state-of-the-art
work places. It is home to over 40,000 persons and accommodates a working
population of over 70,000. The developers of Magarpatta were able to attract
MNCs and other corporate entities; particularly IT companies to set up offices in
the city, with its world class infrastructure facilities.
land pooling of Magarpatta
 Apart from being a good land assembly model, Magarpatta has accomplished social
integration of the farming community with the residents of the township. Money
from the sale and pooling of land was used only for asset creation. All farmers
agreed to use part of the value of their land to buy flats and shops in the township,
thereby ensuring lease rentals for themselves and creating a safety net for the next
generation. Allocation of flats for the farmers was done in a way that they were
located in different parts of the township. Over 250 entrepreneurs in non-
agricultural ventures have emerged from the farmer community with guidance and
training by the Magarpatta Development Company. These first generation
entrepreneurs account for a gross annual turnover of Rs 150-200 crore. The
business strategy of the Company has ensured that a farmer with one acre of land at
the time of its formation earns a dividend of about Rs 15 to 16 lakh per year.
 Magarpatta also offers lessons on how sustainable development can be promoted
through urban planning.
 Of the total 350 tonne of garbage generated by the city, 230 tonne is biodegradable,
and is used for bio-compost.
 Sewage water treatment capacity of 5 million litres per day is installed to treat waste
water of the city.
 Electricity saving due to the installed solar water heating system is Rs 1.7 crore per
year.
land pooling of Magarpatta
 This model of sustainable development is now being replicated by the
Magarpatta Township Development and Construction Company
(MTDCC) to build a similar township in the city of Nanded in the
naturally rich vicinity of Sinhagarh road in Maharashtra.
 A community of 235 farming families has come together and pooled
700 acres of agricultural land for the new township that will house a
residential district, a commercial complex, a hospital and a school. The
commercial district will host Corporate Houses and IT companies.
 MTDCC has reserved 230 acres of land for green spaces, including
over 5.2 km of riverside development which is the first of its kind in
India. More than 7000 residential and commercial units are in different
stages of construction and over 2000 units have been handed over for
possession.
 The city’s master plan has areas provided for rainwater harvesting and
a vermi-compost plant. The company has also planned for a solar water
heating system as well as a biogas plant to meet the rising energy needs
of the city.
Financing by Unlocking Land
Value
 As cities develop, land values increase because of high demand for locations that are favoured on
account of zoning decisions or infrastructure development. Realising a part of this increase in land
value provides a means of financing the growing needs of urban infrastructure development.
 Many Western countries used land as an instrument of financing urban infrastructure when their cities
were growing rapidly in the 19th century.
 A number of developing countries are now following this course as part of the mix for capital
financing of urban infrastructure projects.
 Betterment levies as applied in Latin America follow the principles incorporated in Spanish law.
 Impact fees are based on the planning and legal approaches used in the United States. In a recently
published book, Peterson (2009) documents different instruments of land-based financing in many
different country settings and analyses their practical working, much of which involves public private
partnership. classifies these partnerships into three categories:
 (i) donation of public land to private developers in return for private investment in public infrastructure,
 (ii) sale of public land to private developers and the proceeds used to finance public infrastructure, and
 (iii) sharing of gains in land values created by public infrastructure investment. Gains can be shared by
imposing taxes to capture part of the gain in value, or by agreements which are negotiated prior to
investment.
 Tapping land value for infrastructure development has special merit because funds are mobilized
upfront thereby adding flexibility to infrastructure financing decisions and reducing dependence on
debt and the associated fiscal risks.
 The price signals that emanate from land-based taxation also increase the efficiency of urban land
markets. Two of the most commonly used instruments are betterment levies and impact fees.
Financing by Unlocking Land
Value
 As cities develop, land values increase because of high demand for locations that are
favoured on account of zoning decisions or infrastructure development.
 Realising a part of this increase in land value provides a means of financing the growing
needs of urban infrastructure development.
 Many Western countries used land as an instrument of financing urban infrastructure when
their cities were growing rapidly in the 19th century.
 A number of developing countries are now following this course as part of the mix for
capital financing of urban infrastructure projects.
 Betterment levies as applied in Latin America follow the principles incorporated in Spanish
law. Impact fees are based on the planning and legal approaches used in the United States.
 In a recently published book, Peterson (2009) documents different instruments of land-
based financing in many different country settings and analyses their practical working,
much of which involves public private partnership. He classifies these partnerships into
three categories:
 (i) donation of public land to private developers in return for private investment in public
infrastructure,
 (ii) sale of public land to private developers and the proceeds used to finance public
infrastructure, and
 (iii) sharing of gains in land values created by public infrastructure investment. Gains can be
shared by imposing taxes to capture part of the gain in value, or byagreements which are
negotiated prior to investment.
Financing by Unlocking Land
Value
 Some initiatives, in the city of Calgary in Canada, in Orestad in Denmark, and
in Hong Kong are worth highlighting as innovative attempts at unlocking land
value and tapping it for infrastructure finance.
 Calgary earmarked for 20 years a portion of its property tax revenue generated
from The Rivers District properties to invest directly in infrastructure
improvements within this area through a ‘Community Revitalization Levy’
(CRL) which was enabled by provincial legislation.
 Orestad Development Corporation (ODC) captured some of the appreciated
land value while developing a strategically located township in Orestad in
Denmark and linking it to the Copenhagen City Centre International Airport
and other parts of the city through a metro rail line of 22 km. This was
mobilized through direct payments (10 percent), real estate taxes (10 percent),
and operating profits from the metro (30 percent), and has partly financed the
construction of the metro.
 The Hong Kong Mass Transit Railway Corporation has also used land sale,
long-term leasing of development rights, joint development through public
private partnership, and leasing of commercial space in and around metro
stations, as major sources of finance.
Financing by Unlocking Land
Value
 India has made limited use of unlocking and tapping land value to finance urban
infrastructure. However, some cities have made a start.
 The Mumbai Metropolitan Regional Development Authority (MMRDA) auctioned land in
2006 in the city’s new financial centre, Bandra Kurla Complex in the process of developing
an alternate Business District. MMRDA generated $ 1.2 billion from a mere 13 hectares,
which was 10 times its total capital spending in 2005-06 and 3.5 times the total value of
municipal bonds issued by all urban local bodies and local utilities in India during the
decade 2001-2011.
 Andhra Pradesh has adopted a number of measures to tap the gains in value from its
planning system and infrastructure development, including development charges, betterment
levy, impact fee, vacant land tax, open space contribution and special fees. The Hyderabad
Municipal Corporation has been using incentive zoning for the past 15-20 years with
relaxation in planning norms including grant of Transferable Development Rights for
widening major roads. A special development charge of Rs 600 per square metre is levied on
any development occurring within the 1 km growth corridor on both sides of the ring road.
 A few other states are also experimenting in this direction. Since the 1990s, the Government
of Karnataka has levied a cess on certain dedicated taxes, including land-based taxes to
create a resource base for the Elevated Light Rail Transit Project.
 Similarly, for construction of the ring road in Bangalore, a surcharge was imposed on
change of land use for approval of individual and group housing projects. The Bangalore
Metro Rail Corporation has recently embarked on Transferable Development Rights to
secure land for metro rail alignment in lieu of compensation for the acquisition of land.
Conclusion
 Urban Planning in India has relied heavily on compulsory
public acquisition of land.
 This is becoming increasingly difficult and politically
highly contentious because of serious conflicts emerging
between farmers, developers and state governments.
 While legislative reforms are on the agenda to enable easier
and fairer acquisition of land,Innovative models of
assembling land in some Indian cities is worth mentioning .
 It has also explored financing mechanisms for investments
in urban infrastructure by unlocking land value.
 The examples of success stories suggest that reform and
innovation is possible, and indeed is happening. But there
is a long way to go if Indian cities are to fulfil their
potential for inclusive growth.
 Assignment
submission date 19th April , 2017
1. Describe the characteristics of land.
2. Explain the difference between Rural and Urban Land
3. How do you define Rural and urban as per census of India ?
4. Explain in brief land as factors of production
5. Explain the hierarchy of rural and urban settlement and its
importance in regional perspective
6. Explain the process of urbanization
7. Issues of urbanization and its impact on Urban and Rural land
8. Explain why the rent is high in CBD area of city ?
9. What are the information required for valuation of Rural and Urban
land” How do you get these information?
10. Explain the changes in land values across the city
11. Explain the impact of land value in Town Planning Scheme area
 Assignment
submission date 19th April , 2017
12. Explain the different approaches that use land as a resource for developing urban
infrastructure
13. Salient features of Central Place theory
14. Land value in the major cities in india
15. Explain Site Suitability for deciding land use
16. Explain the difference between Rural and Urban Land Use and its determinant
17. Explain in brief Urban Land Ceiling Act 1976. why it was repealed?
18. Explain the evolution of cities
19. Explain market forces in the development of cities.
20. Explain why cities exist
21. Why some cities are big and some are so small ?
22. Explain in brief Hoyet Model explaining land use zoning
23. Explain impact of planning control over land use and value
24. Explain the real estate investment appraisal methods
25. Factors affecting land valuation in cities.