An Additional
Cost On Property - Betterment Fees..!
If 2016 was the year
of big announcements, 2017 is going to witness these developments taking shape.
Come 2017 1 April and a ‘betterment fee’ would be levied if your house happens
to be a beneficiary of price rise owing to any infrastructural
development such as a Metro, a special economic zone (SEZ), an industrial
corridor or even an expressway.
Here is all you need
to know about this development:
·
The Ministry of Urban
Development has given its nod to 'betterment fee' on lines of a Value Capture
Finance (VCF) that would be rolled out in 2017-18 and is aimed at resource
mobilisation.
·
It is a special charge
levied when an infrastructural project pushes up prices in any locality.
·
These charges would be
in addition to the stamp duty charges.
·
Usually, public
infrastructure investments take a toll on the government’s funds serving the
private landowners but doing little good to government coffers. The VCF system
would help recover some cost. This could be very well seen as value-recycling.
·
The betterment charges
would then be used to fund the future infrastructure projects.
·
Besides betterment
charges, other components of VCF are Land Value Tax, Fee for changing
land use, Development charges, Transfer of Development Rights, Premium on
the relaxation of Floor Space Index and Floor Area Ratio, Vacant Land
Tax, Tax Increment Financing, Zoning relaxation for land acquisition
and Land Pooling System.
Some instances within
the country where VCF model is already being practised:
·
The Mumbai
Metropolitan Region Development Authority (MMRDA) and City and Industrial
Development Corporation Limited (CIDCO) have used different Value Capture
methods including Betterment levy to finance infrastructure development in the
urbanising areas.
·
Tamil Nadu and
Maharashtra have made Land Value Tax applicable to urban areas too under which
increase in land value is tapped through increased revenue tax.
·
West Bengal has
formulated a system to capture gains from land use conversion.
·
Area-based development
charges are being resorted to in Andhra Pradesh, Gujarat, Maharashtra, Tamil
Nadu and Madhya Pradesh.
·
Karnataka, Gujarat and
Maharashtra have made enabling provisions for enabling Transfer of Development
Rights to buy additional floor space index or floor area ratio (FSI/FAR).
·
Andhra Pradesh state
government has resorted to land pooling for acquiring land for its Amaravati
Capital Project under which farmers have given land in return for developed
land parcels. Gujarat and Haryana also used this tool for some projects.
Elsewhere:
·
New York levies
additional taxes on commercial properties and uses the funds to mobilise new
infrastructure facilities.
·
Sao Paulo (Brazil)
uses the sale of additional building rights to help declutter dense urban
growth.
·
By granting Arsenal
Football Club planning permission to build its new stadium on a small site
within the Borough, Islington Borough Council enhanced the potential value of a
small pocket of land in Ashburton Grove, London.
·
In 2001, Barcelona
City Council issued a new urban planning regulation, which changed the land-use
designation of 115 privately-owned old blocks in the south-east of the city
from industrial to services. This allows for more productive uses on the land.
Density rights were also increased. These changes dramatically increased the
land’s potential value to private owners, giving them the opportunity to make
significant profits.
·
The City of Berlin
granted planning permission for the development of a multifunctional
17,000-seater arena and around 500,000 square metres gross floor area of mixed
use on the plots adjacent to the arena. This permission increased the demand
for the land thus, increasing its potential value.
Four Major Benefits..!
·
If followed in the
right spirit, VCF could help create value, help value realisation, its capture
as well as recycling.
·
It augments the value
of the original investment.
·
It also incentivises the
public and private investments, making it a win-win situation.
·
It is a shared cost of
urban development rather than public infrastructure becoming a burden on
government authorities alone. The initial capital for any project is,
therefore, easier to manage.
From PIB, ULI Urban Investment Network
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