By Abhishek Das
The concept of Land Value Capture is
gaining significance as governments across the world are looking for
sustainable modes for financing infrastructure projects. The basic principle
behind Land Value Capture is that legitimately created value belongs to its
creator. So, if it is evident that there is a rise in the value of immovable
properties,due to infrastructure investment by government, the government has the
right to capture this increased value.
The requirement of government investment
in infrastructure development is rising steadily.More so,in developing
countries, which are experiencing massive urban expansion. In the case of
India, the budget outlay for infrastructure for the financial year 2016–17 was 2200
billion rupees ($32 billion). The projects include construction of new
airports, metro rails and expansion of road networks. This will result in the escalation
of land prices in the vicinity of these projects. At present, private developers
make use of the benefits of land value increment. The urban local bodies in
India are yet to capture this rise in land value.
Land value capture is done in two
steps:
- Value creation (and)
- Value recovery
Betterment taxes, land pooling, sale
of development rights, land readjustment and formation of special assessment
districts are some of these practises. The success of the system is dependent
on three stages of implementation.
- Identification of the benefactor
- Quantification of the increase in property value (and)
- Collection of the increased value (or a part of the value)
The city of Bogota in Columbia has
been successfully implementing Contribucion de Valorizacion – a form of betterment taxation –for
almost a century now. Many of the infrastructure projects in the city are
financed by this revenue. Mass Transit Railway Corporation (MTRC) of Hong Kong has
also implemented the LVC concept successfully. MTRC operates without government
subsidy and is highly profitable. Around 80 per cent of the total income of MTRC come
from property business.
In Gujarat, betterment tax can be
collected by the Gujarat Town Planning Scheme if there is an increment in land
value after implementing Town planning Scheme in an area. But this provision in
not utilised and no such tax is collected. The local administration of some Indian
cities increased the stamp duty to capture the addition in land value. For
example, in the case of Nagpur Metro, an additional stamp duty of one percent is
to be levied for 25 years on all property transactions. The problem here is that
the additional stamp duty falls on the entire residents of Nagpur, whereas,people
who have property near the metro corridors are the only benefactors. The Delhi
Development Authority (DDA) has prepared a land-pooling scheme, which was approved
by the Ministry of Urban Development in 2015.But DDA is yet to implement
the scheme.
The urban local bodies in
India find it difficult to implement LVC mechanisms because of the lack of
capacity to do so. Development activities in Indian cities are carried out by
different development authorities of central and state governments. For large projects,
such as metro rails, special bodies are created.These special bodies do not
have the power to impose tax on land, and often do not coordinate with the urban
local bodies. Consecutively, the urban local bodies do not capture
the additional land value because the project is not implemented by them. Even
if the urban local bodies attempt to do so, the fundamental idea of LVC is
questioned, because it is not the developer entity that captures the benefits
of the development. What is the solution to this dilemma? The solution is to make the
urban local bodies capable of implementing the infrastructure projects. Empower
them so that they can implement financing mechanisms and strategies to capture
the increment in land value.
Abhishek Das is Research Associate at CPPR- Centre for Urban Studies. Views expressed by the author is personal and does not represent that of CPPR.
