DMPQ: What is value capture financing?

:  Value capture financing (VCF) works on the conviction that public policy and infrastructure projects typically lead to improvement in the quality of housing, jobs access and transportation, yield other social benefits, and lead to the emergence of important commercial, cultural, institutional, or residential developments in the influence area. This, in turn, leads to an appreciation in land value in the neighbourhood.

Value capture financing consists of 4 steps:

 Value creation: Public regulations, policies and investments lead to creation of value

 Value realisation by private owners: For instance, the investment made by a developer fetches a bigger monetary value when he sells housing units along a metro corridor planned by the government than he would have without the project

 Value capture: It involves the government and private owners agree to a sharing mechanism for the value captured

Value recycle: The resources collected are ploughed back in other parts of the city to create fresh value

 

Thus, VCF can serve as an infrastructure financing tool, directly or indirectly.

 

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