UNLOCKING URBAN LAND VALUES FOR INFRASTRUCTURE FINANCES

Learning from MMRDAs Experience

Ashwini Bhide, Jt Metropolitan Commissioner,MMRDA Dr. Satish Bagal, Financial Advisor, MMRDA

16 September, 2009

MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY

MUMBAI METROPOLTAN REGION

Area Population Districts in MMR
Virar Nalasopare Navghar Vasai

4355 sq.km. 1.92 Cr (2001) 1. 2. 3. 4. 1. 2. 3. 4. 5. 6. 7. Mumbai Suburban Thane Raigad Greater Mumbai Thane Navi Mumbai Ulhas Nagar Kalyan-Dombivali Mira Bhayandar Bhiwandi- Nizampur

Thane Dist.

Corporations in MMR

Mira-Bhayander Bhiwandi Thane Kalyan Ulhasnagar

Ambernath

Suburban Dist.

Navi Mumbai Badlapur

Municipal Councils in MMR

Mumbai
Uran

Panvel

Matheran

Raigad Dist.

Karjat

Khopoli Pen Alibag

1. Vasai 2. Virar 3. Nallasopara 4. Navghar-Manikpur 5. Ambernath 6. Kulgaon-Badlapur 7. Alibag 8. Pen 9. Uran 10.Matheran Hill Station 11.Panvel 12.Karjat 13.Khopoli 1000 94% Urban Population 6% Rural Population 2

Villages Urbanization

MMRDA:
Regional Planning Authority for MMR

Brief Introduction

Established in 1975 under MMRDA Act, 1974.

Special Planning Authority for notified area. Development Financing Agency for ULBs within MMR. Nodal Agency for Centrally Sponsored Schemes like JNNURM. Co-ordination Agency for Infrastructure Projects implemented by multiple agencies. Implementing Agency for various infrastructure projects within MMR.

Major Infrastructure Projects by MMRDA

MUTP Capacity enhancement of Suburban Rail & Bus systems & Construction of two important link roads. MUIP Extended MUIP Metro Widening of arterial roads, construction of missing Links, ROBs, Flyovers & Elevated Roads. Improvement in regional connectivity. 2 corridors Costing Rs. 11000 cr on PPP basis being implemented and 9 more planned Monorail Skywalks Rental Housing Nirmal Sanitation Campaign New Projects 1st Monorail in the country costing Rs. 2800cr. 4 Skywalks completed and 46 more under construction. slum prevention program 10000 community toilets constructed and 13000 more under construction. MMC, ISBT &Tall Tower, Regional landfill sites, Regional water supply, Innovation Park, Growth Centers

Financing Infrastructure Projects in MMR

Cost of ongoing projects : Rs. 8500 crores Future investment requirement as envisaged in Comprehensive Transport Study : Rs. 2,00,000 crores Using land as source of infrastructure financing : Sale proceeds from the land at BKC Sale of additional BUA caused by increase in FSI Resource generation through planning activity in SPA areas : Oshiwara Model Effective use of DCR as a tool to tap intrinsic land value for infrastructure projects Construction of tenements for Project Affected People Acquiring land for Metro car depot (at Versova) Rental Housing Scheme Limited use of real estate development component in transport projects on PPP basis

Sale Proceeds from MMRDAs land at BKC

Starting from the year 1980 MMRDA developed Bandra Kurla Complex reclaiming the marshland and channelizing the Mithi river. MMRDA paid Rs. 956 cr as occupancy price for a total land parcel of 208 ha to the State Govt. over a period of time. Initially many State and Central Govt. offices were housed in E block

Then the G block was developed as an International Finance & Business Centre MMRDA as SPA designated different land parcels for specific development purposes and auctioned them The higher bidder would get the 80 year long lease and would be responsible for the development of the site and also the onsite infrastructure

Sale Proceeds from MMRDAs land at BKC

Total lease premium received : Rs. 8871 cr for 100 ha of land and 14.11 lakh sqmts BUA Starting from Rs. 1980 per sq mt the rate of LP reached Rs. 504000 per sq mt in 2008 Rise in FSI from 1 to 3 for residential and 2 to 4 for commercial in G block Additional BUA available : 33.11 lakh sq mts for commercial and 3.05 lakh sq mts for residential It will be sold at 100% of RR rate for residential and 150% of RR rate for commercial purpose Since 2003, MMRDA, in addition to its planning function has transformed itself as an Infrastructure Development Authority.

Sale Proceeds from MMRDAs land at BKC

Revenues from land premium flowing into MMRDAs budget are now directed primarily to all major infrastructure projects Construction & Maintenance of roads, street lights, maintenance of reservation, beautification within BKC is MMRDAs responsibility Municipal Corporation collects property tax of Rs. 95 crs annually and provides waste collection, water supply, sewage collection and fire services. MMRDA is now exploring various other modalities of harnessing the value of remaining 21 ha of commercial land at BKC It has also shifted its focus to a less developed area like Wadala and is trying to emulate there the lessons learnt from BKC experience MMRDA is also poised to identify and develop additional growth centers on the lines of BKC with in MMR

Resource Generation through Planning Activity in SPA Areas

MMRDA is SPA for Oshiwara District Centre within MCGM area since 1992 Here the Development plan is being implemented through land owners participation The lands are acquired by MMRDA for nominal compensation and are leased back to the owner for 60 years with additional 0.5 FSI The land owner is responsible for on site development and is free to sell the building in open market. MMRDA gets premium at a fixed rate which is used for offsite infrastructure like roads, drains etc.

Effective use of DCRs as a tool to tap intrinsic land value for infrastructure projects
Construction of tenements for Project Affected People Acquiring land for Metro car depot at Versova Rental Housing Scheme

Rehabilitation and Resettlement Colonies

Shifting and rehabilitation of Projects Affected People : the most vital part in infrastructure projects in Mumbai Amendment to MMRDA Act in 2003 by which MMRDA was given all the power of Slum Rehabilitation Authority Clause 3.11, Appendix IV to DCR 33(10) provides for SR Scheme for PAPs of vital projects, sitting on public land. Land owner gets TDR equivalent to existing FSI for surrendering the land Developer gets construction TDR at 1:1.33 in lieu of construction of tenements

Rehabilitation and Resettlement Colonies

Extensive use of this power by MMRDA : 24 SR schemes sanctioned which generated 33,183 tenements Land received : 45 hectors of approximate value of Rs. 337 cr Value of the tenements : Rs. 995 cr (Rs. 3 lakh per tenements) Value of the TDR granted : Rs.: 935 cr. Stock of tenements has given major impetus to infrastructure projects in Mumbai.

Views of Rehabilitation Sites

Mankhurd

Oshiwara

Mahul - B

Majas

Powai Plaza

Ghatkopar 13

Acquiring land at Versova for Metro Car Depot

Land admeasuring 13.80 ha. costing about Rs. 900 cr was acquired for Metro Car Depot without going for Land Acquisition process and without giving any monetary compensation Original reservation modified to Car depot/Allied Activities and commercial use u/s. 37(1) of MRTP Act Existing policy of accommodation reservation could not be made fully applicable for this reservation Hence directives u/s 154 of MRTP Act by State Govt. to modify DCR 9 table 4 to suit the requirement which was subsequently modified

Acquiring land at Versova for Metro Car Depot

Accordingly the land owners to handover minimum 75% of the land to MMRDA, free of cost and free of encumbrances and to retain 25% of land for development The owner can use 75% of permissible FSI of gross plot area on his share of land and vice versa The owner can also load additional TDR on his share of land taking into account the entire plot area with prior approval. By effectively using DCR as a tool MMRDA could get 9.3 Ha of land free of cost for Car Depot at a crucial location.

CAR DEPOT AREA

OWNER AREA

Rental Housing
A Slum prevention Program Ensures affordable housing along with decongestion of Municipal areas with a regional planning approach Envisions to create 5,00,000 rental housing units of 160 Sqft each within MMR in next five years Incentivization through higher FSI or TDR Total Cost of the asset to be generated : Rs. 20000 cr Total rental to be collected per annum : Rs. 600 cr. Infrastructure charges to be recovered from approved projects : Rs. 575 cr. (Approval given :- 13 projects RHUs:- 1,73,585) Directives under sec.154 of MRTP Act to ULBs to append a Chapter on Rental Housing to their existing DCRs

RENTAL HOUSING SCHEME MODELS OF DEVELOPMENT

SI No 1 Applicable to Zone Type of Model Model-1 Total FSI 3 FSI Component for Rental Housing 3.00 FSI* of total land Component for Developer TDR $ equivalent to plot area for land

Municipal Corporations of Greater Mumbai, Thane, Kalyan-Dombivali, Mira-Bhayander, Bhiwandi-Nizampur, and Special Planning Authority Areas at Vasai-Virar Subregion, and Ambernath, Kulgaon, Badlapur and Surrounding Notified Area, and Municipal Council of Panvel Municipal Councils of Karjat, Pen, Uran, Alibagh and Khopoli. Municipal Corporations of Thane, Kalyan-Dombivali, Mira-Bhayander, Bhiwandi-Nizampur, and Special Planning Authority Areas at Vasai-Virar Subregion, and Ambernath, Kulgaon, Badlapur and Surrounding Notified Area, and Municipal Council of Panvel Urbanisable Zone-1 (U1) and Urbanisable Zone-2 (U2) within Mumbai Metropolitan Region Construction of Rental Housing on any unencumbered lands vested with MMRDA# in Mumbai Metropolitan Region

+
Construction TDR of 1.33 X 3 (FSI of Rental Housing)

Model-2

4 FSI

1.00 FSI

3.00 FSI (15 % commercial )

Model-3

4 FSI

3 FSI: Rental Housing 1 FSI: Commercial (to be developed by MMRDA)

Note:
1)

FSI*-Floor Space Index, TDR$ - Transferable Development Right, MMRDA# -Mumbai Metropolitan Region Development Authority

18 18

Real Estate Development Component in projects on PPP basis

MMRDA is implementing two Metro corridors on PPP basis and the bidding process for ISBT and a 530 meter tall Iconic Tower is underway Both the Metro projects are least dependent on land as a source of bridging the viability gap Metro 1 100 sq m area per station on the concourse is allowed for commercial activities for commuter facility total 1200 sqm area (Total projects cost Rs. 2350 cr, VGF Rs. 650 cr) Metro 2 in addition to above, 4000sqm area one floor above the platform is allowed for real estate development Total area : 27 Stations - 108000 sqm NPV of the rentals to recovered over the concession period Rs. 750 cr (Total project cost: Rs. 7660, VGF 2298 cr)

Real Estate Development Component in projects on PPP basis

ISBT and Iconic Tower Plot reserved for ISBT in Wadala of 14 ha With 4 FSI available BUA is 5,60,00 sqm Proposed to develop ISBT along with a 530 mtr tall iconic building with approximate cost of Rs. 3100 cr on PPP basis Concession period : 35 years Bidding parameter : maximum annual premium to MMRDA Project site : major transport hub with Metro, Monorail and two important link roads currently under development.

Strengths of Various Models

Model Direct Sale of land (BandraKurla Complex) Selling FSI after Acquiring Notional Ownership (Oshiwara) Incentives of Extra FSI/TDRs through DCRs Purpose and Suitability Get Upfront Cash for Infrastructure Development Risks and Ease of executing No Risk . Easy to Operate. However, timing is important. Taxation and issues of carrying huge cash; Danger of resources being diverted. Location limitations. With reducing asset base there is need to build new assets. Low Risk but Complex procedure. Time consuming . Case by case approvals. Owners wary of loosing rights. Moderate success. These days courts question charging premium on additional FSI. This difficulty is taken care of through Notional Ownership. Good Model. Could be very popular but fairly risky. Would require considerable investments in onsite and offsite infrastructure. A thorough and prior appraisal of locations, requirements etc. required. Requires monitoring, inspections and supervision for targets and quality; Requires close supervision over deliverables, quality .

SPA can develop the area as per requirement optimally through Incentivized Development. Creating infrastructure, especially housing for disadvantaged class or for acquiring strategic spaces, rehabilitation of PAPs etc.

Strengths of Various Models

Model Purpose and Suitability Risks and Ease of executing

Traditional Growth Centre model

May be used for development of new areas especially around transport corridors and other strategic and regional infrastructure .

In the long term, some resources can be raised by selling lands, FSI and capturing value etc. These are moderately risky and require considerable planning and predictable stream of investments. Long term view and some predictability required. Having recently carried out Comprehensive Transport Studies and a Business Plan for the entire MMR, the MMRDA is in a position to set up growth centers. Easy to operate and implement. All Planning Authorities do this. Limitations, as this has a relationship with infrastructure development costs. Does not capture part of additional value.

Use of Simple Development Charges/Fees

Get funds for developing new infrastructure

Strengths of Various Models

Model Embedding in PPP projects with infrastructure development Purpose and Suitability Moderate Reduction in VGF requirement in PPP projects, where VGF is necessary to make the project viable. Risks and Ease of executing Complex and difficult to know the value released. Infrastructure development with commercial use of land requires clarity in Concession Agreement and good monitoring by Independent Engineer. With increasing size of land component, computation and project valuation becomes difficult. Arrangements for levy and charge could be complex . Although the MMRDA Act provides for this levy this has not so far been used. MMRDA has proposed levying this charge in the areas that will be benefited by MTHL

Use of Betterment Levies (Capture a part of the value added to the land/property)

For capturing the increase in the value due to new infrastructure project , say for repayment of debt

Strengths of Various Models

Model PPP model that allows Real Estate Development with the government land. MMRDA has recently carried out some studies on this with a view to lend sustainability to its resources. Purpose and Suitability This model is increasingly becoming popular with the governments and subnational entities. This is used for redevelopment of the existing assets, buildings or lands and look for a number of financial rewards/ outcomes such as incomesharing, asset sharing, or a combination of both along with receiving some upfront payments. Risks and Ease of executing This could be a very attractive way of raising resources both revenue and capital receipts. As indicated, there could be special arrangements which can be suited to requirements through an appropriate concession agreement. But, this arrangement could be risky, There could be legal risks as also substantial market risks. Moreover handling real estate issues requires different and complex competencies. The nature of the government functioning may not permit a quick and appropriate response to the markets. This can be done on a moderate scale after mitigating these risks.

EMERGENT ISSUES
BKC land is scarce and self limiting as a source of revenue Need to identify potential Growth Centers and reserve them in RP /DP Need to identify and acquire Govt. lands for this purpose Need to regulate development along side upcoming infrastructure project by making effective use of planning process Multimodal corridor Need to capture the land value gains attributed to a major infrastructure project Impact fees (with reference to MTHL) Circle of influence around a Metro Station

EMERGENT ISSUES
Need to channelize land value gains captured by different ways in a dedicated fund for infrastructure development Mumbai Development Fund Need to understand implication of selling higher FSI rights to generate resources and take appropriate measures to rationalize the system Need to achieve better co-ordination among various civic bodies in order to check misuse of incentives given to developers and to harness the full value of Govt. resources.

EMERGENT ISSUES
For various reasons sale of land/grant of extra FSI is a sensitive issue and has to be taken up within an acceptable Institutional and Policy Framework Excessive use of FSI or land can distort the development in an area and can also create huge liabilities for future by way of greater demand for urban infrastructure Objectives underlying the sale of land/FSI have, therefore, to be clear and need to be dictated by imperatives of proper/desirable development and by need for resources for infrastructure development. This needs a realistic and perspective assessment of various infrastructure needs in the region over a reasonable horizon Given the large and rising urban conglomerates and hierarchy of various local bodies, institutions and governments in the region the task of designing appropriate Institutional Framework is very challenging There is need to create in this framework mechanism/ dedicated fund for pooling all land value gains and directing them to proper utilization for creating necessary infrastructure

Institutional Framework for MMRDA

MMRDA has fairly sturdy institutional framework to realize high land values from various models MMRDA Act gives mandate to MMRDA to develop Regional Infrastructure in the entire MMR ULBs in MMR and their functionaries are adequately represented in the Authority It has an envious track record of development Finance Assistance through soft loans to ULBs (Rs.3000 crores) MMRDA Act provides for levying betterment charges where the value of land/ asset has increased due to a infrastructure development project MRTP Act allows Special Planning Authority (SPA) to levy and collect Development Fee/Charges from developers/ institutions

Institutional Framework for MMRDA

MMRDA has been functioning as monitoring and co-coordinating body for Regional Planning and Infrastructure Development In view of its performance, lean and lithe structure, experience of handling innovative projects with new structures and speed of execution it has emerged as a lead organization for co-coordinating infrastructure development More importantly MMRDA has successfully concluded two major and ambitious studies Viz. Comprehensive Transport Studies for MMR and Business Plan for MMR, which address the issues of Infrastructure Provision adequately MMRDA is, therefore, in a strategic position to make optimal use of land value from different models for infrastructure development

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