[Urbanstudy] Now, a policy for value capturing

[Vinay Baindur]

http://www.business-standard.com/article/economy-policy/adb-
to-loan-631-mn-to-first-coastal-corridor-116092000286_1.html
http://www.thehindu.com/todays-paper/tp-features/tp-property
plus/now-a-policy-for-value-capturing/article9170011.ece


*Now, a policy for value capturing*
K. SUKUMARAN <http://www.thehindu.com/profile/author/k.-sukumaran/>

inShare
Experts argue that the State has a right to levy a ‘betterment fee’ as new
civic infrastructure substantially increases the value of property in an
area, says K. Sukumaran


For most realty owners, land is a family legacy. For builders, it is a
money spinner via construction activities. The State looks at the real
estate sector as a revenue raising platform.

The present proposal of the government highlights raising funds by way of
further investments in infrastructure.

The new theory is that developing infrastructure ups the price of land and
buildings - be it a new road or highway, a bridge, setting up of a special
economic zone/industrial park, metro/mono rail network, a port or airport,
etc.

In such cases, it is argued that the State, which is the investor, has a
genuine right to levy a ‘betterment fee’. Such a fee or cess can be a
source to raise at least a portion of the funds already invested for future
investments.

It cannot be denied that new infrastructure substantially increases the
value of property in the area with no additional investment or effort from
the owner of the property.

*Draft policy*

In the background of the above approach, a national policy for value
capturing is in the making.

An inter-ministerial group from the Ministries of Urban Development, Road
Transport, Shipping, Railways, and Power, has finalised a draft policy
which is being put up on the web, inviting suggestions from the public.

The salient features of the proposal are:

lAn increase in the price of real estate in and around new infrastructure
is a windfall at least in a specified area.

lA budget proposal to raise funds or a loan taken from infra financing
agencies has a cost.

lThe beneficiaries of any commercial gain from the State need to compensate
the State.

lFunds raised by way of betterment fee can go for raising further
infrastructure.

lA fund raising plan like PPP has limitations, whereas, a cess on increase
in value will have unlimited scope.

The concept of value capturing policy is already in force in countries such
as Japan and France.

Even in Australia, the policy is on the anvil in select projects. The
essence of the policy in those countries is public financing through
recovery of a portion of the value that public infrastructure generates for
private land/ building owners/developers.

In India, substantial investments in infrastructure have been made,
especially through the last couple of Union budgets, even in remote areas.

This has increased sale prices of land and other constructions that have
come up in and around new infrastructure. Return contributions to the
national exchequer, however, are small.

*Implementing the system*

One suggestion of the Ministerial Group is stated to be tax/cess on sale of
land/buildings within a specified area, say 500 metres or one km, of the
infrastructure.

Recovery can be enforced from the builder at the time of approval of the
building plan or when the sale is registered.

Another option is to increase stamp duty/registration charges or add a
central cess.

Yet another mode of levying the cess can be at the time of collecting the
property tax
.
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