Transforming Transportation 2015: Smart Cities for Shared Prosperity is the annual conference co-organized by the World Resources Institute and the World Bank.

1. “Rail + Property” Joint Development in
China: The Shenzhen Case study
Jan. 16, 2015
World Resources Ins.tute

2. www.embarq.org!
BACKGROUND
1. Widened Funding Gap
Financing
gap
Capital costs of
new
infrastructure
Debt service
Operational
costs of existing
lines
155
46
205
34.72
0
50
100
150
200
250
300
350
400
Capital cost
Opera?on Cost
Opera?on revenue
Debt service
Gov's contribu?on
Example: cost structure of Beijing’s Metro system
Sources：Beijing DRC. Appraisal Report on Beijing Public Transit Cost
q The capital cost of urban rail transit system requires 1.5 trillion RMB
investments between 2015-­‐2020, and the pricing of the urban rail transit
system alone cannot make the end meet.

3. www.embarq.org!
Debt Financing (50-70%)：
• Bank loans
• Corporate bonds
Gov.’s capital
contribution(30-50%):
• Land sales
• General budget revenue
• The boarder city finance system that relies on land
leasing is not healthy for urban development.
q The current transit financing prac?ce consists of government capital
contribu?on and debt financing via government financing vehicles.
• Debt financing increases the financial liabili?es of the
public sector and exposes local governments to financial
risks.
BACKGROUND
2. Structural Problems with the Current Financing Prac?ce.
0%
1%
1%
2%
2%
3%
3%
4%
4%
2008 2009 2010 2011 2012 2020
net land
revenue
capital
investment
of rail transit
% of GDP
Source：World Bank 2014. Urban China: Toward Efficient, Inclusive, and Sustainable Urbanization
capital cost
of rail transit

4. BACKGROUND
3. Benefits of “Rail + Property” Joint Development
q Bundle urban transit and land development
State Council released Direc?ve [2014] (37) on “Land Comprehensive
Development in Suppor?ng Railway Construc?on” to encourage
integrated land development at railway sta?ons.
q Mobilize private investments
Strong poli?cal will and na?onal campaigns to promote pilots and
guidelines on Public Private Partnership by the NDRC and Ministry of
Finance.
q Rail + Property Development is s?ll in the pilot stage, not
only facing ins?tu?onal and regulatory barriers, but also
being confounded by the lack of knowledge.

5. q Excellence: champion experimental prac?ce, recognizable innova?on in
planning, ins?tu?ons and opera?ons
q Scalability: common macro economic environment, na?onal legal
framework and policies s?ll apply
SHENZHEN CASE

6. SHENZHEN CASE
1. Financial
arrangement
2. Value
crea?on
3. Value
realiza?on
4. Value capture
and realloca?on
Life cycle of land value dynamics
Urban planning Land policies Business opera?onFinancial arrangement
Strong mul?-­‐agency coordina?on

7. FINANCIAL ARRANGEMENT
Gov’t
Project company
(Metro company, or
consortium)
• Pre-­‐rail land price
• Payment in installments
Development
rights transfer
by agreement
Gov’t
• Aier-­‐rail land price
• Lump sum payment
Development
rights transfer by
Bid, auc?on, list
Other Interested
bidders
Rail Plus Property
Current prac?ces
q Major Barriers—The open market auc?on and upfront land payment
affect the project company (metro company)’s financial viability and pose
the risk on land development rights transfer.
Project company
(Metro company, or
consortium)
• Aier-­‐rail land price
• Lump sum payment

8. FINANCIAL ARRANGEMENT
Gov’t
Shenzhen Metro. Co
Land prices
Phase II: Exclusive land auc?on +
Land concession fee refund
p Full Land price refund
p Exclusive land auc?on: lower land
sale payment, appoint winners.
p Gov’s contribu?on: 70%à50%
Land price
refund
Land
development
rights
Land
development
rights
Shenzhen Metro. Co
Gov’t
Phase III: In-­‐kind land contribu?on as
capital asset
p Gov’t financial contribu?on is replaced by
land development rights in equal
amounts.
p Project company use the appraised value
of the land to raise funds in the market.

9. VALUE CREATION : PLANNING
q Transit oriented development holds the poten?al to achieve
op?mal land use, and anain economic, social, and environmental
goals.
q Major barriers—current planning prac?ce does not enable TOD：
1. Not market responsive: The government-­‐led planning process fail to
match the supply with the market demand, resul?ng in oversupplies of
housing and/or shortages of ameni?es.
2. Lack integrated urban and transit plans: rail transit plan is not
coordinated with urban master/regulatory plans, leading to lack of
developable lands around transit sta?ons.
3. Inflexible regulatory zoning: The regulatory plan is too rigid to allow for
up-­‐zoning or changes of land uses in proximity to transit sta?ons.

10. VALUE CREATION: PLANNING
1. Market-­‐responsive and Integrated Planning
Urban Planning
Urban Master Plan
Urban District Plan
Regulatory Plan
Urban Design
Site Plan and Opera?on
Plan
Rail Transit Planning
Long-­‐term Rail Transit Plan
Short-­‐term Rail Transit Plan
Rail Transit Line Detailed
Plan
Rail Transit Feasibility Plan
Inter-­‐modal Transit Plan
Agencies/Organiza?ons
Government
Government
Government &
Project Company
Government &
Project Company
Government &
Project Company
Project Company
q Mul?-­‐stakeholder engagement—allow project companies to par?cipate and make
market-­‐oriented adjustments.
q Integrated land use and transit planning process—link transit to urban plans to
iden?fy land plots of greatest poten?als or reroute transit lines to access valuable
land.

11. VALUE CREATION : PLANNING
2. Flexibility of Zoning
C1
(FAR *1.2)
C1
(FAR*1.6)
R2
R2
(FAR*1.4)
R2
S3
C1
SD
R2
Special
District
(SD)
R2
S3+C3
Set up TOD zones
(FAR adjustment)
Set up Special Districts
(FAR and land use adjustment)
Note: C—Commercial, R—residen?al, S– transport

12. VALUE REALIZATION: LAND POLICIES
Ver?cal separa?on of development (air) rights
Metro tracks
Rolling stock
depot
Transfer zone
Commercial and
residen?al use
Ground
9m
15m
Land right by alloca?on
(no year limits)
Land right by agreement
(non-­‐compe??ve, year limits )
Land right by listed auc?on
(compe??ve, 50-­‐70 years)
• Major Barriers—Land planned for urban transit facili?es is leased by agreement.
Land planned for commercial development is sold by open auc?on.

13. • Realize land value increase not only relies on proper institutional
designs, but demands business models and operations.
Business mindsets：
Become business savvy, understand the market well.
Shii the tradi?onal focus on short-­‐term gains to long-­‐term value crea?on.
Phasing of development：
Phase the ?ming of different R+P projects to mi?gate the risk of real estate market
fluctua?ons.
Corporate finance and risk sharing：
Spread the risks and cost burdens through diversifying corporate funding sources and
forming joint ventures with capable firms.
VALUE CAPTURE: BUSINESS MODEL

14. POLICY IMPLICATIONS
1. Taken together
1. Ins?tu?onal
setup
2. Value
crea?on
3. Value
realiza?on
4. Value capture
and realloca?on
Urban planning Land policies Business opera?onFinancial arrangement
Strong mul?-­‐agency coordina?on
• Integrated transit and
urban planning.
• Land use compa?bility
and flexibility.
• Land banking.
• Cul?vate consul?ng
capacity
• Introduce capable
firms
• Promote fair
compe??on.
• Legalize pilots.
• Ver?cal separa?on
of development
rights

15. POLICY IMPLICATIONS
2. Enabling condi?ons
Market
-­‐ General trend of real
estate market:
booming or shrinking
-­‐ Rela?ve demand or
supply surplus of
specific type of real
estate development
-­‐ The impacts of large
scale supply on local
property values
Policy
-­‐ City leaders’ poli?cal
will and commitment
-­‐ Trust and confidence
in all par?es.
Capacity
-­‐ Sufficient in-­‐house
knowledge of R+P
management and
opera?ons
-­‐ Possibility to obtain
professional consul?ng
services at affordable
cost

16. Thanks!