2002 1.Management and Finance of Urban Development Project/Bankok Seminar

Urban Development Seminar in Thailand

March 28, 2002“Management and Finance of Urban Development Project” 

Hirohide Konami (Ph.D.)


Graduate School of Regional Development Studies

Toyo University

1.  National Land Planning and Self-finance Urban Development

     Urbanization will naturally happens when the economy of a country grows. Because the larger population concentration automatically creates the more job opportunities. For example, even a trip to Tokyo may be a small demand for each person, a million people living together will create the demand big enough to support the travel agencies. More than that, the diversity of job opportunities becomes far greater than that of small cities. As a result, metropolitan areas lead the economy of a country and rural areas follow.

     From the observation of various countries, it would be said that the 20 to 30% of national population will gather in National Capital Region. Then, the Bangkok Metropolitan Region will have the population of 15 million to 20 million in the long future. Also the local capitals will function in the same way in their provinces. This means that the Kingdom of Thailand should have at least three local metropolitan areas with the population size of more than a million around Chian Mai, Nakhon Ratchasima and Hatyai-Songkla.

     Now, in order to develop such huge metropolitan areas, it is urgent to introduce self-finance urban development technique such as Land Readjustment and Urban Redevelopment Project. Land Readjustment Project will produce reserved land as the project money resource and Urban Redevelopment Project will produce reserved floor if the reasonable tax exemption and governmental subsidy systems are prepared. It is also important to prepare various legal superiorities for those projects.

     For the better understanding, it is necessary to activate pilot land readjustment projects in Lampang, Khon Kaen, Yala and Bangkok Metropolitan Areas. Anybody should not accuse but support these pilot projects because these projects may lead the country to become one of the world leading countries in the field of urban development.

2.  Project Management

     In order to keep sound urban conditions, we need tremendous investment in urban areas such as urban roads, urban parks, sewage system, shopping centers, office areas and sound residential areas. Following questions may be useful to get the right understandings on this issue.

(1) Who is responsible for each development of above urban functions?

   If the responsible agencies are different, it is necessary to establish a powerful agency to coordinate one by one. Otherwise, the efficiency of urban development would be lost. The most important person to manage the problem would be mayors. Well experienced mayors chose land readjustment project to develop urban areas and succeeded in urban management. Many other mayors opposed land readjustment and chose individual projects such as road construction, and found later that the urban area left deteriorated. Well experienced mayors usually keep good human resources in house and give them special preferment after the completion of projects. If governmental officials change the positions every 2 years, good projects such as land readjustment cannot be carried out because of the lack of communication with the land owners.

(2) What are the most urgent urban problems at present?

   Because of the limited amount of urban investment, it is important to put the priority on urban projects in both of big cities and local cities. Japan started from the rehabilitation program of 112 cities, about 290 square kilometers, after World War II by means of land readjustment technique. This was rather lucky for Japan because there was no illusion to choose the urgent projects. 

   Japan faced the great population migration from rural areas to three big metropolitan areas: Tokyo, Osaka and Nagoya. This caused many urban problems such as traffic congestion, shortage of housing, congestion of commuters train, air pollution, water pollution, shortage of water supply and traffic accidents. Cities and towns in metropolitan areas were almost like a war against the rapid increase of population. Some of the primary schools were forced to program morning and afternoon schools in a day. The size of a class also expanded to 60 or 70 pupils. On the other hand, the cities escaped from the urban rehabilitation program after World War II faced the severe lack of urban roads when the Japanese economy grew and motorization started. 

(3) How to distribute the limited fund and how to absorb the development benefit?

   Japan started from the flood control and highway construction at the same time as the urban rehabilitation program started. Dam construction was promoted by the introduction of the money for hydroelectric power supply, and highway construction was promoted by the introduction of gasoline tax. Both are the typical money return from the benefiting sectors. 

   In case of urban development, reserved building floor would be sold in down town and reserved land would be sold in suburbs to finance the project. Low interest loan is prepared by the government until the floors and land will be sold.

(4) How to educate the necessary human resources?

   Civil engineers’ group in the Bureau of Civil Engineering, Ministry of Interior, which is the former body of Ministry of Construction, worked very well to overcome the lack of human resources. The good influence of the central government leads the municipalities to develop national land and urban areas. This was strongly supported by the futuristic governors and mayors and developed human resources year by year. Especially, the technicians worked for the urban rehabilitation program contributed a lot to continue land readjustment projects after the urban rehabilitation program of about 290 square kilometers. Land readjustment projects in Japan have supplied about 4,000 square kilometers of sound urban land until now.

(5) How to communicate with land owners and residents?

   The method of public involvement is different from city to city. It reflects the reliability of each authority. The major opposition from residents would be that the authority told a lie before and they cannot believe anymore. It happens when the continuation of administration was blocked by some policy change or personnel change. The basic strategy to keep good communication with citizens would be as follows.

a.       Not to hurry and take enough time. 

b.       Starting from general concept and advance gradually to detailed matters.

c.       Visual materials are useful to help the easier understanding.

d.       If possible, the data file of residents should be prepared. Name, age, married status, family data, professions, income level, relative connections, and etc.

e.       To organize the study group by the residents. In this case, the residents who are opposing the project usually reject to join. Endurable effort to make them join is required. 

f.        To educate the professional instructors to organize study groups.  The instructors are not necessarily high ranked officials, but they should be good partners of residents. The most important talent for them would be the capability to listen carefully to the questions and opinions of the attended people. Human equation should be strictly cleared. They should be also not in arrogance but in humility. 

g.       Internet and homepage are also available to distribute the information. But, the information media is different by age. Younger age group is capable to be informed by internet and older only by letters and conversations.

h.       Time and date of study meetings should be carefully chosen. Usually it should be after dinner time of week days and daytime of weekends. 

3.  Project Finance

     As mentioned in above paragraph (3), project fund is quite limited and it is necessary to introduce some kind of private finance. In Japanese case, land price worked well to induce private fund to urban development. 

     The case of land price worked well would be as follows.

a.      The Tokyu Corporation started an urban development project in 1953. It purchased huge rough land of about 50 square kilometers in the area of 20 – 30 kilometers south west of Tokyo. Then started to develop by means of land readjustment technique and constructed commuters railway system named Den En Toshi Sen. The cost of total project was recovered by selling the residential land along the new railway system. This is the example that the private corporation can develop railway system, highways, urban parks, shopping centers and residential land by the benefit of risen land price. 

    (See: http://www.den-en.com/profile/profile_index.html)

b.      Mori Building Corporation was established in 1955 and started urban redevelopment in Tokyo region. This corporation started the redevelopment of Shimbashi Station area and succeeded to complete continuous redevelopment projects. The project finance depends on the strong demand for office space in Tokyo. The corporation buys down town land and builds tall office buildings. The floor will be mainly rent and each project site is well planned and the corporation became one of the leading companies in the field of urban redevelopment. This is the example of urban redevelopment by private money supported by the strong demand of office space in Tokyo. 

    (See: http://www.mori.co.jp/index.html.en)

c.       Land Readjustment Unions are the legal person authorized by Land Readjustment Law. They are exempted from various taxations and can borrow governmental low interest loan until their developed land is sold. In order to produce enough amount of project fund, each land owner should consolidate their original land by 30 to 70 per cent and produce public land and reserved land. This reserved land will be sold and recover the project cost. If the area of original land is reduced to half through the project consolidation, and if the land price rises 3 times more than that of before the project, the land owner can enjoy the benefit of 50% of original land value. This mechanism works if the price gap of developed land and rough land is big enough. If such big rise of land price cannot be expected, governmental subsidies would be supplied after the careful feasibility study. These unions have already developed total urban land of 924 square kilometers, 4,653 project sites, and still 991sites of 286 square kilometers are undergoing in Japan.

    (See: http://www.mlit.go.jp/crd/city/sigaiti/kukaku-e/default.html)

d.      Urban Redevelopment Unions are the similar legal person to that of land readjustment authorized by Urban Renewal Law. Land owners and right holders establish a union and build buildings. Building floor will partially belong to the original land owners and right holders and partially be sold to recover the project cost. Low interest governmental loan and some governmental subsidies are prepared based on the result of a feasibility study. This mechanism works when the price of building floor is high enough compared with the cost of building construction. Above mentioned Mori Building Corporation is the expert of this technique. 

e.       The other incentives for private sector to contribute urban development can be categorized as follows.

  i)   Development permit for private sector mainly for the development of residential areas   in suburbs.

  ii)  Participation in public urban development projects and purchase reserved land or reserved building floor.

iii)      Special permission to private sectors to construct public facilities under the condition that the private sector will surely supply the public services for the conditioned term.

     (See: http://www8.cao.go.jp/pfi/)

iv)      Establishment of a third sector company together with governmental contribution. In this case, if the governmental control is inadequate, the company cannot produce benefit and the private sector will drop.

4.  Example of Citizen Participation —-The case of Ichihara City, Chiba Prefecture, Japan—-

      Ichihara city is located east of Tokyo with the population of about 300 thousand. The city revised its City Planning Master Plan in 1999. Followings are the process of its planning.

(1) 1996  The basic policy of the revision was decided by the city mayor and organized the revision committee by the related department of the city government. They started the review of each department. 

(2) 1997  The committee started drafting the new plan. The necessary coordination among related departments was made during the time.

(3) 1998  The first draft came out from the committee and exposed for the heavier discussion with citizens. The draft was introduced through official monthly paper of the city government, home page of internet, monitoring system of assigned people of the city, public review at branch offices of the city, temporary established public committee and district meetings. Public committee was composed by 3 professors, representatives of commerce, agriculture and young commerce, 4 volunteers from citizens and 1 assigned by the mayor. This committee was opened twice in a year. District meetings were held in public houses in 4 districts only once in a year. The number of access of home page was over 2000 and about 50 opinions reached to the city.

     All through this process, the final draft came out and the city congress and mayor authorized it.

     This case was good enough in its process but may be lack in debate. Sometimes, district committees will be held more frequently and take longer time in order to deepen the people’s understandings. Especially in the case of the proposal of not a master plan but an actual project plan, the related people will be more interested in the contents and usually one third of them will oppose. This case was the proposal of a master plan and attracted the less interest of the people. Therefore, it was rather easy to get the consent of the people.

     When we propose an actual project, district meetings will be held more than tens of times and step by step. Normal program will be as follows.

  1)  General concept of the project such as purpose, area, similar examples of the other places and the necessity of the proposal.

  2)  Question and answer about the method of development of the project especially on the method of land acquisition. Also some examples of the other places will be introduced.

  3)  Field study of some example places to deepen the understandings.

  4)  Discussions on the rough project design.

  5)  Workshops on the design and development method.

  6)  Election or nomination of the promoters. A promoter is normally capable to persuade at most 10 or 20 people. Then, if the total number of related people is 100, 5 to 10 promoters will be required.   

  7)  The project will be conveyed by the efforts of the project body and promoters from rough image to detail design and proceed to legal process.

     Over all, public involvement takes a long time. We know that like the case of Narita

International Airport, if we skip some process of public involvement, the project would take extremely longer time to complete by the objections of related people or sometimes outsiders of left side movement. It may be true that the comprehensive proposal like city planning or land readjustment would be easier to reach to consensus because these projects have a lot of alternatives. For example, if the related people want to get water closet, then we can propose the set of city planning of highways and the sewage treatment system. If they want green and shade, then we can propose to construct pedestrian ways with rich street trees and urban parks next to the highway construction site. This kind of game becomes possible in the case of comprehensive area development.  

(Please send me any questions: hiro@konamike.net    http://konamike.net/hiro/)