Chapter -10 : Financial Analysis and Fare Structure. Annexure PDF

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Annexure - 1 Property Development 10.1 Introduction The potential for developments of a few growth centers (townships) between Sabarmati and Gandhinagar has been examined for part funding of Metro Project
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Annexure - 1 Property Development 10.1 Introduction The potential for developments of a few growth centers (townships) between Sabarmati and Gandhinagar has been examined for part funding of Metro Project and additional ridership on Metro system. The development of growth centres can also help in part funding of the metro system. The potential of development and possible financing of the project through this development is discussed herein. For value capture from property development following three aspects have been specifically analyzed: (a) Property Development (Commercial, Institutional and Residential) along Metro Corridor in GUDA area. (b) Selected pockets of property development along and near Metro Corridor in AUDA area. (c) Value capture from increased FSI / FAR and levy of betterment charges along metro corridor (upto 1 Km width) on both sides of alignment Approach and Methodology The study for abovementioned purpose was carried out in two phases, first in February 2004 and second time in June The study team has found pace of development along the stretch between Motera Village Koba Circle and Koba Circle to Indorda Circle extremely high. During the study, reliance has been placed on: (a) (b) (c) (d) Development Plan of Gandhinagar 2011 AD (January 2001) and Revised Development Plan of Ahmedabad Urban Development Authority (May 2002 Notification) with the subsequent changes. Detailed discussions with GUDA and AUDA officials both in February 2004 and June The discussions centered around availability of land, to the extent it is possible to earmark the land for property development along metro line, the likely acquisition price and mode of acquisition, the growth scenario etc. With assistance of GUDA and AUDA, it has been possible to earmark the areas which can be acquired for property development purpose in all three categories of institutional, commercial and residential. Inspection along the alignment and the adjoining areas twice at an interval of one year has helped in assessing the current pace (and projecting the future) of real estate development along the alignment particularly in the reference area of the study. Discussions have been held (both in February 2004 and June 2005) with a representative sample of market players (both developers and real estate brokers) to understand market side perspective, market psychology, likely realization from property development (in both pre-metro and post-metro perception), capacity of market to absorb the quantum of commercial, institutional and residential property which metro property development is likely to unleash, types of potential buyers etc. This study is done from the perspective of maximum value capture from four angles: i) To generate cash for development of metro rail; ii) To generate substantial source of supplementary revenue during the operations phase; iii) To use the real estate and township development to create and enhance ridership and iv) To enable capturing of extra revenue over a time by levy of betterment charges by providing extra FSI along metro corridor Site Specific Observations i) Gandhinagar Urban Development Area: Originally Gandhinagar was built at a distance of about 32 Km North of Ahmedabad. However it was expected that the vacant area between old and the new capital city would be filled up in due course due to rapid urbanization. A reconnaissance survey of the proposed alignment (alignment at the centre of the existing Highway 71) indicates that the gap between the two cities is reducing fast and what can be today described as vacant area is more on Gandhinagar side (outside jurisdiction of AUDA) beyond Narmada Canal from Koba Circle to Indroda Circle. This vacant portion was identified as a length of 10 Km approximately in February 2004 and the same was available in plenty on both sides of the State Highway with villages being sparsely populated. However during June 2005 survey, a drastically different scenario is found along the proposed Metro rail corridor between Motera Stadium and Indroda circle via Koba circle. Reconnaissance survey, market intelligence and discussion with market players as well as discussions with GUDA officials indicate that landscape along SH 71 (proposed alignment) is not only changing but has also drastically got altered in the one year three months elapsed time, (the gap between two studies of DMRC). This change has been witnessed on all the three fronts commercial, institutional and residential property. It is also understood that in case of bulk of the land earmarked for agricultural use, investors and developers have either already taken position or are in the process of doing so. This has already had two way effect one side it has already spurred the development along proposed metro corridor and has been pushing the land prices of all categories upwards, on the other side bulk of the land identified in February 2004 to part fund metro rail development through value capture is no longer available in June The Annexure I gives a glimpse of fast pace development. In any case development along the route in past has largely been restricted due to lack of Governmental permissions initially and lack of proper urban transport facility in recent times. ii) Ahmedabad Urban Development Authority Area: On Ahmedabad side there is little scope for development of many townships along the metro corridor. In AUDA area the happening place for property development today is near Motera village and near Narmada Canal but the pace of development is so brisk there that there is hardly any land left for acquisition even at a prohibitively costly rate. Nevertheless, June 2005 discussions with AUDA authorities have thrown forward interesting possibilities of acquisition of part of the TP Nos 235, 236, 237, 238, 239 and a sizeable chunk of land between TP 44 and TP 46. iii) The land holding pattern indicates that along the alignment Government land is miniscule or non-existent along SH-71. The entire land holding is private. In the initial stage the method of land development by the State Government in Gandhinagar city was through bulk acquisition and development of land (planned on a grid iron pattern, divided into 30 sectors of 1000m x 750m = 75ha. each) and disposing the plots through allotment. A more participatory approach of development has been adapted by Gandhinagar and Ahmedabad Urban Development Authorities who carryout infrastructure development while majority of the land remains with the original owners now. The present scenario is such that the lands being identified in both AUDA and GUDA area, unless are earmarked and stopped for any development clearance, even the land being identified now will get developed fast and will not be available for property development for metro rail. iv) The Development Authorities have planned future development of Gandhinagar along the two highways NH-8C (Sarkhej Gandhinagar highway) and SH 71 (the proposed metro alignment route). The development could be linear and nodal at major nucleus village like Adlaj, Koba, Pethapur, Wavol and Chiloda. GUDA prefers to maintain a buffer zone between Ahmedabad and Gandhinagar to maintain green and planned character. However, if the changing scenario along SH-71 between Koba circle and Indroda circle is any indication, it has already gained a momentum not visualized even one year back. Annexure I as discussed above provides the list of developments which have already taken place. v) Informed market feedback twice in one year, based on discussions with brokers and developers based at Ahmedabad and Gandhinagar clearly indicates that market absorption of the plots or buildings, institutional, commercial or residential is welcome and the brisk pace of development is sustainable and definitely at current prices. It has been ascertained that likely development of real estate by metro rail will get absorbed in 2-3 years time Financing through Urbanization along Metro Transport corridors are natural harbors of rapid urbanization. Metro systems have the beneficial effects of appreciation in adjoining property values wherever they have come either in distant or recent past. This phenomenon has been vigorously tapped by the cities like Hong Kong, Tokyo, Kobe and Singapore as source of recurring income as well as to derive profits so as to fund future developments. In fact the early transit routes in U.S. also had the dual purpose of creating transport infrastructure and cities. In Indian conditions Delhi Metro Rail Corporation has already initiated a new chapter by initiating value capture from property development along Delhi Metro Rail. The likelihood of deriving funds from these sources for the development of the connecting rail link between the twin cities of Ahmedabad and Gandhinagar follows from the above observations and what other cities are able to achieve in similar circumstance. However the value capture cannot be a substantial or complete source for funding upfront construction costs but they do hold substantial promise when it comes to developing new territories in the periphery of big cities. This not only acts as source of fund generation but also provides much needed captive transit passengers. It is also suited to part supporting metro rail operations. Further, property appreciation occurs over time with the development of the metro rail service. Therefore, the gains of the property appreciation can best be tapped a little later rather than earlier. An attempt has been made to suggest a strategy for property development in the region with a view to maximizing the gains from the same Potential Area for Development in GUDA portion along Alignment As per the draft land use plan of GUDA, the immediate strip alongside the highway (and proposed metro) has been designated as commercial on both sides. The land beyond this is to be developed as residential property, both high density and low density and the area immediately adjoining the Indroda Circle is to be developed as institutional area. The width of commercial zone on both side of SH-71 is 400 meter for an approximate length of 5200 meters after 1.2 Km from Indroda Circle to near Koba Circle is GUDA area. The institutional area on both sides is 1.2 Km of length while the width on one side is 400 meters (on the side of location of proposed Indroda depot) on the other side of the road the width of institutional area is more than 2 Km and already part of it houses the existing Info City. The enclosed map of relevant portion of GUDA indicates that between Koba and Indroda Circle other than the above commercial and institutional areas. Residential zones have been earmarked at R4 towards Indroda side and as R5 towards the Koba side. The respective sites are earmarked on the map as such. Agricultural land: In the western side of SH-71 plenty of land is available earmarked Agricultural use (as high as 8000 Hectares) surrounding the villages of Kudasan, Pora, Amiyapur and Ambapur. This piece of agricultural land closer to metro rail (1 Km width x 3 Km length) is a clear potential area available and the availability of the same and possibility of acquisition to the extent needed has been confirmed by GUDA authorities. The development plan of GUDA is supposed to cater to development upto 2011 but did not factor the existence of a modern rail based mass transit in Ahmedabad and Gandhinagar and a corridor connecting the two cities. The property development (either nucleus or linear) along side metro rail gives an opportunity to reset the new growth pattern and possibility of generating revenues for the metro project. Thus in view of the proposed MRTS, the draft GUDA plan will need to be realigned for a more co-ordinated growth Linear City vs Nucleus Development in GUDA Area One of the key important issues is whether it is beneficial to develop two / three townships or the ribbon growth along the corridor. The draft development plan of GUDA indicates the development pattern along SH-71 to be Linear growth of commercial and institutional area. Residential Townships beyond these areas and around nucleus villages (Koba & Chiloda to be prominent). A close observation of the development pattern along the SH-71 over last one year has already indicated that while linear development along the road and proposed metro line (see Annexure A) has already fast turned into a reality even nucleus development in the areas farther from road is going to materialize, fast and in the opinion of DMRC sooner than later. DMRC s recommendation is to adopt the linear approach for commercial and institutional development and nucleus approach for residential development The Actual Developable Land in GUDA Area Commercial Development: As discussed above the total earmarked commercial land between Indroda and Koba Circles is 400 meter wide x little more than 5000 meter long strip, on both sides of the road. The plots are divided in two parts first two hundred meters wide (front side) and of same width immediately after that. During discussions with GUDA authorities in June 2004 it transpired that despite rapid development in last one year, all development permissions for commercial use along this strip has been stopped in last two months. It has also been indicated by GUDA officials that: In the commercial area in the front 200 meter width, 25 30% of the total land can be allotted for property development for metro railway. However, for the sake of conservatism it is assumed by DMRC that only 20% of the front land can be provided for PD. Similarly in the case of backside 200 meter wide commercial strip, GUDA authorities have indicated that 50% of the same can be given for property development for metro line. Here as well, the actual likely area has been taken as 30% (instead of 50%) to account for conservatism. The rate of commercial land has been taken as Rs. 50 Lacs per hac upto 200 meter from road and Rs. 45 Lacs for land between meter from road. In view of above the actual area available for PD for metro has been assumed as follows: ~ 200 m from road 20% 40 Hectares ~ m from road 30% 60 Hectares Both sides of road taken together Total Ground Coverage permissible for commercial development is 35% and maximum permissible height is 30 meter G + 7. This is a restriction imposed as it is understood that generally a building higher than state secretariat (10 storied building) is not permitted in Gandhinagar. Nevertheless, even here it has been presumed that only 20% of commercial development will be of permitted high rise (G + 7) and majority 80% of the development will be of low rise type (G + 4). Institutional Development: The Indroda Depot land is part institutional and part REI (Recreational use). The 30 Hectares land has roads from three sides SH-71 along alignment, NH-8C and Dhaula Kuan Road. On SH-71, opposite Depot site already Info City exists. This site is a perfect site for more institutional development (high rise along the roads SH-71 and NH-8C) and above the depot deck area. It has been assumed that 10 hectares worth of land can be developed for IT park / Bio-tech Park/ Info City in this land. Ground Coverage for the same has been assumed as 50% as applicable for such development in Gandhinagar area with permissible G + 7 floors. Residential Development: It has been ascertained from GUDA authorities that 50% of the areas in R4 and R5 can be earmarked for metro rail property development purpose. Despite this assurance DMRC has noted the fact that a portion of even this land already may be in possession of developers by now. In view of this it has been assumed that only 25% of R4 and 15% of R5 (R5 is closer to Koba where more of residential development is already taking place) will be available in place of blanket 50% suggested by GUDA. In terms of development parameters it has been assumed that only 35% Ground Coverage and maximum of 5 floors (G + 4) will be possible. Residential Development Village Agricultural Land: Earlier in the chapter we have indicated about the plenty of agricultural land (upto 8000 ha) being available, a good portion of which can be earmarked for residential development. The land is between SH-71 and villages Kudasan, Por and Ambapur. However, DMRC believes that residential development along SH-71 for this agricultural land should be first considered for only upto one km of width and 3 Km length, as any thing beyond one Km width that goes really out of metro rail catchment area in present circumstances. Moreover, even out of this 300 hectares (3 Km x 1 Km) it has been assumed that only 50% of the land will be made available though GUDA authorities have confirmed that there is no problem in acquisition of this land Area for Development in AUDA area: The land availability in AUDA area is far lesser than that of GUDA area. However, DMRC after due consultation with AUDA authorities has identified following specific areas for acquisition for property development purposes: Total Area Total Area proposed to be acquired TP No. 235, 236, ha 200 hectare Triangular land partly in TP 44 and TP 46 close to 100 hectare Motera and Metro Alignment TP No. 238, ha Residentia l 50 hectare Commerci al It is ascertained from AUDA authorities that earmarking the above lands for metro rail purposes is possible and the land between TP 44 and TP 46 needs to be acquired fast. As regards TP 238 and 239 land, this is one of the few stretches of part land vesting with government and Government of Gujarat is already planning a show case International Convention Center on part of TP 238 plot. Apart from above, limited property development of 5 hectares of Depot Deck is possible at Thaltej Depot site. This site has no doubt limitation of being low lying and total area available for Depot is limited to 18 hectares (including 6.5 hectares of Railway land), the fact remains that this land is just across prestigious Sarkhej Gandhinagar road and Institutional / Commercial property development above the depot deck (Hong Kong style) is an eminently viable and desirable proposition Financing through Planned Development The potential for financing the metro project has been evaluated based on the analysis for the planned development of 720 hectares of land. The detailed analysis has been carried out to arrive at the potential money that can be raised from value capture from real estate for funding of metro railway. The details of the working is provided in Annexure B and the same is summarized below: Commercial Institutional Residential Total Total Land in ha Cost Land Cost Development Cost Cost of construction Sale Sale Price Sale Proceeds Profit For arriving at the above conclusions, two broad options available for property development have been used to provide a proper mix between profit maximization and upfront requirement of cash for development. The land is acquired, developed and sold off to private developers for construction. The land is acquired, developed, constructed and then sold off Option I: Acquire, Develop and Sell The pattern of development, in this case assumes that the role of the metro rail development agency would be limited to development only. Once the land has been acquired by State Government and basic infrastructure is provided by Metro SPV, it will be sold to developers and private parties for construction and use as per the land use defined. With development of the rail and other properties, the land values will definitely appreciate. In fact, commercial and private property will definitely command a premium over prices prevailing within Gandhinagar, which essentially caters to the public sector and Government Offices. This model has been applied only in case of residential development, where it has been assumed that after development the land will be parceled out and the calculation has been arrived at by applying a bare minimum Rs. 220 per sq feet in GUDA area and Rs. 450 per sq. feet in AUDA area (
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