Asian megacities have witnessed surging populations and increasing motorization resulting from rapid urbanization. The railway-plus-property public–private partnership model is an innovative tool for promoting the sustainability of these trends. Enabling land value capture 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 perspective, land value capture is an urban planning and finance concept embedded in a policy approach for unleashing the full potential of land so that land value increments can be generated and captured. This development-based railway-plus-property public–private partnership model can serve not only as a financing tool to fill budget gaps in infrastructure projects but also as an urban planning instrument to promote sustainable transit-oriented development.
The model has proven its effectiveness in both Hong Kong, China and Tokyo (Asian Development Bank 2021). In Hong Kong, China, the government first offers exclusive development rights of the state-owned land along a new route to the railway provider, MTR Corporation Limited (MTR), at a “before-rail” market price. MTR then constructs the railway and co-develops residential properties along the line with private developers. After that, it splits the proceeds from the property sales at the “after-rail” market price. Besides residential developments, it also engages in other types of property businesses, including commercial and retailing developments. From the perspective of MTR, the recouping of the capital, operation, and maintenance costs of railway development through property development allows it to run on a self-sustaining basis. From the government’s perspective, with the profit-oriented and experienced MTR and developers covering the project risks, it itself is somewhat protected from fiscal and market risks. Investments in the areas surrounding stations also support the government in providing better public spaces and social facilities.
Tokyo has also applied the model with proven success (Suzuki et al. 2015). Unlike Hong Kong, China, Tokyo practices a market freehold system and thus creates and captures the land value increase from railway development through land readjustment and urban redevelopment schemes. In the case of land readjustment, landowners are incentivized to voluntarily give up part of their land to the railway provider with the expectation that the transit construction and investment will increase the value of their land and properties. In the case of urban redevelopment schemes, the government helps convert shorter buildings on scattered land parcels into taller and denser buildings by changing land use and plot ratio regulations. Both ways allow stakeholders from the government, landowners, and transit agencies to jointly create value, capturing the accessibility and agglomeration benefits and unleashing the full potential of the land.
These examples demonstrate the railway-plus-property public–private partnership model’s characteristics of value co-creation and return-risk sharing, presenting an opportunity for developing cities in Asia to achieve sustainable urbanization. The next question is, what are the conditions that affect the model’s effectiveness and feasibility if we hope to apply it in other cities, such as Jakarta or Ho Chi Minh City (Suzuki et al. 2015)?
First, an appropriate urban context, including population density, urban spatial structure, and land use intensity, is undoubtedly a prerequisite. To replicate the successful models, the geographical and demographic fundamentals of a city should first be analyzed to assess the extent of applicability. The urban density, thus the urban land value, should be optimally high enough for railway providers to create sufficient land increments with a better-developed transit system. The land use intensity should also be appropriate for the providers to capture the accessibility benefits from increased ridership.
Second, macro-facilitators, such as institutional and regulatory frameworks, are significant enabling factors. Without vertical institutional support from national and local governments, as well as horizontal institutional coordination among transportation, urban planning, land administration, and housing governmental entities, bureaucratic decision-making and inconsistent information can adversely affect the efficiency and accuracy of implementation. A secure expectation of realizing long-term profits promised by a strong institution is needed for boosting investor sentiment. Furthermore, a strong legal framework plays a role in delivering project outcomes. If there are no established legal rules or contract enforcements enabling the clear and fair sharing of costs, benefits, and risks among the stakeholders, given the project nature, their commitments, regardless of construction or investment, will not be guaranteed. Also, if there are inconsistent regulations, it may be difficult for stakeholders to deliver accurate and timely outcomes.
Third, visionary and strategic planning inputs are needed to support implementation. Considering this, a comprehensive master plan should be prepared in favor of long-term city urban planning. On top of that, when strategically developing a certain area through the use of the model, say redirecting housing development from an old district to a newly planned district, land use plans should be updated. With the expectation of higher population flows within the area, relevant land use restrictions, such as building height and plot ratio restrictions, should also be carefully revised to align with the area’s development.
So, how can development financial institutions, such as Asian Development Bank, contribute to this? Their contributions can come in two ways. First, seeing the urban transit investment needs and the currently relatively weak institutional frameworks embedding innate investment risk, they can help guarantee the project by being an investor. Second, they can help strengthen city planning and implementation capacities by transferring knowledge and experiences. Specifically, the institutions’ expert teams can assist governments in designing visionary master plans and commenting on their policy proposals.
The coronavirus disease (COVID-19) has presented an unprecedented challenge to governments and individuals across the globe, changing work, lifestyle, and travel patterns and, thus, requiring policy makers to reconsider their policy options (Boonyotsawad et al. 2022). 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 Asian cities can unlock unexplored land value along their sustainable urbanization journeys.
Asian Development Bank. 2021. Innovative Infrastructure Financing through Value Capture in Indonesia. ADB: Manila.
Boonyotsawad, C., J. M. P. Hernandez, and V. Wee. 2022. Strategies for Recovery: COVID-19 and Urban Transport Policy in Asia. ADBI Policy Brief No. 2022-1 (April). Tokyo: ADBI.
Suzuki, H., J. Murakami, Y. H. Hong, and B. Tamayose. 2015. Financing Transit-Oriented Development with Land Values: Adapting Land Value Capture in Developing Countries. Urban Development.