Monetization of land owned by government bodies – Future and implications

December 23, 2020 1:59 PM

Monetisation of land is one of the most viable options for government or local bodies for generating the much-needed funds for upgradation or development of required infrastructure without burdening the state or the Central government in the form of grants, etc.

For a successful monetization process, it is essential for the authority to ensure that they have all the required land documents to complete the legal due diligence process.

Land holdings are one of the government’s most significant tangible assets, whether owned by central ministries, state governments, public sector undertakings or local bodies. Monetizing these land assets, on one hand, can be a significant source of finance for the respective agencies, while on the other, pave way for redevelopment or better usage of the land parcel.

The 13th Finance Commission of India also underlined the importance of ensuring proper use of land held by the Central and state governments, as well as Public Sector Undertakings. There is a significant potential for generating much-needed additional revenues, given the under-utilized prime lands of Public Sector Undertakings, Port Trusts, Airports, Railways, municipal corporations etc. Various estimates in the public domain peg the extent of land held by various government agencies in excess of 5 lakh hectares, of which, over 160,000 hectares are held across various airports, seaports and railways. There is indeed a critical need to evaluate these land holdings and prioritize those with significant market opportunities to unlock value in the short term. Unlocking the value of public lands has been recognized as a potentially significant source of finance for upgrading urban and social infrastructure projects.

Implications of land monetisation

Monetisation of land is one of the most viable options for government or local bodies for generating the much-needed funds for upgradation or development of required infrastructure without burdening the state or the Central government in the form of grants, etc. Availability of land in otherwise land locked regions provides the much needed relief to occupiers/ end users in the form of controlling the real estate prices and provides the opportunity for investors/ developers to provide the infrastructure in alignment with the requirements of the government agency. It further allows certain State/ Centre funded projects to be created and financed from otherwise defunct/ nonfunctioning assets or under-utilized land parcels.

For instance, to maximize its revenues, Airports Authority of India (AAI) plans to partially monetize around 7591 acres of vacant land owned near eight major airports. The land could be utilized for commercial purposes, including for hospitality business and warehousing. In addition, AAI has also successfully undertaken privatization of six airports which allow concessionaire to utilize/ redevelop the land associated with the airport to ensure passenger comfort and satisfaction.

Another instance wherein monetization has been purposefully been pursued is the land currently under possession with the Railways sector. As part of the strategic initiative the government has firmed up plans to modernize approximately 100 stations wherein the developers are being offered unutilized land parcels adjoining the stations in lieu of money spent by investor/ developer towards modernizing and upgrading of the railway station, an exercise which would otherwise burden the exchequer under considerable debt further impacting the fiscal deficit. The above initiatives would not only result in considerable employment generation in the region during and after the development but also provide the much-needed infrastructure which compares with international standards, thus promoting tourism, improvement in economic profile and quality of life in the region.

Purpose of monetisation

The monetisation process must aim to capture the real estate value of public land lying idle in monetary terms as to improve or strengthen the finances of government bodies and local authorities. Transparency in the process is of utmost importance and has to be maintained throughout the monetization process. The details of the land to be monetized should be in the public domain, so that all stakeholders viz. potential bidders, funding agencies, general public, etc. would have a complete understanding of the purpose, intended use, cost of development and estimated timelines of the proposed project.

For instance, the Delhi government recently initiated the biggest land monetisation exercise in India by putting up 10 million sq. ft of land for commercial development, hoping to generate revenue around Rs 6000 crore. This will not help towards urban development but will also play a big role in job creation.

Process of land monetisation

For a successful monetization process, it is essential for the authority to ensure that they have all the required land documents to complete the legal due diligence process. Additionally, a detailed techno-commercial evalution along with valuation of the land should be undertaken. As part of this exercise, a detailed analysis of the asset, current and future potential of land, understanding the prevailing policies of the government is imperative. Managing all stakeholders and executing the project in a way that that fulfills the envisioned objective is critical to ensure that future projects get the requisite support. The project should be independently viable if intended for commercial usage and should generate sufficient revenues for the shareholders of the project. The Public-Private partnership (PPP model) has emerged as a viable option for development over the past few years, as it marries the market efficiency, professionalism and expertise of the private sector to the objectives of the government/ public sector.

As mentioned earlier, valuation of the land parcel plays an integral role in decision-making process, and hence, should be arrived at subsequent to a thorough analysis of the prevailing market rates and the inherent revenue generating potential of the proposed project.

Despite the huge availability of land banks with Central and state government bodies, there has been limited progress on the monetisation front, owing to the complex procedure and time-consuming process for obtaining the required approvals from various civic authorities. While there have multiple initiatives taken at the Central and state levels to speed up the current process, a lot more is desired to catapult the monetization process in building an Atmanirbhar Bharat.

(By Preetham Mehra, Executive Director and Head-Government Practice, CBRE)

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