A proposal by the BMRCL to generate funds through a higher FAR in the Metro corridor,to partly fund the second phase of the Metro Rail, can change the way a public utility is funded.
B S Manu Rao explains how this new land-based financing system works
Even as the Bangalore Metro Rail Corporation Ltd (BMRCL) is pushing ahead to meet deadlines on Phase I of Namma Metro, the State Cabinet has approved the proposal for Phase II of the Metro project. In the Phase II of this mass transit infrastructure, which the city so badly needs, the north-south line is being extended from Hesarghatta Cross to Tumkur Road (Nice Road junction) at the north end and to the Anjanapura Township from Puttenahalli Cross at the south end. The east-west line is being extended
from Byappanahalli to Whitefield at the east end and from Mysore Road to Kengeri at the west end. One line will run from Gottigere in the south to Nagawara in the north, while another will run from R V Road to Bommasandra in the south.
Funds from corridor
This planned second phase development of the Metro Rail is expected to cost the exchequer Rs 26,000 crores. Unlike in the case of Phase I, the BMRCL is planning to use the corridor served by these lines to generate the funds for the project. "Generally, the costs of public services such as streets, bridges, sewers, lighting, and water are met by public funds, whereas the improvement or added value to the land by the infrastructure, with a few exceptions, is reaped by the owners of the property entirely free of charge. If we source funds through a general cess levied on fuel or on the sale of goods, people in all parts of the State pay for the infrastructure being created. But, the infrastructure created serves the needs of just one section of these taxpayers. In this case, only those using the Metro corridor benefit from the mass transit system. Therefore, the State Cabinet has considered generating funds only from those having a stake in the corridor in the form of property", explains U A Vasanth Rao, General Manager - Finance, BMRCL. Towards this end, the State Government has approved the proposal of the Urban Development Department to generate funds from properties along the Metro corridor.
High density development
"The idea behind a mass transit system is to cater to the needs of high density locations. Essentially, then, the Metro corridor should be a high density belt. The Urban Development Department, therefore, has proposed a higher floor area ratio (FAR) all along the Metro corridor of up to four. This enables developers and property owners to increase the built-up area in the belt, and thereby make the corridor high density in population - both floating and resident", explains Vasanth Rao. Higher density with new zoning regulations will mean great potential for the properties along the Metro corridor, although future pressure on the infrastructure will require substantial public investments.
This investment must ideally come from those who have benefited from the relaxed zonal regulations. Therefore, the proposal of the Urban Development Department that those who get a higher FAR in the corridor should pay a percentage of the value of the additional FAR granted. This additional revenue will support the future infrastructure requirements.
"If the FAR allowed on a 1,000 sqft plot is 1.75, the owner can build up to 1,750 sqft on the land. In case it is raised to 2.25, he can build 2,250 sqft. So on this 750 sqft that he gets to build additionally, the government will levy a cess", explains Vasanth Rao.
In the event of a higher FAR, there is scope for more property development in the belt. The higher FAR here encourages amalgamation and development of smaller adjoining properties, as a high FAR makes more economic sense when the plot is large.
Only those served to pay
The logic here is to source funds from within the system and not tax those who will not benefit from the utility. As a city grows in size and density, improvements to the land supporting the new development are usually part of the growth process. To keep pace with the development, most cities across the world change their zonal regulations over time. For developers, the increase in FAR to four in areas where the maximum FAR is between 1.5 and three is good. A developer can invest more capital in the land and earn more, thus compensating for the extra payment made for the higher FAR.
This initiative assumes a gross under-utilisation of the land in the Metro corridor. "We have not tapped this large potential at all. Land here can be better-used by the owners, and developers too can benefit from the demand with the Metro making these localities convenient destinations. The most significant advantage of this land-based financing is that it can pay for urban infrastructure without recourse to the States' budget meant for other social sectors. Therefore, other initiatives of the government will not be compromised. It is a win-win situation for both the government and developer." Vasanth adds.
Feeders to augment
Connectivity
To meet the demands of the densification due to the increased FAR and property development, BMRCL in association with BMTC will involve more feeder buses that will operate in the Metro Corridor."Those living anywhere in the corridor will have point-topoint connectivity. This apart, we will also have large parking facilities for cars at all our terminals. The Byappanahalli terminal will be able to accommodate around 3,000 cars to enable the 'park and ride' facility. The Metro and feeder bus service will together turn the Metro corridor into a much sought-after destination of both entrepreneurs and residents. Therefore, property owners and developers will enjoy huge demand for options here. And this in turn will help us fund the future Metro projects, and civic infrastructure needed in the corridor", he says.
In December 2011, the Ministry of Urban Development at the center issued a circular to the Metro Rail corporations in Delhi, Bangalore, Hyderabad and Chennai to look into the possibility of using a higher FAR to generate funds for infrastructure projects. The State Government in its recent cabinet meeting has this model worked out already.
HOW IT WORKS...
Funding from corridor Metro Phase II cost to be sourced from property in the corridor Higher FAR of up to four along the corridor Percentage of real estate value from higher FAR goes to government as cess
Logic of proposal Only those served pay for utility Higher FAR encourages high density development in corridor as should be
Benefits Higher FAR for property owners and developers to tap Funds generated from within Metro corridor to augment civic infrastructure needed when localities in the corridor host high density development Government does not have to dip into funds meant for other social sectors for this project Funding from ‘within the system’ also entails better use of land in corridor, unlocking its potential
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