Experience with TOD Projects in India: Key Learnings · for property tax assessment was carried out...

Experience with TOD Projects in India: Key Learnings

June 15, 2019

22

Recent announcement

© 2019 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

33

0.84 0.74

0.49

0.29 0.31

0.64 0.61

0.43 0.27

0.20 0.10 0.17 0.000.100.200.300.400.500.600.700.800.90

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18BAU Free rides scenario

1.62 1.45

1.13 0.97 0.98

1.14 1.39

1.14 0.91 0.88 0.78 0.67

0.000.200.400.600.801.001.201.401.601.80

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18BAU Free rides scenario

What does it mean for DMRC?


DSCR with only Fare Revenues DSCR with Fare & Non-Fare Revenues

Source: DMRC Annual Reports, KPMG analysisNote: Free ride scenario assumes that women constitute 30% of overall ridership who are not charged for their journey

DMRC not capable of repaying its debt & interest obligations even when all passengers are charged

DMRC just maintaining enough cushion to repay its debt obligations; with a free-ride scenario, they will not be able to honor their commitments

Fares will be subject to political sensitivities; Non-fare box is within the organizations purview and critical to ensure financial sustainability

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NCRTC will face similar challenges in Delhi – Meerut corridor


2.7 mn

DMRC NCRTC DMRC NCRTC

0.7 mnin initial years

` 20 ` 90as per DPR

Average Daily Ridership Average Daily Fare

With over ` 20,000 cr debt, the project will have an interest obligation of nearly ` 800 – 1,000 cr in the initial years, which may not suffice through fare revenue generation along

55

Non-fare box focus brings several advantages


Strengthens bottom-line due to high profitability

13.315.2

17.216.1 15.8

19.6 1917.6

5.6 6.37.4

64.5

7.66.6

4.3

42% 41%43%

37%

28%39%

35% 24%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

5

10

15

20

25

FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

Hong Kong Metro Operating Profit from Property Business (Bn HK$)

Total EBITDAEBITDA from Property BusinessEBITDA from Property Business as a % of Total EBITDA

Source: Hong Kong MTR Annual Reports, KPMG Analysis

De-risk top line, reduces dependence on fare increase

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Property Development (TOD) & Property Tax (VCF) are two critical sources if we apply an 80:20 principle


Station side Licensing

Consultancy

Parking Branding infrastructure

Rolling Stock Advertising

Land value tax

Tax Increment Financing

Property Tax

Conventional Tools

Innovative options such as VCF

77

What has been the TOD story so far for DMRC?


DMRC permitted to undertake Property Development (PD) for revenue generation by Govt. notifications dated 1996

Land is typically identified by DMRC for construction of metro corridor & PD, mostly from DDA, MCD, Indian Railways

PD income has remained stagnant over years; less than 6 mn transacted in near two decades

30%34%

4%

9%

4% 3% 3% 3% 3% 4% 3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50

100

150

200

250

300

INR

Cr

DMRC’s PD income trend

PD revenues Share of Total RevenuesResidential, 1.38 , 24%

Commercial, 3.23 , 57%

MLCPs, 0.40 , 7%

Hotel, 0.32 , 6%

Integrated Development,

0.32 , 6%

Other, 0.65 , 12%

PD initiatives by DMRC over last two decades

Source: DMRC Annual Reports, KPMG analysis Note: Figures in mn sq.ft

DMRC able to monetize residential RE

88

What issues are cropping up?


Significant time lost in seeking approvals such as CLU, NOC from DDA/ MCD and other agencies such as AAI, ASI, DUAC

MPD 2021 enables PD yet not exercised in spirit (lower FAR granted, metro yards/ depots can’t be exploited)

Regulatory & Policy Related Issues

Incorrect internal market assessment; didn’t reflect market conditions

Market sounding inadequate

Lease conditions rigid; no incentive for departments to innovate

Organization & Market Issues

Source: DMRC

99

Imagine a scenario where this was plugged…


Metro Station

Sector 12, RK Puramon DMRC Phase 3

Land belonging to MoHUA

Located on ring road, near Moti Bagh, the government colony is spread 17 Ha (40 acres) occupying around 1,400 govt. housing units; Current FSI utilization ~ 0.75

Similar to NBCC, DMRC can be given this land for re-development & re-densification with TOD FSI of 4.00

Allow residential to be monetized unlike NBCC model

DMRC brings private partner and monetizes 1/3rd of land area.

Potentially generate Rs. 400 – 500 cr

1010

Now imagine if this income is supplemented with VCF tools


Source: Implementation Completion & Results Report, World Bank CBUD Project, Dec 2018

As a part of World Bank’s CBUD Project, a pilot study for property tax assessment was carried out in 6 cities

Improvements in tax administration undertaken through computerization of property tax records, introduction of online assessment and collection, and establishing dispute resolution mechanism

Exercise resulted in 60% increase in tax base and nearly 200% increase in property tax demand

Pilot studies indicate potential to increase tax base; GDA & MDA which fall under corridor influence have carried out similar studies

53%

82%

168%

121%

34%

2%0%

20%40%60%80%

100%120%140%160%180%

Dehradun Haridwar Cuttack Puri Chindwara Nagpur

Increase in Properties Identified

495%

877%

433%

97%204%

102%

0%100%200%300%400%500%600%700%800%900%

1000%

Dehradun Haridwar Cuttack Puri Chindwara Nagpur

Increase in Property Tax Demand

1111

So what are the learnings for NCRTC project?


Prio

ritie

sMechanism to resolve inter-agency issues that constrain NCRTC’s efforts to generate non-fare box revenuesNCRTC, NCRPB, GDA, MDA, DDA, GoUP & others to come together

Continue to push municipal reformsDouble entry accounting system amongst ULBs

Transparent agreements in place for revenue sharing between ULBs & NCRTCTechnology and system to record value enhancements, capture & its redistribution

Empower user departments to learn and adapt to changing market environmentListen to the voice of the customers

Capacity building & appropriate incentivize structuresOrganizations have the capability to deliver complex mega-projects in time-bound manner, so why not the same for revenue enhancement measures.

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“For an idea to fructify & sustain, it has to be politically acceptable, socially desirable,

technologically feasible, financially viable, administratively doable and judicially tenable.”


Shri Anil Swarup, IAS (Retired)

© 2019 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Anjul MehrotraAssociate Director – Strategy & OperationsInfrastructure, Government & Healthcare, KPMG Advisory Services Pvt. [email protected]+91 9810012549

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Experience with TOD Projects in India: Key Learnings · for property tax assessment was carried out...

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