Do you plan to buy property in an area where an airport, metro, expressway or port would come up and double your investment? Think again. If an area is likely to develop due to an upcoming government infrastructure project, the government may charge the buyer a " betterment fee".
Called value capture finance (VCF), this is the model governments in many countries adopt to raise funds for local infrastructure. The government is likely to start this scheme from April 1. It is still deciding the precise ways to impose betterment fee which would be collected by municipal or development authorities.
VCF, a public financing tool, is based on the logic that the government makes large investments in developing public infrastructure leading to rapid economic development in those areas, including higher land prices.
A policy on value capture financing would mean tapping into this increment through additional taxes, 'government-as-realtor' and other tools, and then using finances to fund future infrastructure projects in the same area.
The scheme will involve assessment of possible impact of infrastructure on property prices during the preparation of feasibility reports for projects such as metro, speed rail, highway, ports and airports.
Betterment fee will be for a specific period of about five years until property prices plateau. Some countries have also identified special assessment districts that fall in the best-affected zone of an infrastructure project such as a metro line. These zones have to pay an additional tax to recover the cost. Other options include the government initiating land pooling and developing only a part of this. When property prices rise, the government sells the rest of the land at a premium.