Innovative Measures for Infrastructure Investments: Illustrating Land Trust Scheme and Spillover Effect
In many Asian countries, land acquisition is one of the main challenges for infrastructure development, which delays the completion of projects and lowers the rate of return of infrastructure investment.
We investigate the potential application of the land trust scheme, which Japan has used extensively for the construction of commercial buildings in the infrastructure field. The land trust scheme calls for cooperation between infrastructure stakeholders to achieve a win-win outcome. Under the scheme, landowners transfer their land usage rights to infrastructure developers through the trust banks and retain ownership of the land instead of selling the land. Between landowners and infrastructure companies, the trust bank is the intermediary that smooths and monitors the process, and pays rent to landowners based on project revenues. From the perspective of infrastructure developers, the land trust scheme would dramatically reduce the initial cost of the project by replacing the land purchase cost with a much lower land rent. As a result, the costs and benefits of the infrastructure project would improve. The concept of a spillover effect is introduced to complement the land trust scheme by returning part of the additional spillover tax revenue from infrastructure projects to private investors, to further increase the rate of return and attract more private investment. Empirical studies on the application of the land trust scheme and spillover tax revenues in cases of transport infrastructure are provided. The results indicate that the combination of the proposed innovative measures could yield optimal outcomes and improve the rates of return.
WORKING PAPER NO: 1053