The exercise of monetizing land assets, announced by the finance minister (FM) in Budget 2021-22 could provide a unique opportunity to reimagine our cities and, if framed differently, has the potential to be the solution to solve many problems in one stroke, in a rapidly urbanizing country. The idea goes back almost a decade. In 2012, the United Progressive Alliance (UPA) government set up a three-member committee to devise a fiscal consolidation roadmap, headed by former finance secretary and 13th Finance Commission Chairman, Vijay L Kelkar. One of the key recommendations of the committee was to set up a group to monetize government land resources. It had also recommended that the resources mobilized through land monetization could finance urban infrastructure.
A decade later, FM Nirmala Sitharaman announced plans to set up a special purpose vehicle (SPV) under the department of public enterprises (DPE) to monetize non-core assets such as land and buildings. The ‘livable city’ quotient is dependent on the pentad of affordability (housing and healthcare), robust neighborhoods (sports, education, culture), accessibility (transport), a vibrant local economy, and adequate public spaces with a green cover. Our cities rank in the bottom 20% of the 140 member list of livable cities in the world.
To look at just one metric, open spaces, the World Health Organization (WHO) stipulates a minimum of nine square meters (sqm) of open space per capita in urban areas. The UN recommends 30sqm per capita. Mumbai has 1.24sqm per capita of accessible open space. Chennai fares worse at 0.81sqm. Compare this with a densely packed New York city that still offers 26.4sqm of accessible open space per capita. Let us, for a moment, look at land monetization as a national land re-purposing corporation. The corporation could be tasked with the primary objective of improving the urban quality of life. It could be a vehicle to tackle the paucity of affordable housing, inadequate open spaces, and providing good healthcare and education facilities.
The monetization of land assets will be the tool to accomplish this end. Achievement of this primary objective will reap further financial gains for the government. The monetization project should be seen through the dual lens of upfront revenue generation and the creation of long-term revenue sources. The announcement of the formation of a land monetization corporation has signaled the end of land scarcity, the bogey used by land sharks and land bank hoarders to raise land prices continually. A likely fallout of the release (or announcement of an impending release) of so much land by the government could be a steep drop in land prices and, consequently cheaper housing.
As per data available, the demand for housing units between 2016-2020 in India’s top-8 urban centers was about 4mn (million) houses, almost 50% of which was for the low-income group or affordable housing. The available housing in this category was barely able to meet 5% of this demand. Despite this huge shortage, there is a large stock of unsold housing, as there is no match between the price expectation of buyers and sellers. In Indian metros, the sale price ratio to the actual cost of construction (excluding land price) can be anywhere between three and 10 times. This ratio indicates the high cost of real estate land in big cities. The cities with the highest demand for housing are at the higher end of this ratio spectrum.
The projected housing demand (including the current shortage) in the next five years due to increased urbanization is 35mn housing units, most of which are in the affordable housing segment. Considering an average housing unit of 50 sqm area, the projected demand for housing is 1.75bn (billion) sqm. On the supply side, total land under government ownership and government entities are about 13,500sqkm (square kilometers) accounting for land under 41 of the 51 union ministries. Considering this surplus land at a conservative 10%, the land available for monetization would be a staggering 1,350sqkm or 1.35bn sqm mostly spread across urban centers of India.
Assuming a global floor space index (FSI) of 1.0 (the global FSI versus plot FSI is a discussion for another time), the potential housing on government-owned land is about 1.35bn sqm. There may not be an adequate demand for all the surplus land. There is an opportunity to restrict ground coverage for new development on the surplus land to 25% to 30% and, consequently, earmark 50% of the surplus land to be available for open spaces, green cover, roads, and other public facilities such as schools and hospitals. For example, providing affordable housing to healthcare workers and educators adjacent to their work would attract excellent professionals and ensure good health and education infrastructure.
These are some of the long-term revenue streams and capital build-up that need to be accounted for, rather than a simple monetization exercise of mechanically selling crown jewels to developers, who offer the highest prices and make our cities even more unlivable and more unattainable to people who desperately need the housing. The maximum percentage of land that may be sold to the private sector should be capped. A large portion of affordable housing could be on a rental basis with rental rates accounting for maintenance and the construction cost amortized over 20 years.
The Indian government, in its conception of the National Land Monetization Corporation, has been inspired by the model of the Canada Lands Company, which has had a very successful run in monetizing surplus government land. In the Canada model, surplus land in possession of the government is sold to the Canada Lands Company at a reasonable market value, who in turn develop, manage, or sell the property. The company is self-financed and is highly profitable, paying rich dividends to the government of Canada, its sole shareholder.
The modus operandi of the company is to work with the community and the local government to generate projects that create value and are financially viable. Canada Lands Company claims to have been “developing innovative communities, shaping neighborhoods from coast to coast and enhancing the places where Canadians live, work, learn and play” for over two decades. It would be interesting to see how the Canadian model is scalable and adaptable in the Indian context.
If properly implemented, the project of land monetization could well be the beginning of a new urban India. It should be underpinned by sound urban planning principles based on the tenets of equity and fairness and maximization of long-term value from these lands through all means and not just upfront sale consideration.
The finance ministry should be tasked with making the land monetization project a win-win deal. It is possible to do so, as the Canada model appears to have proven. In the post-COVID scenario, all governments are hungry for any additional sources of finances and there will be a temptation to choose options that give the highest revenue upfront. This, however, will not solve other problems like affordable housing, education, health, culture, etc. Hence, this project should be implemented with a long-term vision so that cities are not left worse than before.
Evolved measurement of benefits and costs over the long term will harmonize any gap in understanding between ‘sell at the highest price’ advocates and those who advocate inclusive solutions for all stakeholders. Care should be taken that such a once-in-a-century project is executed with deep insight into who we are and where we need to go, to make our cities better places for the people and climb dramatically up the list of livable cities in the world.