Colliers Research recommends various methods such as asset recycling, value capture models, hybrid annuity model, green bonds and pooled finance development scheme for financing of smart city projects
Real estate sector's contribution to GDP is set to rise to double digits in the coming years owing to various initiatives such as Smart City mission, PMAY and mega infrastructure projects.
With such huge investment opportunities for the private sector, stakeholders should consider innovative financing mechanisms, as per a new report.
Colliers Research recommends various methods such as asset recycling, value capture models, hybrid annuity model, green bonds and pooled finance development scheme for financing of smart city projects.
The demand for green buildings is expected to draw in investments worth $1.4 trillion by 2030, railway modernisation and expansion is estimated at $490 billion till 2032, air quality monitoring market is expected to be about $5 billion by 2022, and the central command and control systems market is estimated at $37 billion by 2022, according to the International Finance Corporation.
The urban population of India is set to explode by 2050 to 1016 million people for which India is expected to consume 25 percent of the world’s energy demand. To sustain the upcoming population burst, additional $402 billion is envisaged for the development of highways, airports, roadways, industrial corridors, and the ambitious Smart City mission.
But several roadblocks such as high operational costs, construction and policy risks, absence of incentives for private participation, and the lack of profitability from infrastructure projects are deterring the financing of such projects, says a report by Colliers Research.
“The real estate contribution to GDP is set to rise to double digits in the coming years owing to various initiatives such as smart city mission, PMAY, and mega infrastructure projects progress. Financing of large infrastructure projects has been one of the factors impacting execution and completion. Hence, an in-depth evaluation of the project, assessing various public-private funding options, and determining relevant procurement and delivery methods is key for successful execution” said Joe Verghese, Managing Director, Colliers International India.
In the present context, government bodies such as National Highway Authority of India (NHAI) among many others have raised funds of more than $1 billion for smart projects through innovating financing methods. Ahmedabad Municipal Corporation has announced the launch of green bonds valued at $31 million for clean green projects.
The project cost of the much-awaited Outer Ring Road (ORR) Namma Metro project in Bengaluru is estimated at Rs 4,200 crores ($600 million) for which innovative financing methods such as betterment charges, premium Floor Area Ratio (FAR), naming rights/advertising rights, premium access way, station monetisation, and additional cess on approval of new projects/developments are being implemented.
Smart city projects offer redevelopment, retrofitting, and greenfield opportunities to occupiers, developers, and investors equally. Occupiers would benefit from the cost saving and better management with the availability of smart and sustainable buildings across Tier-I and Tier-II cities, said the report.
Developers could explore the opportunity for building affordable housing, implementing building management systems and smart homes while the hospitality industry can explore smart sustainable energy saving solutions, which in turn is expected to strengthen economic activity. Besides this, investors would be able to capitalise on the price appreciation due to these smart developments and initiatives, it said.
