Cities tend to stagnate in the absence of efficient urban planning and management and if investments in required infrastructure, such as mass transit systems, housing, and sanitation, cannot keep pace with a growing population. This is a challenge encountered by cities in the emerging economies in Southeast Asia. Land value capture (LVC) as a source of revenue has never been more vital to the survival of cities, given the escalating problems posed by growing urbanisation, ageing infrastructure, and climate change. When combined with sound governance and well constructed urban planning principles, LVC can be an indispensable tool for advancing favourable fiscal, social, and environmental outcomes.
LVC is a combination of strategies used to capitalise on the increase in land value caused by infrastructure development in an area. In order to quantify this mechanism, an economic cost-benefit analysis centred on structural investment is required to persuade governments and the private sector of potential future benefits. Infrastructure financing based on value capture offers a novel approach that initiates a virtuous value cycle of value creation and value funding to guarantee repayment and reinvestment of capital, facilitating the construction of additional infrastructure.
As a small and highly populated city-state, Singapore places strong emphasis on strategic land use planning and management. In recent decades, compulsory land acquisition and relocation have been fundamental to planned national growth. However, there is no legal structure governing developer responsibilities. Through a framework of government landownership, market-based land auctions, and active public sector infrastructure investment, LVC is the focus of Singapore’s development system. The planning approach of coordinated land use and transportation planning, with development centred on public transportation lines, has been widely adopted as the norm in the country. In Indonesia, developers may be obligated to pay for development rights if they wish to build at a higher density or profit from a change in land use.
However, implementation is limited due to the absence of municipal legislation and regulations. Even while infrastructure levies are not governed by legislation, it is common practice to collect payments from landowners to improve public facilities, particularly in rural areas. The Government of Indonesia is committed to allocating IDR 3,838 trillion for infrastructure development in 2022-23. However, the state or regional budget is insufficient to fund the required investment. In response, the government has devised many strategies and recommendations for alternative infrastructure financing schemes, including LVC. The government is currently preparing the Presidential Regulation to facilitate the implementation of LVC in Indonesia.
LVC is a relatively new concept in Indonesia. It has the potential to be utilised as a component of an integrated urban development management strategy to address a number of the most significant problems and challenges, including monetary constraints to infrastructure development. The participation of the private sector and the potential of LVC in rail-based urban development such as light rail transit (LRT) and mass rapid transit (MRT) is crucial. Transit-oriented development (TOD) has become essential for housing development in Jakarta. In Vietnam, there is virtually no LVC. The government leases only public land, although the practice is corruption ridden. The obstacles faced include no legislation for LVC, unclear developmental norms and rules, and metropolitan areas’ cadastres are not up to date, or are incorrect or incomplete. There is no accepted technique to value land.
Low transparency and high land values associated with public actions encourage government officials to use LVC for private rather than public benefit. The government utilises a combination of prices set by government entities and some market-based estimation. LVC in the Philippines uses a “beneficiary pays” approach to infrastructure and comprises a variety of initiatives that capitalise on the higher property prices often found around transport infrastructure, such as urban transit stations, corridors, integration hubs, and roads. To facilitate the successful implementation of LVC, the Philippines must solve critical issues pertaining to land valuation and taxation, infrastructure and land use planning, governance, landownership and land settlement. The formation of a unified, market-based land value schedule, the adoption of a long-term national transport infrastructure plan, the implementation of updated local land use plans, and the appointment of a permanent body to coordinate LVC initiatives are a few of the policy solutions. Transparency is essential for garnering public support, which will ultimately determine the success of any LVC effort.
Enabling LVC for governments, landowners, transit agencies, and private developers, the model reduces developing countries’ risk when financing capital-intensive mass transit systems. From a public policy standpoint, LVC is an urban planning and finance concept for maximising the potential of land in order to generate and collect land value increments. The railway-plus-property public-private partnership model is an innovative mechanism for supporting these trends’ durability. This development model can serve not only as a tool for financing budget gaps in infrastructure projects, but also as a tool for urban planning to encourage sustainable TOD.
Development financial institutions, such as the Asian Development Bank (ADB), may also contribute to this in two ways. Seeing the investment requirements for urban transit and the current relatively weak institutional frameworks that include an inherent investment risk, they can help ensure the project’s success by investing. In addition, through transmitting information and experiences, the bank can aid in enhancing city planning and implementation capacities. Specifically, the expert teams of all institutions like ADB can assist governments in developing visionary master plans and provide feedback on their policy proposals.
Covid-19 has presented an unprecedented challenge to governments and individuals worldwide, altering work, lifestyle, and travel patterns, and pushing policymakers to reevaluate their policy alternatives. With concerted efforts by governments, landowners, transit providers, private developers, and development financial institutions to co-create returns and share risks in the railway plus-property public-private partnership model, it is hoped that the developing cities in Southeast Asia will be able to unlock untapped land value along their path to sustainable urbanisation