From 1 April, 2017 - An Additional Cost On Property - Betterment Fees..!

  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.

·        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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