Land Value: New LVC initiatives implemented but challenges remain

New LVC initiatives implemented but challenges remain

Over the past few years, the Asia-Pacific region has witnessed significant improvements in public transportation, telecommunications, and water supply and sewerage infrastructure service delivery. However, there is still a major infrastructure backlog in developing countries in Asia. According to industry experts, investments worth at least $22.6 trillion will be required to address this infrastructure gap. In particular, India requires $540 billion for infrastructure development till 2031.

Land value capture – Implementation strategy and tools

Land use is a critical factor in achieving the overarching goals of environmental sustainability, economic growth and social inclusion. Land value capture (LVC) is a three-pronged public financing and urban planning strategy through which governments trigger an increase in land value. The first step in the LCV process is formulating favourable regulations and policies. Next, the project implementing agencies need to devise a technique to share the additional land value by capturing all or part of the change in value. Finally, the captured proceeds are utilised to finance infrastructure investments, offset negative impacts and implement public policies to promote equity.

The five tools that can be used to implement LVC are mainstream taxation, special fees and levies, auction of development rights, transit-oriented development, and the East Asian model of selecting a transit operator to directly manage the property. These methods should be equitable, efficient and dynamic in nature. The taxes/fees should be levied in a manner such that people benefiting from the positive externalities created by infrastructure development should pay more. The basic framework of LVC tools should be dynamic, yet simple. However, the implementation of the LVC strategy is expected to throw up several challenges. These pertain to difficulties in land and property valuation in developing Asia, use of old assessment methods for valuation of land, etc. Often, to reduce their taxation burden, landowners are reluctant to record the true land transaction values.  are Some other constraints are the absence of separate entities for tax collection and infrastructure development, unfavourable legislative/policy frameworks and conflicting goals of revenue generation and urban planning.

Land pooling – A viable option

The concept of land pooling involves consolidation of individual- or group-owned land parcels by a government agency for the development of urban infrastructure. In India, 82 per cent of the project delays are due to delays in land procurement and inadequacy in project planning. In particular, greenfield projects are more prone to land issues due to the requirement of large land parcels. In such cases, land pooling is a more inclusive and less costly alternative to the land acquisition process. One of the biggest land pooling projects in India is currently being implemented in Amaravati, Andhra Pradesh. More than 33,599 acres of land has been procured from 27,365 famers. Further, the Delhi Development Authority (DDA) approved the much-awaited Delhi Land Pooling Policy in September 2018.

Key challenges and the way forward

Globally, the acquisition price of land is based on the prevalent market price. However, in India, there has always been an issue of under-reported land transactions. To better negotiate with private developers, there is a need to build a database of land transactions.

Given the limited availability of land, rapid urbanisation and the mass movement of people to cities are expected to pose challenges. In this regard, the deployment of assessment-based and market-based LVC tools, along with additional taxes, will be essential to help the government meet the demand of the rapidly growing urban population. Apart from the earnings from LVC, the incremental tax revenue should be returned to the central government/infrastructure developers for further investment. Further, instead of looking at LVC as a tool to supplement revenues of urban local bodies, it needs to be perceived as an asset-triggering investment tool. That said, city governments across the world are deploying innovative methods to deal with land acquisition issues. For instance, land trusts have been created in Japan. Here, landowners lease their land to the government and infrastructure companies and receive a yearly rent for it. In India, cities are using land pooling as a tool to deal with the issue of land scarcity.

To sum up, governments need to take a more progressive and incremental approach towards land acquisition and redevelopment. There is also a need to integrate urban planning, fiscal governance and revenue mobilisation strategies to expedite the land acquisition process. Innovative strategies for LCV should also be devised and adopted to meet future needs.

Based on a panel discussion among Siddharth Pandit, National Institute for Urban Affairs; Dhiraj Ajay Suri, Regional Advisor, Asia, Cities Alliance; Kathleen M. Farrin, Asian Development Bank; Zheng Jian, Economic Affairs Officer, United Nations Economic and Social Commission for Asia and the Pacific; and N. Yoshino, Dean, Asian Development Bank Institute, at a recent NITI Aayog conference