Introduction
Land has long served as an instrument for the financing of urban infrastructure. Governments and public organisations have vast amounts of land in their ownership, but these lands often remain underutilised and undervalued. The demand for the development of urban infrastructure is increasing due to massive urbanisation and growing populations. These “surplus” lands under government ownership have the potential to finance the development of the much-required urban infrastructure. A large amount of revenue is generated by the sale and purchase of land, and various instruments can be used that channel this revenue towards urban infrastructure development. Property valuations are a key part of this process as the sale, purchase, development, and taxation of land require accurate and transparent valuations of the property. Ensuring that best practices are followed in property valuations will enable governments to generate greater revenues in the land-value based financing of urban infrastructure. Continue reading …….
Implementation Methods for Land-Based Financing Model
Public-private partnerships lie at the heart of land-based financing models as they present the biggest opportunity for private partnerships in urban infrastructure development. Land can be donated to private developers in return for investments in public infrastructure. Publicly owned land can also be sold to private developers in return for investing the financial proceeds towards infrastructure development, while gains in land values created by the public infrastructure can be shared with private organisations. The methods that are used in these public-private partnerships can vary. For example, in the developer exaction method, the private developer installs on-site and neighbourhood infrastructure at personal expense. The government regulates the installation through a set of clear guidelines, ensuring that the developed infrastructure remains linked to the main city infrastructure (Evans-Cowley, 2006).
The second method for implementing the land-based financing model is the sale or lease of publicly held land. Public land assets can be sold to finance urban infrastructure development. Inventory of land assets, market valuations, and open auctions are some of the key requirements for implementing this method. Private investments in public infrastructure are simpler forms of public-private partnerships. The developer installs public infrastructure in exchange for land. The method can accelerate private investment. Betterment levies are another method, but they are difficult and costly to administer (World Bank, 2021). In this method, the public sector taxes away a portion of land-value gain resulting from infrastructure projects. Moreover, developers can also be regulated to pay the cost of systemwide infrastructure expansion by the introduction of impact fees. The public sector can also acquire land surrounding the infrastructure project and sell it later at a higher value when the project has been completed. This is one of the most straightforward options.
The Role of Property Valuation in Urban Land-Based Financing Models
Urban development can have several consequences on land valuation patterns. As land continues to be developed and municipal services become widely available, the value of the surrounding areas also increases. But land valuations must be carried out keeping in mind that not all projects will reach their marketed potential and the overall impact of such projects on land-value gain might be minimal at best (José et al., 2018). Property valuations are central to each of the methods mentioned for land-based financing of urban infrastructure. If proper valuations for public lands can be obtained, the most appropriate method can be decided for capturing land value. Land-based financing is best utilised in cases where there is rapid urban growth. Under these conditions, land prices tend to rise quickly as the indicators associated with property valuations rely heavily on the physical and socioeconomic characteristics of the land. Proper valuations are necessary to extract the best price from the market as public assets can also be sold to finance infrastructure developments. The significance of property valuation in relation to land-based financing can be understood by the fact that all methods will be as efficient as the accuracy of the fair market value calculated for each property. Therefore, carrying out proper valuations can directly impact the amount of revenue generated under the land-based financing model of urban infrastructure.
Conclusion
Lands that are in government ownership and remain underutilised have the potential to finance the rising demand for urban infrastructure. A large amount of revenue is generated through the sale and purchase of land. Property valuations are an integral part of the sale, purchase, development, and taxation of real estate. Therefore, accurate and transparent property valuations can play a significant role in the implementation of the land-based financing method.
Bibliography
Evans-Cowley, J. (2006). Development Exactions: Process and Planning Issues.
José, M. C., Manuel, N. G., & Rui, A. C. (2018). Land Valuation Sustainable Model of Urban Planning Development: A Case Study in Badajoz, Spain.
World Bank. (2021). Betterment Levies. Retrieved from https://urban-regeneration.worldbank.org/node/15
Research Questions
What are the different implementation methods for a land-based financing model?
What is the significance of property valuation in a land-based financing model?[/fancy_box][fancy_box box_style=”color_box_basic” icon_family=”fontawesome” image_url=”7085″ box_color_opacity=”1″ box_alignment=”left” border_radius=”default” image_loading=”default” icon_fontawesome=”fa fa-envelope-open” icon_size=”60″]
Key Takeaways
Governments and public organisations often have vast amounts of land in their ownership, but these lands remain underutilised and undervalued.
The demand for the development of urban infrastructure is increasing due to massive rural to urban migrations and growing populations.
A large amount of revenue is generated by the sale and purchase of land, and various instruments can be used that channel this revenue towards urban infrastructure development.
Property Valuations are a key part of land-based financing models as the sale, purchase, development, and taxation of land require accurate and transparent valuations of the property.
Ensuring that best practices are followed in property valuations can enable governments to generate greater revenues in the land-value based financing of urban infrastructure.[/fancy_box]
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