Value Capture Finance

Value Capture Finance: An Innovative Urban Tool

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A STUDY ON VALUE CAPTURE FINANCE IN INDIA: AN INNOVATIVE URBAN TOOL

B AC H E L O R S I N C O N S T RU C T I O N T E C H N O L O G Y

CEPT UNIVERSITY KASTURBHAI LALBHAI CAMPUS, U N I V E R S I T Y ROA D N AV R A N G P U R A A H M E DA B A D 380009

THESIS - SPRING SEMESTER 2021 GUIDED BY: MR. MANISH TRIVEDI SUBMITTED BY: BHUMIKA RAJ

BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

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BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

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`

UNDER GRADUATE PROGRAMME IN FACULTY OF TECHNOLOGY ‘

STUDENT NAME: BHUMIKA RAJ

Thesis Title: A STUDY ON VALUE CAPTURE FINANCE: AN INNOVATIVE URBAN TOOL

APPROVAL The above titled study by the student is approved as a creditable work on the approved subject carried out and presented in a manner, sufficiently satisfactory to warrant its acceptance as a pre-requisite for the degree of Bachelor of Construction Technology for which it has been submitted.

It is to be understood that by this approval, the undersigned do not endorse or approve the statements made, opinions expressed or conclusion drawn therein but approves the study only for the purpose for which it has been submitted by him/her and satisfies the requirements laid down in the academic programme.

Signature of the Guide

Dean, Faculty of Technology

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Value Capture Finance: An Innovative Urban Tool

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ACKNOWLDEGEMENT With this thesis I finish my Under graduation in Construction Technology at CEPT University. In December 2020 I began my literature review. Now, I can say that the journey was definitely worth the effort, all the learnings and discussions will resonate with me as I pursue my higher studies. Further this thesis could not have been done without the help of few people who helped me.

I would like to extend my gratitude to my guide Mr. Manish Trivedi, your enthusiasm helped me to venture more deep into the topic. All the discussions and listening to your experiences gave me an insight into real world and a broader perspective of the same.

Your guidance was of utmost importance which helped me deliver such a qualitative work even during this pandemic.

Furthermore, I would like to thank Ms. Jyoti Trivedi our internal examiner, for your feedback and many discussions about the subject. Those discussions were really valuable for my research. Also I owe thanks to the interviewees, for their time and effort to help me with my Thesis.

Lastly I would like to thank my family and Friends who supported me in difficult times.

BHUMIKA RAJ UC5316 Undergraduate Student Faculty of Technology CEPT University Ahmedabad, India.

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Value Capture Finance: An Innovative Urban Tool

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BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

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ABSTRACT

India is set to witness peak urbanization in the next four decades with accompanying fast economic growth. India’s urban population would become twice from 2011 to 2031. This would mean India will have 87 cities with million plus population by 2031 from 50 in 2011.

The predicted urbanization growth and economic growth in India would possibly be the largest national urban transformation of the 21st century. For any city to progress its essential it has some parameters and goals achieved so its citizen can live have a better lifestyle. Getting sufficient Funds is the major task and especially from a developing economy. On the other side even if funds are generated sometimes the projected revenue targeted is not met leading to losses and if any monetary assistance is taken it can’t be repaid ,increasing the debt. The municipal revenues are also getting decreased to an extent So there is a need for innovative methods to sustain projects, and Value Capture Finance can be a tool which can really cater to fill the gap. So Further Value capture tools are being explored in various smart cities. Which tools are widely used and which are not that dominant across various cities. Survey on the least applied tools is carried out to find out the major reason why are they less prominent and what cities can learn to replicate it more efficiently.

A matrix is prepared for the same to compare which tools are most prominent in which states all over India. Further to prove its potential a real time case study one of the smart cities is being carried out. And how a suitable value capture tool can be applied to the silvassa casestudy and how it can generate additional revenues for the municipal corporation. The onetime betterment levy for a property. Further affordability analysis is also carried out so levy is implemented ward wise and there is equity maintained for the same.

Keywords: Value Capture Policy, Value Capture Tools, Municipal revenues, Trend analysis, Linear regression, Affordability Analysis.

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Value Capture Finance: An Innovative Urban Tool

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Abbreviations VCF

Value Capture Finance

TPS

Town Planning scheme

FAR

Floor-Area Ratio

TIF

Tax Increment Financing

RRR

Ready reckoner rates

PPP

Public Private Partnership

SMC

Silvassa Municipal Corporation

PWD

Public Works Department

GDP

Gross domestic Product

TOD

Transit oriented development

NIUA

National Institute of Urban Affairs

MoHUD

Ministry of Housing and Urban Affairs

FDI

Foreign Direct investment

R+P

Rail plus Property

ULBs

Urban Local Bodies

MTR

Mass Transit Railway (Hong Kong)

TDR

Transfer of Development Rights.

JNUURM

Jawaharlal Nehru Urban Renewal Mission

LVC

Land Value Capture

SAR

Special Administrative Region

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Value Capture Finance: An Innovative Urban Tool

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INDEX

1. ............................................................................................... 4 2. Acknowldegement ......................................................................... 4 3. Introduction -Value Capture Finance ................................................. 12 4. Drivers Of Property Value .............................................................. 13 5. General Objective: ...................................................................... 14 6. Scope ...................................................................................... 14 7. Need Of Study ............................................................................ 15 8. Share Of Municipal Revenues Depleting: Value Capture A Solution .............. 16 8.1.An Indicative List Of Municipal Finance ......................................... 16 9. Positive Feedback And Negative Feedback Loop (Concept From Book Of Limits Growth) ................................................................................... 17 10. Funds Generated Through Value Capture In Context Of Foreign Cities .......... 17 11. Progression Level (Tool Based Scenario) ............................................. 19 12. Progression Level (State Based Scenario ............................................. 20 13. End Result: Simulation After Analysis Of State And Tool Based Scenario. ...... 20 14. Major Findings: Correlation Between The Value Capture Tool’s Nature And Progression Of Cities. ................................................................... 21 15. Evaluation Of Survey Form. ............................................................ 21 16. Future Scope And Limitations .......................................................... 25 17. Conclusion And Recommendations .................................................... 25 18. Recommendations ....................................................................... 26 19. Real Time Case Study Application ..................................................... 27 20. Application Of Suitable Value Capture Tool :Silvassa .............................. 27 21. Introduction .............................................................................. 28 21.1. .......................................................................................................................

General Context..................................................................... 28 22. Silvassa: Case Study Of The Inner Ring Road Project ............................... 28 23. Based On An Extensive Literature Review, Swot Analysis, ........................ 29 24. Land Use .................................................................................. 30 25. Selecting The Suitable Tool ............................................................ 32 26. Reasons To Eliminate Urban Land Tax And Impact Fees For Case Study ..... 32 27. Location Of The Project And Section ................................................. 34 28. Silvassa - Estimation Of The Potential Impact Of Interventions On The Value Of The Existing Stock Of Land And Buildings In The Program’s Impact Area ....... 38 29. Potential For New Construction ....................................................... 39 30. Financial Prefeasibility.................................................................. 40

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Value Capture Finance: An Innovative Urban Tool

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31. How To Estimate The Amount Of The Betterment Levy? .......................... 41 32. Betterment Levies. ...................................................................... 41 33. Betterment Levy Comparative Analysis .............................................. 42 34. Predicting The One Time Betterment Levy. ......................................... 43 35. Affordability Analysis Of Betterment Levies ......................................... 44 35.1. .......................................................................................................................

Making Betterment Levy Affordable ............................................. 44 36. Conclusion And Recommnendations................................................... 46 37. Bibliography .............................................................................. 47 38. Appendix .................................................................................. 49

BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table

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1:PPP Vs VALUE Capture: ...........................................................

2: International Scenario ............................................................

3: Value Capture Tool assessment matrix ........................................

4: Rating matrix ......................................................................

5: Result ...............................................................................

6: State based scenario .............................................................

7: Selecting the Value Capture Tool...............................................

8: Assessment of selected Value capture tools ..................................

10: Regression Analysis .............................................................

11: Cadastral data details (data, 2018) ...........................................

12:Ward wise details ................................................................

13: Residential Properties ..........................................................

14: Commercial Properties .........................................................

15: Potential for construction ......................................................

16:Pre-feasibility Analysis ..........................................................

17: Betterment levy Calculations ..................................................

18: Affordability Analysis ...........................................................

13 17 19 19 19 20 32 32 33 37 38 38 39 40 41 42 44

BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure Figure

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1:Relation Value Capture Finance Model ........................................

2:Timeline ............................................................................

3: Bifurcation Of Sectors ...........................................................

4:Sector Wise Gdp ...................................................................

5:Municipal Revenue ................................................................

6: Urban Expenditure ...............................................................

7: Structure ..........................................................................

8: Snapshot From Arcsurvey .......................................................

9: Framework Of Methodology (Patent No. Developed By Author, 2021) ...

10: Dashboard For Survey Question 1.............................................

11:: Dashboard For Survey Question 2............................................

12: Dashboard For Survey Question 3.............................................

13: Dashboard For Survey Question 4.............................................

14:: Dashboard For Survey Question 5............................................

15: Dashboard For Survey Question 6.............................................

16:Dashboard For Survey Question 7 .............................................

17:: Dashboard For Survey Question 8............................................

18:Dashboard For Surevy Question 9 .............................................

19:: Dashboard For Survey Question 10 ..........................................

20: Structure After Intervention ..................................................

21: Structure Before Intervention.................................................

22: Ring Road Silvassa ..............................................................

23: Map Of India .....................................................................

24: Roads Of Silvassa ................................................................

25: Land Use Planning ..............................................................

26: Ring Road Project ...............................................................

27: Zone Map Silvassa ...............................................................

28:Land Use Pattern ................................................................

29: Five Sections For Silvassa Ring Road .........................................

30: Section Two Of The Stretch ...................................................

31: Section One Of The Stretch ...................................................

32:: Section Three Of The Stretch ................................................

33: Section Four Of The Stretch ...................................................

34:Stretch Details ...................................................................

35: Trend Anlaysis For Residential Properties ...................................

36: Trend Analysis For Commercial Properties ..................................

37: Calculated Betterment Levy Over Years ....................................

38: Cost Covered Through Value Capturing ......................................

39: Affordability Analysis Ward Wise .............................................

12 13 15 15 16 16 16 21 21 22 22 22 23 23 23 24 24 24 25 26 26 29 29 29 30 31 31 32 33 35 35 35 35 36 38 39 43 43 45

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Value Capture Finance: An Innovative Urban Tool

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INTRODUCTION -VALUE CAPTURE FINANCE BEFORE DWELLING DEEP INTO THE TOPIC ITS IMPORTANT TO UNDERSTANDING DIFFERENCE OF “FUNDING VS FINANCING “ Funding versus financing So, what is funding? Commission Ruding (2008) believes it is necessary to distinguish between funding and financing. Financing identifies the origin of financial resources that are necessary to pay for the investment. In case of public financing one or more governmental organizations provide resources. In case of private financing private parties, like banks, pension funds and other institutional investors, provide financial resources. These resources can be provided through debt or equity. (Commissie Ruding, 2008) The definition of funding is who finally bears the costs of the investment done in the project.

With public funding the public sector bears the costs: the government, local governments or together. In case of private funding the private sector bears the costs. For example, a private company can create a toll road to recover their investment. Another form of private funding can be done through value capturing. These forms are also presented in Appendix B. (Comisssie Ruding, 2008)

Gap in funding

Change after value capturing

Figure 1:Relation Value Capture Finance model

Value Capture is being practiced in the world is based on the principle that private property including land and buildings benefit from public investments made in infrastructure and policies formulated by the government (e.g. change of land use or FSI). Appropriate VCF tools can be implemented to capture a value of the increment in land and buildings. In turn, these can be used to fund projects being set up for the public by the Central/ State Governments and ULBs. This generates a loop in which value is created and captured, and used a for project investment which will be created or constructed in future. As the additional revenue is generated by actions other than owner’s direct investment, Value Capture is different from the user charges or fees that agencies collect for providing essential services.

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Value Capture Finance: An Innovative Urban Tool

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There are Two types of Value capturing.  Areas based  Project based

Formation of VCF Policy ,tools and rules at state level

Implementation in 53 million plus population cities

2017-2018

2019-2020 2018-2019

Implementation in 500 Amrut cities including smart cities Figure 2:TIMELINE

Drivers of property value Various reports have identified the components of land value in the context of trying to communicate concepts around value capture.1 Drawing from this work, while also focussing on conceptualising the mechanisms that might apply to realising value capture arrangements, it is contended that in the Australian context a property’s gross value is a function of six drivers: (Slegtenhorst 19-8-2013) A. Amenity values reflecting the site’s locational and natural qualities, its proximity to regional open space and recreational opportunities, plus the quality of general ‘urban upkeep’, that is, the maintenance of historic infrastructure investment. This ‘raw’ amenity value component increases in an urban setting.

B. Population growth -which in an urban context improves the general scarcity and usage of the property.

C. State level infrastructure provision reflecting the property’s direct access to beneficial or ‘social’ infrastructure such as public transport, major roads, schools and hospitals D. Granting of development rights to allow for realisation of value, effected through an increase in development potential and/or development approvals E. Local level infrastructure provision reflecting the value of off-site development servicing infrastructure such as reticulated water and sewerage, storm water drainage, distributor and collector roads F. On-site improvements which are carried out by the owner including buildings, landscaping and other amenities (capture Final report:2016) Table 1:PPP Vs VALUE Capture:

DIFFERENTIATING THE THIN LINE OF DIFFERENCE IN VALUE CAPTURE AND OTHER SOURCES Other sources prevalent Value Capture Toll tax Total toll revenue is estimated at Rs. 2,350 • Value Capture: AUDA reconstituted an

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Value Capture Finance: An Innovative Urban Tool

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crore over a span of 20 years. The revenue is estimated at Rs. 12 Crore per year in 2006 and Rs. 220 crores per year in 2026.

approximately 1 km wide belt adjacent to the ring road. Out of the total land acquired for the project 60% was returned to the landowners, 20-30% was used to develop amenities like roads, schools and gardens, and the rest was sold as separate plots. Due to development of infrastructure, the land value of adjacent plots increased and AUDA earned about Rs. 600 Crores through the sale of plots

Scenario in India.

INDIA When did Govt made policy

2017 official framework policy

When was it made legally Including value capture in DPR is an integral part now as per binded guidelines circulated by MoUD in 2017 Example Projected revenues. (from report of the Delhi meerut Ghaziabad corridor)

Delhi meerut Ghaziabad corridor Over the period of 20-25 years the revenue generation from vcf instruments is 10,000 crores which is about 20-25 percent of total project cost 30,000 crores, and if not implemented would go unused.

General objective: The purpose of this research study is to conduct a secondary and primary research on value capture finance development in India with a focus on the applicability in live case. Author will attempt to identify gaps in ecosystem for development of this topic in India and with detailed focus in Gujarat.  

Specific objectives for study topic: Explore the status of various national and state level policies

SCOPE Part 1: Value Capture Finance as a step towards sustainability in funding in India - Review of existing literature and identify gaps in ecosystem  - Benchmarking with focus on developed and developing countries  - Exploring future of work in context of India  - Map the current Value capture tools and policies in place for fostering Value Capture Finance to classify tools (Most applied and least applied)  - Questionnaire survey focusing on two last applied tools with UGPI i.e. Users, Governance, Partners, Influencers mainly in context of State of Gujarat and UT districts nearby Gujarat (Dadra and Nagar Haveli, Daman, Diu) Part 2: Case Study: Opportunity to Implement  - Feasibility study of identified case (silvers Inner Ring road)  - Focused group discussion with UGPI  - Applicability of suitable value capture tool and preparing financial model for the same using regression analysis, trend analysis and affordability analysis

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Value Capture Finance: An Innovative Urban Tool

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Need of Study Need for Innovative tools to generate additional revenues: Value capture supports efficient decision-making by focusing on self-supporting and synergistic infrastructure investment. Infrastructure can be self-sustainable by using methods that capture some portion of the value it creates to help fund the expenditure and as well as sustain the project. Infrastructure investment can be efficient by targeting and attracting other complementary public and private sector investments, thereby generating greater scope and benefits to stakeholders and the community around it.

Urban infra in India how is growing constantly and how funds are required for the same plus India being a developed economy and also urban transport and other projects being social in nature there is less investment from private Players, so opportunities should be created where there can be more opportunities to create investment

Contribution 9% 6% 9%

64%

12%

others

forestry and agriculture

energy

water and sanitation

Transportation

Figure 3: BIFURCATION OF SECTORS

Sector Wise GDP Agriculture , forestry Mining and quarrying Manufacturing Electricity, gas, water , supplyand… construction trade hotels , transport ,communication Financial , real estate and prof. servs Public Administration 0 5 10 15 Column1 Column2 Series 1 Figure 4:SECTOR WISE GDP

20

25

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Value Capture Finance: An Innovative Urban Tool

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.

Share of municipal revenues depleting: Value Capture a solution

The share of own revenue in total revenue has declined 63% in 2002-03 to 53 % in 2007-8 the overall average does not convey the gravity of the situation in many municipal bodies where ULBs are virtually reduced to becoming state government department.

Figure 5:MUNICIPAL REVENUE

Urban local governments in India are among the weakest in the world both in terms of capacity to raise resources and financial autonomy While transfers from state government and Government of India have increased in recent years. ULBs tax bases are narrow and inflexible and lack buoyancy and they have also not been able to levy user charges for the services they deliver to cover O&M Charges

Figure 6: URBAN EXPENDITURE

         

An indicative list of Municipal Finance EXCLUSIVE TAXESProperty tax, profession tax, entertainment tax, advertisement tax REVENUE SHARED TAXESAll taxes on goods and services levied by the state government NON TAX REVENUEUser charges, Trade licensing fee Figure 7: STRUCTURE

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Value Capture Finance: An Innovative Urban Tool

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Positive feedback and negative feedback loop (Concept from book of LIMITS GROWTH) Feedback loop.

Till any project which is targeted to cater 10,000 population reaches from its conceiving stage to its implementing stage the population is outgrown so there is high possibility of its failure. As the population in India is growing exponentially and not linearly.

ANY PROJECT. Correlation with funding and population Positive feedback loop Resources planned to cater population funds are generated.

Dedicated transport fund does not cater to the needs

Negative feedback loop Population in India growing at the rate of % so gap is observed in funding so assistance is needed.

Value Capture Method 1. Land value tax, Annual rates based on gain in land value -Uniformly Area-based 2. Fees for changing land use (agricultural to non-agricultural) 2. One-time at the time of giving permission for change of land use, Area/Project-based 3. Betterment levy One-time while applying for project development rights Area/Project based 4. Development charges (Impact fees) One-time, Area-based 5. Transfer of Development Rights Transaction-based Area/Project-based 6. Premium on relaxation of rules or additional FSI 7. One-time Area (Roads, railways)/Project(Metro) 8. Vacant land tax Recurring, Area-based 9. Tax increment financing Recurring and for a fixed period Area-based 10. Land Acquisition and Development One-time upfront before project initiation Area/Project-based 11. Land Pooling System One-time upfront before project initiation Area/Project based

Funds generated through value capture in context of Foreign cities Table 2: International Scenario

(aryan 2019) Table source: Article from Rail Analysis India Location.

London , Regional Rapid Rail

Hong Kong SAR, China, Rail Plus Property Program, Metro (Heavy rail, Light rail)

Development – Based LVC Practices New York City and Washington, DC

Financing a Metro with Development Rights of Public

Air Rights Sales São Paulo, Brazil

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Value Capture Finance: An Innovative Urban Tool

Company

Cross rail Limited, subsidiary of Transport for London (TfL)

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Land Nanchang, China Corporation (PSU) Nanchang Railway Transit Group Co. Ltd. (NRTG) , Nanchang Municipal Govt.

(NMG): local body

1. Transport Operations,2. Hong Kong Station Commercial Businesses,,3. Hong Kong Property and other Businesses,4.

Mainland of China & International Business

Washington Metropolitan Area Transit Authority (WMATA)

Tools used Stamp Duty Land Tax Community Infrastructure Levy (MCIL) Business Rate Supplement (BRS): Zonal retention of revaluation growth from business rates Development Rights Auction Model (DRAM)

Property (R+P) development Public Land parcels leased for 50 years at premium, Annual rent payment equivalent to 3 % Certificate of Additional Construction Potential

Additional FAR & Development Rights (TDR, TIF- New York) Landmark Transfer- FAR of 1.2–6.6, purchasing unused development rights

Sale of development rights, Mixed Land Use

Funds generated (vcf)

25%

38%: From Property Development

17 % in DC

Funding Arrangem ents

State Pooled Fund

District Improvement Fund, special taxing district

Influence Area

Station Areas & Market Zones

Rule of cost and profit sharing between public agencies, MTR Corporation & private developers 400 m : around rail stations vary by location

70% Proposed: 20 % of the transfer fees of land use rights NMG collects fee to Development Funds

300 m :TOD Zones

Direct Property Development Re-auctions the land sites

TOD Zones: 500 m around station areas

PPP São Paulo Company of the Metropolitan (METRO)São Paulo Metropolitan Trains Company (CPTM)Metrop olitan Urban Transportation Company (EMTU).

Tradable Air Rights Urban Redevelopmen t Areas, called “Urban Operations” (UOs), Additional building charge, Urban concession Betterment levy in Urban Intervention Area (UIA 21%

Urban Development Fund

Central Business District , UIA & UO’s

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Value Capture Finance: An Innovative Urban Tool

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Punjab

Assam

Tamil and

Delhi

Karnataka

Andhra Pradesh

Madhya Pradesh

Kerala

Gujarat

Rajasthan

8 6 6 1 5 8

6

TOOL BASED SCORE

Change in land use Vacant Land Tax Land value tax Tax Increment Financing Betterment Levy or Tax Development Charges/Impact Fee* Transfer/Sale of Development Rights or Air Rights Premium on Additional FAR Town Planning Schemes (TPS) Total Points Score(CITY BASED )

Maharashtra

Value Capture Tool name

Odisha

Table 3: Value Capture Tool assessment matrix

7 10 3 25

8 75

5 50

8 75

6 50

2 50

6 50

7 50

2 25

5 50

2 25

3 25

Table 4: Rating matrix

Stage Progression levels (cities) tools applied

1 Null

2 Beginner

3 Moderate

4 Advanced

0

1-4

5-7

8-10

5 Super advanced 11-13

Score

0

25

50

75

100

PROGRESSION LEVEL (TOOL BASED SCENARIO)

•

Table 5: Result

Value Capture Tool

Score

Change in land use

8

Vacant Land Tax...

6

•

5 levels 9 Value capture tools

Also cities who still have basic problems should propose less complex tools like betterment levy, urban land tax, land pooling While cities which are quite developed and do not have basic problems like water and sanitation should work on implementing rather they are more capable of using value capture tools like municipal bonds(TIF),TDR. BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

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Land value tax

6

Tax Increment Financing

1

Betterment Levy or Tax

5

Development Charges/Impact Fee*

8

Transfer/Sale of Development Rights or Air Rights

6

Premium on Additional FAR

7

Town Planning Schemes (TPS)

10

Note* every beginner city has the potential to implement the complex tools when its reached the moderate or advanced level, so the above suggestion is decided based upon the present study done and matrix no.

(Author 2021)

PROGRESSION LEVEL (STATE BASED SCENARIO Odisha

Maharashtra Rajasthan

Beginner

Advanced

Gujarat

Kerala

Moderate advanced Moderate

Delhi

Tamil nadu

Assam

Punjab

beginner

Moderate

beginner

beginner

Madhya Pradesh Moderate

Andhra Pradesh moderate

Karnataka Moderate

Table 6: State based scenario

INFERENCE: Maharashtra and Gujarat are most developed in case of Value Capturing compared to other states.

Betterment levy tax is lowest so the cities of state on which it is applied it Can Serve as a model so a peek into how the states of Maharashtra , Gujarat ,Andhra Pradesh , Karnataka ,and Assam have implemented it. (Author 2021)

End Result: SIMULATION AFTER ANALYSIS OF STATE AND TOOL BASED SCENARIO.

After analysis study of, least two applied tools on matrix which are complex is carried out

And two states which are advanced level are selected to study the tools to understand how it was successful and what can be done by others to implement it and realise full potential.

Questionnaire on the same is prepared based on structure of the tool and what changes or interventions needed ahead for better functioning (smart cities officials and Municipal Corporations within Gujarat are to be targeted to narrow down the scope),

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Value Capture Finance: An Innovative Urban Tool

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Major Findings: Correlation between the value capture Tool’s Nature and progression of Cities.

Note* every beginner city has the potential to implement the complex tools when its reached the moderate or advanced level, so the above suggestion is decided based upon the present study done and matrix no.

• Advanced city= Complex, fair moderate value capture tools can be applied to realize the potential.

• Beginner city= easy value capture tools can be applied to realize the potential (Author 2021) METHODOLGY

Figure 9: FRAMEWORK OF METHODOLOGY (Author 2021)

Evaluation of Survey Form.

Figure 8: SNAPSHOT FROM ARCSURVEY

Survey form was created and floated to Targeted audience: Government officials and Smart city officials of Gujarat Smart cities about 70 respondents were expected out of which about 54 responded back.

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1.Betterment levies

Figure 10: DASHBOARD FOR SURVEY QUESTION 1

INFERENCE: Above dashboard depicts that the ready reckoner rates should be more dynamic as 68% of respondents have voted for it while only 7 % are against it, further 24% think that it should or should not.

2. Betterment levies revolve around ready reckoner rates so should Gujarat which has Area based development charge should also adopt VCF system of development charge which is (land +building: 2%+0.5%)

Figure 11:: DASHBOARD FOR SURVEY QUESTION 2

INFERENCE: Above dashboard depicts 50% of respondents agree to adopting value based betterment levy, while 27 % think it has a potential and 22% think, value based betterment levy should not be adopted

Value based development fee percentage 3.If yes, VCF system should be adopted for the state., what should be percentage of (land +building)

Figure 12: DASHBOARD FOR SURVEY QUESTION 3

INFERENCE: Above dashboard depicts that the if adopted, value based development fee should be (2%+0.5%) land +building which is ranked highest followed by the other two options.

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Intervention in Development 4.If no, VCF system should not be adopted but if changes are to be made, should there be increase in the rate of development charges which is presently 1-10 per square metre, if yes how much charges

Figure 13: DASHBOARD FOR SURVEY QUESTION 4

INFERENCE: Above dashboard depicts that if the value based development fee should not be adopted then the betterment fee as per 29 respondents should increase by 1-3% in first priority and followed by other two options.

Set up of Value Capture Fund 5.The value Capture gains that could be attributed to future public infrastructure investment, a dedicated Value Capture fund should be set up

Figure 14:: DASHBOARD FOR SURVEY QUESTION 5

INFERENCE: Above dashboard depicts that 66% of respondents agree to setting up of a separate value capture fund, while 33% do not support the idea.

Reducing the high cost for applicability of betterment levies.

6.According to you, if the cost of administering parcel-by-parcel betterment levies could be high compared to the collected revenue, so to

Figure 15: DASHBOARD FOR SURVEY QUESTION 6

INFERENCE: Above dashboard depicts that 81% of respondents agree that self-assessment of properties at regular intervals can help reduce the cost of collecting the betterment levy.

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overcome what should be done should Revaluation of properties at regular intervals,

Collection records

medium

for

municipal

7.So in a country India, what medium has the municipal corporation adopted to get the up-to-date property data, recorded land values etc.

Figure 16:DASHBOARD FOR SURVEY QUESTION 7

INFERENCE: Above dashboard depicts that the 50% of respondents have responded affirmatively to the option of hardcopy which says it is the most prevalent medium for collection of municipal data.

Need for Capacity Building 8.Researchers should study, document, and explain the different outcomes of TIF use in various geographic areas, capacity building should be adopted for TIF (Municipal bonds)

Figure 17:: DASHBOARD FOR SURVEY QUESTION 8

INFERENCE: Above dashboard depicts that majority which is 53% of respondents agree that capacity building can help cities to implement TIF.

Raise in Incentives for promoting TIF 9.The central government had announced incentives for municipal bodies who raise funds through these

INFERENCE: Above dashboard depicts that majority which is 53% of respondents agree that capacity building can help cities to implement TIF. Figure 18:DASHBOARD FOR SUREVY QUESTION 9

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Value Capture Finance: An Innovative Urban Tool

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Parameter on Value Capture on being innovative 10.Value Capture tools is an innovative because it has the most potential to bear the capital costs, unlike other modes of collection which only bear the O&M

Figure 19:: DASHBOARD FOR SURVEY QUESTION 10

INFERENCE: Above dashboard depicts that 31% agree that A dedicated value capture fund should be set up while 48% had a neutral opinion.

FUTURE SCOPE AND LIMITATIONS Also the future scope of this study can be to study the least applied/ complex tools in depth and what more changes should happen at policy level so additional revenue can be generated for municipal finances and can be applied in a real time scenario.

The study was focused on advanced state of Gujarat so further it can be expanded to other states to get a holistic approach of value capturing India.

It’s at a very nascent stage but has the most potential to add revenues to the municipalities.

It’s essential for a self-sustaining any project and also fund other projects which make it a very reliable tool.

CONCLUSION AND RECOMMENDATIONS This study was able to capture the concept of Value Capture Finance in India and tools related to it the VCF (Value capture Framework Policy) released by Ministry of Housing and Urban Affairs. Apart from the framework, mapping was done for each tool and its applicability in states. A matrix was prepared which categorized that which tools were most and least applicable in Indian states. Two major findings were obtained 1)A correlation was observed that the beginner state usually should opt for least complex tools as they are still developing and have other issues to deal with at the moment.

2)As a result in state based scenario Gujarat and Maharashtra had the highest score in terms of using value capturing tools. In Tool based scenario TIF and Betterment levy were the least applied tools over India.

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Value Capture Finance: An Innovative Urban Tool

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So to support the results a questionnaire surey was prepared that what interventions can be done in least two applied tools so they can be replicated and used in other states as well.

The questionnaire was floated in Gujarat as it being the advanced state as per our previous findings. And to get a more specific outcome targeting the smart cities Rajkot, Ahmedabad and Surat as they have the most potential to capture value. This addressed the changes which can be done in the structure of tools so they can be used efficiently in other states.

Recommendations Intervention in the model after setting up the value capture fund

Value capture fund

Figure 21: Structure Before intervention

Figure 20: Structure After Intervention

1. Ready reckoner rates should become for dynamic compared to being more static 2. Adopting value based ready reckoner rate which is (2+0.5%)land + building for Gujarat.

3. Increase in development charges about 1-3% if value based ready reckoner rates not to be adopted in the state 4. Introduce self-assessment for reducing the cost of gathering data for implementing betterment levy 5. Online structure should be adopted for using betterment levy so cost of assessing the records physically can be avoided.

6. Capacity building should be carried out so state can implement Municipal bonds in their cities and generate revenues over time.

7. Increase in incentives given by government for Municipal bonds(TIF) to 16-20% which is 13% for now this can attract more states to implement the tool 8. Setting up a dedicated value capture finance to ensure the funds are used for funding other infrastructure only, this can be a stellar intervention if applied in real time. As it can be neared that the funds are used only for the infrastructure projects’s CAPEX and no other purpose.

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Value Capture Finance: An Innovative Urban Tool

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REAL TIME CASE STUDY APPLICATION APPLICATION OF SUITABLE VALUE CAPTURE TOOL :SILVASSA

(The Potential of Land Value capture 2017)

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Value Capture Finance: An Innovative Urban Tool

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INTRODUCTION The main objective of these case studies is to analyse the feasibility of using land value capture instruments to finance the public interventions. To this end, we describe interventions and their impact areas, detail the costs of each project, estimate the initial value of the of land and buildings, and project the potential impact of interventions on valuation. Finally, we assess the financial prefeasibility and affordability of land value capture, and provide guidelines to assist in project implementation.

(The Potential of Land Value capture 2017) In this way, this section seeks to answer the following questions: • To what extent can the capture of the value generated by public investments and land use regulations help finance infrastructure projects of Silvassa?

• How can we make value capture affordable?

• Which could be the most effective land value capture instruments for financing the Inner ring road project of Silvassa Smart city?

NOTE

The main objective of these case studies are to analyze the feasibility of using land value capture instruments to finance selected public interventions

Silvassa: Case Study of the Inner Ring road Project General context At the same time, 50% of the ring road is converted intoational highway. Based on the National Highway the adjacent plot cannot be directly accessed from the national highway51. So in future one also needs to think about converting the outer ring road in to the national highway as it could be dangerous for thecitizens of Silvassa when the national Highway would be passing through the part of the city and because of this there will be huge amount of land which will be land locked around the edge of the national highway buffer on both sides (Consultancy 2020) Silvassa is a Capital of UT Dadra and Nagar Haveli, city of approximately 460,000 inhabitants that is located between Gujarat and Maharashtra. As the capital of UT Dadra and Nagar Haveli, it is where the main political, administrative and cultural activities of the region converge.

Silvis’s strategic location and conducive business environment have led to its emergence as a significant industrial centre. As a consequence, between 2001 and 2011, the city’s population has

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Value Capture Finance: An Innovative Urban Tool

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Figure 23: MAP OF INDIA

Figure 24: ROADS OF SILVASSA

Figure 22: RING ROAD SILVASSA

almost doubled. This rapid development in the city has impacted mobility, public spaces and delivery of basic services. The city also serves as a gateway to other tourist destinations in the district. Accordingly, an area of about 2200 acres (~50% of city area) having an impact on 63% of the population had been identified for retrofitting with three distinct objectives under the smart city vision (Silvassa Smart city vision report July 2020)

Based on an extensive literature review, SWOT analysis, Discussions with various government departments, and a city level gap analysis, the following key city characteristics along with corresponding issues were identified: • located industrial hub: 1,235 small and medium industrial units employing over 48% of Silvassa’s working population, located towards the north of the city along the PIPARIYAriverfront, with low levels of basic services • Rapidly growing city centre: infrastructure provision has not kept pace with city’s rapid population growth (population has doubled in a decade); city centre with high level of mixed use; confluence of heavy vehicles and city traffic, poor pedestrian facilities; unregulated parking; low last-mile connectivity for water supply and sewerage; insufficient avenues for art, culture and recreation • City with rich tribal heritage: 13.2% of city population is tribal (famous Varli paintings)

CASE STUDY: SILVASSA INNER RING ROAD PROJECT Application of the methodology project description:11.3 km ring road Cost-66.6 crores EPC contract Pwd public works department.

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Value Capture Finance: An Innovative Urban Tool

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• City of riverfronts: Damanganga (3.8 km) to the west and Pipariya (5.6 km) to the north; Damanganga riverfront development already underway though low in active use.

LAND USE Planning Zone Planning Sector Nodal Village /UA Villages and Urban Areas covered I Planning Sector - A Dadra Dadra, Demani, Tighra Planning Sector - B Silvassa Amli UA Silvassa Amli UA, Samarvarni, Athola, Vaghchhipa Planning Sector - C Rakholi Masat, Saily, Karad, Kudacha, Rakholi The overall growth in population of the territory in the next 20 years shall not exceed 10 to 12 lakhs 10-12 lakhs, differential FSI at this stage shall not be necessary which is based on differential density.

Therefore it was recommended that there is no need to micro zone the residential zones in to sub zones based on density. There can be one Residential zone with uniform density and FSI .

Area of the intervention The impact area is the area over which the Project affects land and building values. The improvements carried out in the Intercultural

NOTE

Impact area of the intervention. The impact area is the area over which the Project affects land and building values.

The improvements carried out in the have the potential to generate value by making land use more productive in the surrounding areas by providing goods and services to residents and attracting more customers to businesses located in the area

Figure 25: LAND USE PLANNING

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Value Capture Finance: An Innovative Urban Tool

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Centre have the potential to generate value by making land use more productive in the surrounding areas by providing goods and services to residents and attracting more customers to businesses located in the area

NOTE

Ward wise bifurcation of the SMC, silvassa municipal corporation.

Figure 26: ZONE MAP SILVASSA

NOTE The entire inner ring road project is highlighted in the google maps

Figure 27: RING ROAD PROJECT

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Selecting the Suitable tool Reasons to eliminate Urban land tax and impact fees For case study 5 POTENTIAL VALUE CAPTURE TOOLS 1 Betterment levy 2 Urban land Tax 3 Impact fees Note *-This tools are most applied tools as curated by the author on basis of the study so the cities on initial stage of development can benefit most from most applied or less complex tools.

Hence it was decided to choose the tools Table 7: Selecting the Value Capture Tool

Identifying and designing the value capture instrument Value capture assessment matric for cities on beginner level.(case study scenario)

Betterment levy

Urban land Tax Impact fees

Highlights Beneficial If cadastral value of the property surrounding the project is more than the total value of the project cost Beneficial as if the land use has been changing beneficial as it can generate fees slab wise fro high storey buildings

Lowlights NOT Beneficial If cadastral value of the property surrounding the project is LESS than the total value of the project cost The coefficient observed was not that high by linear regression Height restrictions which is only 27 m in Silvassa., height cap of 27 meters which doesn’t allow the full utilization of FSI

Table 8: Assessment of selected Value capture tools

Selected (as per talk with the offcials) Value capture assessment matric for cities on beginner level.(case study scenario) Betterment levy

 



land use of residential has significantly changed from 23 % to 70% The catchment area and radius should be decided and urban land tax should be decided on basis of proximity from the ring road, Use: Hedonic price model (linear regression) Figure 28:Land Use Pattern

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.

1. PROPERTY TAXES SUMMARY OUTPUT Regression Statistics Multiple R 0.391061027 R Square 0.152928727 Adjusted R Square 0.031918545 Standard Error 287.1942548 Observations 9 ANOVA df 1 7 8

SS 104236.22 577363.78 681600

Intercept

Coefficients 2122.995592

Standard Error 323.1791151

t Stat 6.569098972

P-value 0.000313192

property tax

0.000165679

0.000147378

1.12417411

0.298006507

Regression Residual Total

MS 104236.22 82480.54

F 1.26376743

Significance F 0.298006507

Lower 95% 1358.798419 0.000182815

Upper 95% 2887.192765

Lower 95.0% 1358.

0.000514172

-0.000



Regression analysis for the property tax coefficient in context to the property price as dependent variable and property tax as independent variable.



After discussion with the officials it can be a potential value Capture tool but the coefficient is not that high so it was practical not to go deep into this tool for now.

NOTE Dividing the entire Project into a stretch of 5 sections and the stretch is selected on the basis of the area which has the maximum potential to experience a windfall in the prices

Figure 29: FIVE SECTIONS FOR SILVASSA RING ROAD

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Value Capture Finance: An Innovative Urban Tool

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LOCATION OF THE PROJECT AND SECTION

BHUMIKA RAJ UC5316

Value Capture Finance: An Innovative Urban Tool

Figure 31: SECTION ONE OF THE STRETCH

PAGE 35

SECTION 1

Figure 32:: SECTION THREE OF THE STRETCH

Figure 30: SECTION TWO OF THE STRETCH

Figure 33: SECTION FOUR OF THE STRETCH

SECTION 3 BHUMIKA RAJ UC5316

SECTION 2

SECTION 4

Value Capture Finance: An Innovative Urban Tool

SELECTED STRETCH DETAILS section

Definition section

of

Extension (m)

1

1-2

448.59

2

2-3

421.5

3

3-4

604.79

4

4-5

33.89

Total(m)

1508

Figure 34:Stretch Details

City Name

Zone Name

Silvassa NA Silvassa NA Silvassa NA Silvassa NA

Ward Name

Ward No.

Dayat Faliya, Near Priariya Bridge 1 66Kv Road, Secretariat Road 2 Dokmardi,Dokamardi Bridge 3

2013-14Property Tax Collection

2014-15Property Tax Collection

2015-16Property Collection

1682348

1903271

2270716

3169406

1350248

1571170

1938616

2837306

1025748

1246670

1614116

2512806

Tax

2016-17Property Collection

Bavisa Faliya Chanandevi,Kilvani Naka Road

4

2387848

2608770

2976216

3874906

5

1271748

1492670

1860116

2758806

6

1756848

1977770

2345216

3243906

7

1889798

2110720

2478166

3376856

8

683293

904215

1271661

2170351

9

1801303

2022225

2389671

3288361

Silvassa NA

Sirkivadi,ITI Road Gayatri Mandir,Basera Road Ultan Faliya,Balaji Temple Bhurkud Faliya,Balaji Temple Indira Nagar,Opp. To Town Hall

10

1787823

2008745

2376191

3274881

Silvassa NA

Tokarkhada

11

1801948

2022870

2390316

3289006

Silvassa NA

Kilvani Naka Bahumali Complex,Beside PWD Office Pataliya Faliya ,Near Court Baldevi,Lions School Road

12

1188678

1409600

1777046

2675736

13

595743

816665

1184111

2082801

14

1694598

1915520

2282966

3181656

15

2133998

2354920

2722366

3621056

Silvassa NA Silvassa NA Silvassa NA Silvassa NA Silvassa NA

Silvassa NA Silvassa NA Silvassa NA

Tax

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Table 10: Cadastral data details (data 2018)

Ward No.

No. of Residential No. of No. of No. of cum Census Occupied Residential Commercial houses Houses Houses Houses

No. of Hotels No. of / Shops Lodges No. of / / Guest places of Offices Houses Worship Others

1

NA

1888

1268

51

298

3

NA

30

2

NA

2102

1261

36

216

8

2

42

3

NA

1427

1183

70

155

8

10

44

4

NA

894

784

57

102

NA

3

4

5

NA

3072

2842

38

218

NA

3

3

6

NA

1706

1025

97

536

4

7

56

7

NA

2737

2545

18

228

5

3

10

8

NA

2626

2193

30

154

5

5

184

9

NA

1432

1314

36

120

4

8

18

10

NA

2487

2224

38

284

3

5

26

11

NA

1891

1353

42

495

15

9

37

Kilvani Naka 12 Bahumali Complex Beside Pwd Office 13 Baldevi Lions School Road 15

NA

2153

1423

67

556

13

4

156

NA

1591

1499

69

124

2

6

21

NA

1011

954

40

54

1

10

14

Ward Name Dayat Faliya Near Pipariya Bridge 66kv Road Secretariat Road Dokmardi Bridge Bavisa Faliya Chanandevi Kilvani Naka Road Sirkivadi Iti Road Gayatry Mandir Basera Road Ultan Faliya Balaji Temple Bhurkud Faliya Bhurkud Faliya Road Indira Nagar Opp. To Town Hall Tokarkhada

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Silvassa - Estimation of the potential impact of interventions on the value of the existing stock of land and buildings in the Program’s impact area Table 11:Ward wise details

ward ward11 ward11 ward11 ward9 ward9 ward9 ward8 ward8 ward8

price 2250 2670 2770 2100 2350 2520 2280 2290 3000

Area(AVG TAKEN) 700 700 700 700 700 700 700 700 700

RESIDENTIAL 1314 1314 1314 1352 1352 1352 2193 2193 2193

PRICE 11000 11120 13200 9000 9200 9300 11050 12500 12620

COMMERCIAL 42 42 42 36 36 36 30 30 30

Area(AVG) 400 400 400 400 400 400 400 400 400

Table 12: Residential Properties

Prices per square feet ward wise YEAR

WARD 11

WARD 8

WARD 9

2018

2250

2280

2100

2019

2670

2290

2350

2020

2770

3000

2520

2021

3083.33

3035.13

2536.34

2022

3254.44

3352.77

2610.48

2023

3520.37

3445.35

2633.78

Axis Title

TREND ANALYSIS 4000 3500 3000 2500 2000 1500 1000 500 0 2017

NOTE Source: Estimates made by the authors based on cadastral data available on smart data cities website.

R² = 0.9803

Using Trend analysis, the following study was carried out and prices were predicted.

R2 is 0.98 which validates that the data is reliable and strong. Hence the result obtained is accurate.

2018

2019

2020

2021

2022

2023

2024

Axis Title WARD 11

WARD 8

WARD 9

Linear (WARD 11)

Figure 35: Trend Analysis for Residential Properties

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Value Capture Finance: An Innovative Urban Tool

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Table 13: Commercial Properties

COMMERCIAL

NOTE

YEAR

WARD 11

WARD 8

WARD 9

2018

11000

11050

9000

2019

11120

12500

9200

2020

13200

12620

9300

2021

13973.33333

12985.85802

9323.431457

2022

15617.77778

13120.98859

9362.29765

2023

16681.48148

13362.59788

9379.258556

Source: Estimates made by the authors based on cadastral data available on smart data cities website.

Using Trend analysis, the following study was carried out and prices were predicted. For 2022 AND 2023 Year using the formula.

TREND ANALYSIS 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2017

2018

2019 WARD 11

2020

2021 WARD 8

2022

2023

2024

WARD 9

Figure 36: Trend Analysis for Commercial Properties

The potential for the construction of new buildings.

Potential for New construction We need to estimate the total value of new construction generated by the Program’s interventions in each of Section within the impact area (a)The first step is to use cadastral data to estimate the total land area with potential for construction of new buildings in each Section (b). We assume that all new building construction will be about 1000sq ft, and data about number of vacant lot is obtained from data smart cities website (even though some existing buildings could be expanded or replaced by larger ones)

Where:  Projected revenue total value of the new buildings generated by the  Ring road project Silvassa  Total lot surface with potential new construction in Ring road project Silvassa  Percentage of the lot surface available for construction in section  Ratio total construction/ total surface on land available for construction in section  Average cadastral value per M2 of construction in section

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Table 14: Potential for construction

vacant lots= assumption average area -900

NOTE

Description ward

ward 11

ward 8

ward 9

average casastral value

number

37

184

18

17

184

18

area total area

33300 215100

165600 16200

3254

3352

2610

total cadastral value 108358200

538862400

total VALUE 54302400

701523000

3261.381

Source: Estimates made by the authors based on cadastral data available on smart data cities website.

Using Trend analysis, the following study was carried out and prices were predicted.

Financial prefeasibility.

One way of doing the financial prefeasibility analysis of value capture is to evaluate whether it can cover the costs of the intervention. Given that one of the objectives of these case studies is to assess the potential value capture to finance urban interventions, in this way, we will analyse whether the valorization is lower than, equal to or higher than the costs of the intervention Table 15 shows that a payment of only 0.71% of the total value of the stock of land and buildings (line I) would cover the Program’s total cost. Similarly, valorization generated by the project is considerably superior to the Program’s estimated costs.Total valorization and 2.6% of the valorization expected during the first five years of the Program.

These results demonstrate the viability of financing the Program’s interventions using a value capture instrument that allows cost recovery and could also provide additional revenues to finance other infrastructure projects necessary for the city’s development.

We need to estimate the total value of new construction generated by the Program’s interventions in each of Section within the impact area. The first step is to use cadastral data to estimate the total land area with potential for construction of new buildings in each Section. We assume that all new building construction will be about 900sq stand data about number of vacant lot is obtained from data smart cities website.

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How to estimate the amount of the betterment levy?

PRE FEASABILITY ANALYSIS A Components/ Estimations B Total cost of the Project(11.3 km) C=A*B Percentage of investment financed by private sector partners (100% of the passenger station revitalization) D=A-C Cost of the project to be financed by the municipality with different revenue sources E Percentage financed with the city’s general investment budget F=D*E G=D-F H

Financed with the city’s general investment budget Municipal financing through land value capture Only one stretch A-B-C-D is taken-(1.508 km) Current total cadastral value of the stock of land and buildings in the Program’s impact area

66.66 crores 0

66.66

0 0 Total 66.66 crores Cost of stretch 8.8 crores 11189524675

I = G/ H

Cost of the Program financed by the city through value capture/ 0.71% Current cadastral value of the stock of land and buildings

J

Impact of the interventions: % projected increase in total 5% cadastral value in the first 5 years

K

Property valorization due to the Program’s interventions in the first 5 years Cost of the Program/ valorization in the first 5 years -

L = D/ K

Table 15:Pre-feasibility Analysis

Betterment levies.

Betterment levies or a temporary increase in the property tax rate were considered the most viable instruments, as they are legally sound, as well as transparent and straightforward for use at the municipal level. The use of other instruments (e.g. exactions or building rights charges) could require more complex institutional structures. (The Potential of Land Value capture 2017) An additional advantage of betterment levies (which does not apply in the case of a temporary increase in property tax rate) is that revenue collected must be used to finance the interventions (or improvements) that generate the valorization. The stronger the link that the beneficiaries perceive between the payment for and the benefits derived from the interventions (e.g. improved infrastructure and services and increase in the value of their properties), the greater will be their willingness to pay. For this reason, it is important that local authorities employ a legal budget mechanism to earmark the revenue received from the levies for the exclusive use of the project.

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BETTERMENT LEVY COMPARATIVE ANALYSIS Component-A in the following table shows the relationship between the Program cost financed by the city through value capture and the current cadastral value of the stock of land and buildings in the impact area.

1. We estimate the amount of a one-time levy for the owner of a unit with an average cadastral value by multiplying the cost/value percentage (line A) by the property’s average cadastral value (line B).

2. The result for an average property value would be a single payment of 16108.0103 or annual payments of during five years 3221.602066 (line D) (See Table 16).

3. This information would help the city to estimate whether it would be necessary to take on debt if the revenues would not be sufficient to cover the project’s cost during its execution. .

Table 16: Betterment levy Calculations

line

Components/ Estimations

Without private sector rupees

A

Cost of the Program financed by the city through value 0.71 capture/ Current cadastral value of the stock of land and buildings

B

Average cadastral value of a property in the Program’s impact 2253012.23 area C = A * Single payment of betterment levies for a property of average 16108.01 B cadastral value D = C/ Equal annual payments for 5 years 3221.60 5 E = B * Hypothetical 1% increase in average cadastral value 1% F = B * Hypothetical 2% increase in average cadastral value 2% G Impact of the interventions: % of cadastral base increase for the first 5 years H = B * Valorization of a property of average cadastral value derived G from Program interventions in the first 5 years

22530.12 45060.24 5%

112650.61

Inference: So the one-time betterment levy on a property is calculated 16108 and if we predict 1% increase in cadastral value due to program intervention which is inner ring road for our case study then betterment levy would be rupees 22530, for 2% it would be rupees 45060 and so on.

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PREDICTING THE ONE TIME BETTERMENT LEVY. NOTE 120000

Source: Estimates made by the authors based on cadastral data on data smart cities.

100000 80000 60000 40000 20000 0 One-time betterment levy for mean cadastral value

1% increment in mean cadastral value

2% increment in mean cadastral value

5% increment in mean cadastral value

Figure 37: Calculated Betterment levy over years

•

Furthermore, to compare the amount of the levy with the potential valorization that the Program would generate, we compared the amount of the levy with hypothetical 1% and 2% increases in the average cadastral value (lines E and F).

•

Since Program costs are relatively low (with respect to the current stock value), valorization exceeds the amount of the levy even with increases in the average cadastral value lower than 1% or 2% which is 78268772 by one-time levy.

•

Therefore, it covers 88% of total project cost for that stretch.

Value Captured by the tool project cost 10

value capture

8.8 7.82

8 6 4 2 0

project cost

value capture

Figure 38: cost covered through Value Capturing

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Affordability analysis of betterment levies Making Betterment levy affordable To analyse affordability, we can group properties using variables of the municipal cadastral database, such as by quartiles based on cadastral value, types of land use (e.g. residential or commercial) or impact area characteristics (e.g. infrastructure deficits).

Table 17 shows the results of an affordability analysis Under this scenario, the property owners IN 9th ward (owners with the lowest cadastral values) would have to pay an annual levy of for 13051 for 5 years, while the valuation of the property of average value would exceed 91272.355 with program intervention in 5 years Table 17: Affordability Analysis

PROPERTIES GROUPED INTO QUARTILES (Q) BASED ON THEIR CADASTRAL VALUE

Line VARIABLES

TOTAL

WARD 11

WARD 8

WARD 9

A

Current total cadastral value of the stock of land and buildings 11189524675 in the impact area of the Program

3237848200

5385097850

2566578625

B

Total Program cost allocation 100 among quartiles (%)

29

48

23

23149138.46

38500994.5

18349867.04

0.714

0.714

0.714

2324370

2237265.41

1825447.10

16618.18579

15995.42

13051.11

3323.63

3199.08

2610.22

H = E * Hypothetical 1% increase in 22530.12 1% average cadastral value (P$)

23243.7

22372.65

18254.47

I = E * Hypothetical 2% increase in 45060.24 2% average cadastral value (P$)

46487.4

44745.30

36508.94

0.05

0.05

0.05

Total Program cost allocation 80000000 among quartiles Cost of the Program financed by the city through land value D = C / capture/ Current cadastral 0.714 value of the stock of land and A buildings (%) C

E

Average cadastral value of a property in the Program’s 2253012.23 impact area (P$)

Total value of betterment levies F=D* for a property of average 16108.01027 E cadastral value (P$) G=F/5

J

Equal annual contribution 3221.60 payments for 5 years (P$)

Impact of the interventions: % of cadastral base increase for 0.05 the first 5 years

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Valorization of a property of average cadastral value due to K=E*J 112650.6 Program interventions in the first 5 years

116218.5

111863.27

91272.35

Under this scenario, the property owners IN 8th ward (owners with the lowest cadastral values) would have to pay an annual levy of for 13051 for 5 years, while the valorization of the property of average value would exceed 91272.35508 illustrates how the project cost/ stock value (the rate of the levy) in (line D) increases only moderately for the last three wards, because the relative allocation of costs and cadastral values among the quartiles are very similar (line A).

Summary of Affodability analysis 140000 120000 100000 80000 60000 40000 20000 0 Total value of betterment levies for a property of average cadastral value ( Equal annual contribution payments for 5 years Hypothetical 1% increase in average cadastral value Hypothetical 2% increase in average cadastral value Program interventions in the first 5 years

TOTAL

WARD 11

WARD 8

WARD 9

16108.01027

16618.18579

15995.42771

13051.11453

3221.602054

3323.637159

3199.085542

2610.222907

22530.1223

23243.7

22372.65413

18254.47102

45060.2446

46487.4

44745.30827

36508.94203

112650.6115

116218.5

111863.2707

91272.35508

Total value of betterment levies for a property of average cadastral value ( Equal annual contribution payments for 5 years Hypothetical 1% increase in average cadastral value Hypothetical 2% increase in average cadastral value Program interventions in the first 5 years

Figure 39: Affordability analysis ward wise

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CONCLUSION AND RECOMMNENDATIONS In broad terms, the Program’s interventions aim at the revitalization of abandoned structures, improvement of green spaces and provision of infrastructure along the stretch of the ring road of Silvassa.

We explored the viability of using value capture to finance these types of projects. To this end, we developed the case study that examines the financial prefeasibility of value capture and identified the most appropriate instruments for so doing, taking into account the methodological points discussed in previous chapters.

Together with municipal officials, we explored the possibility of using or betterment Land Tax and impact fee levies as instruments for Value Capturing. We rejected this first option due to the insufficient flow of revenues from the property tax due to its very low rate which is Impact fee and urban land tax.

Using the proposed methodology, we established via analysis of cadastral data and development of valorization models that land value capture could potentially finance the interventions proposed by the Program by Betterment Levy. So the one-time betterment levy on a property is calculated 16108 and if we predict 1% increase in cadastral value due to program intervention which is inner ring road for our case study then betterment levy would be rupees 22530, for 2% it would be rupees 45060 and so on.

So through betterment levy 88% of the total project cost can be covered, which is project cost is 8.8 crores for the stretch selected and through value capturing 7.8 crores can be generated which is 88% of the total project cost (Inner Ring Road) .

With regard to the implementation of the interventions and in line with the Silvassa Inner ring road case study following recommendations can be made. 

Modify the regulations on land use to make the proposed interventions viable and to raise density levels.

o The project was conceived on basis of EPC contract, so if we incorporate value capture along with it, the project becomes sustainable over time and helps to generate additional revenues for municipal finances and mainly other infrastructure projects. o Explore the concept of “Relation value price”. It depicts how the value(funds) generated can benefit the owner and the excess money generated is the profit of the contractor. o Also the proper property mapping and need for updating the cadastral data is needed (for which a survey is been carried out) o Modify the regulations on land use to make the proposed interventions viable and to raise density levels. Introduce a support program for low-income families, especially those that are not owners (e.g. tenants).

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Bibliography n.d.

aryan, ishita. 2019. India Patent article: rail analysis .

Author, Literature review. 2021. Patent Developed by Author. capture, Technical paper on Value. Final report:2016.

Consultancy, TATA. 2020. Patent Vision Silvassa report. consultancy, tata. 2020. Vision Silvassa report. data, Smart city. 2018. NIUA. http://statisticstimes.com/economy/country/india-gdp-sectorwise.php. n.d.

Mouhd. 2018. India.

Slegtenhorst, Irene. 19-8-2013.

The Potential of Land Value capture, Andrés G. Blanco B. / Nancy Moreno M. / David M. Vetter / Marcia F. Vetter. 2017.

External Links referred for Literature review. https://www.niua.org/csc/assets/pdf/key-documents/phase-2/CSCAF_Launch_Presentation.pdf https://www.mondaq.com/india/fund-management-reits/897022/value-capture-financing-legal-issues-and-challenges http://www.vivro.net/blog/Value-Capture-Financing--A-Government-Mechanism-to-Monetize-Value https://blog.mygov.in/editorial/value-capture-financing-a-big-ticket-reform-for-speedy-urban-service-delivery-andresource-mobilization/ https://www.niua.org/csc/assessment-framework.html https://economictimes.indiatimes.com/news/economy/policy/government-looks-to-capture-big-gains-from-infra-boomvia-vcf-policy/articleshow/57800409.cms?from=mdr https://www.wri.org/blog/2020/12/how-land-value-capture-can-help-developing-cities

https://energy.economictimes.indiatimes.com/news/renewable/india-becomes-second-largest-market-for-green-bondswith-10-3-billion-transactions/73898149 https://www.mdpi.com/2071-1050/7/7/8091/pdf

https://www.ibef.org/industry/infrastructure-presentation https://knowledge.wharton.upenn.edu/article/will-take-india-reach-infrastructure-goals/ https://nordregio.org/nordregio-magazine/issues/people-and-cities/public-private-people-partnership-in-practice/ https://blogs.worldbank.org/ppps/transferable-development-rights-robust-policy-tool-address-indias-urbaninfrastructure-voids https://economictimes.indiatimes.com/is-betterment-levy-a-good-idea/articleshow/2124438.cms

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https://www.hdfc.com/blog/transferable-development-rights-tdr-concept http://218.248.45.169/download/engineering/TDR-website%2001.pdf https://india.mongabay.com/2019/11/paris-agreement-goals-india-needs-to-double-forest-cover-expansion-rate/ https://smartnet.niua.org/sites/default/files/resources/Final-Report-LBFT_28Aug2014%20%281%29.pdf https://www.pas.org.in/Portal/document/ResourcesFiles/5_Assessing_Land_Based_Tax_System_in_the_Indian_States.pdf https://economictimes.indiatimes.com/wealth/real-estate/real-estate-here-are-9-smart-indian-cities-to-investin/articleshow/51467656.cms?from=mdr

https://www.livemint.com/money/personal-finance/what-is-ready-reckoner-and-circle-rate-and-what-purpose-does-itserve-11588151608027.html https://www.jica.go.jp/india/english/office/others/c8h0vm00004cesxi-att/brochure_15.pdf

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APPENDIX QUESTIONNARE BETTERMENT LEVY 1. according to you, keeping in mind the present scenario should the ready reckoner rates (property Value Indicator) be more dynamic (catchment area wise).

Yes No. 2.Betterment levies revolve around ready reckoner rates so should Gujarat which has Area based development charge should also adopt VCF system of development charge which is (land +building: 2%+0.5%) Yes No

3.if yes, VCF system should be adopted for the state., what should be percentage of (land +building) land +building:( 2%+0.5%) land +building: (2%+0.3%) land +building: (2%+0.4%)

4.if no, VCF system should not be adopted but if changes are to be made, should there be increase in the rate of development charges which is presently 1-10 per square meter, if yes how much.

1-2% 1-3% 1-4%

5.So is the ULB ready for a setting up different fund dedicated to value capturing, if yes.

Should central government pitch in and set up a dedicated capital fund.

A dedicated fund is not needed.

Not needed.

6. So in a country India, what medium has the municipal corporation adopted to get the up-to-date property data, recorded land values etc.

City website (online) Documents (hard copy) 7.According to you, if the cost of administering parcel-by-parcel betterment levies could be high compared to the collected revenue, so to overcome what should be done should Revaluation of properties at regular intervals, self-assessment and simpler procedures to reduce the administrative cost of collecting tax: Yes No 8.Which is best tool in TIF (Tax Increment Financing) to start with TIF in other states/cities Bonds: BHUMIKA RAJ UC5316

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Interfold Loans: Pay-as-you-go Financing: 9.Researchers should study, document, and explain the different outcomes of TIF use in various geographic areas, capacity building should be adopted for TIF (Municipal bonds) Yes No May be 10.The central government had announced incentives for municipal bodies who raise funds through these municipal bonds in 2017 which will help in boos to the concept, so should incentives is usually 13%so if what should be the change.

14-15% 15-16% Not needed.

11.. Value Capture tools IS innovative because it has the most potential to bear the capital costs, unlike other modes of collection which only bear the O&M. Yes No May be

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