FATHIMA KHAN CIGFARO CONFERENCE 2019

1. INTRODUCING POLICY AND TARIFF STRATEGIES THAT WILL ENCOURAGE EFFICIENT AND PRODUCTIVE USE OF VACANT LAND FATHIMA KHAN CIGFARO CONFERENCE 2019

2. TAXATION OF VACANT LAND • discourage speculation and encourage development of Vacant Land. • motivate the private sector to develop Vacant Land. • Do not use Vacant Land Taxes solely to address budget issues. • Use taxation to change the behaviour of the private sector and block speculation.

3. WORLD BANK REVIEW • Vacant Land taxation around the world shows that various governments have different ways of : • defining, identifying, and prioritizing Vacant Land; • structuring Vacant Land fees; • choosing an implementation mechanism; • deciding who benefits from the fee and how; • penalties to be imposed in the absence of payment. • differences in prioritizing how to apply the taxation—whether by geographic location, the time left vacant, or degree of development. • the motivation for implementing the Vacant Land tax is an important factor.

4. MOTIVATION • In developed countries, the main motivation is addressing disinvestment and blight in cities. • Vacant Land includes land which have abandoned buildings. • In developing countries, the focus of taxation is on fighting speculation. • examples of Brazil, China, Colombia, Korea, the Philippines, and Taiwan.

5. INTERNATIONAL EXPERIENCE Harrisburg, Pennsylvania, United States • economic decline for the past several decades. • Vacant Land tax program • lowered the tax rate on building values • Raised the tax rate on land values • stimulate new development and conservation of older buildings. • land value taxation used as a local policy tool to help reverse economic decline and encourage urban revitalization. • Vacant Land tax rate that was six times higher than the improved property.

6. INTERNATIONAL EXPERIENCE Seoul, in the Republic of Korea • 136 percent increase in land prices due to massive speculation. • Increased demand for land and decreased market supply - widening the gap between landowners and non-landowners. • imposed a Vacant Land tax to discourage speculation and promote development. • Any land parcel left vacant for two years was considered idle land and subject to a 5% property tax, instead of the normal 2 %. • a 7 % tax would apply for land left vacant for 3 years • 8 % tax would apply for land left vacant for 5years.

8. HOLDING COSTS ETHEKWINI • 5.35 cents in the rand • Holding costs are 15% • Capital Growth is 6% • ECOD rebates

9. HOLDING COSTS CITY OF JOHANNESBURG • 3.9 cents in the Rand • Rebates where development can not take place : • property falling outside the Urban Development Boundary • the unavailability of bulk infrastructure • where development is prohibited by environmental factors

10. TRANSFORMATION • Punitive rates can’t attract smaller developers • Can’t afford the holding costs • Can’t address the “missing middle” – affordable housing • Costs passed on to the end user • Distorted settlement pattern

11. FINANCE • Banks reluctant to finance Vacant Land • Capped to a 60% Bond • Risky asset : • No rental income • No growth potential • Holding costs too high • Interest on Capital is lost

12. STATE OWNED VACANT LAND • Land invasions • Need to identify Vacant Land for disposal

13. VACANT LAND POLICY BE SPECIFIC!!!! • Know where you want to encourage development • Use targeted programmes • Use targeted budgets • Use targeted geographic areas

14. VACANT LAND POLICY INCENTIVISE!!! • Use rebates and incentives to influence investor behavior • Must be for a reasonable period

15. VACANT LAND POLICY PENALTY ON LAND BANKING • Taxation at an incrementally higher rate for each year that the land is left vacant

16. VACANT LAND POLICY PERMITTED USE rather than actual use

17. VACANT LAND POLICY TRANSFORMATION • Create a category of Owner • Apply rebates to emerging developers • Set specific criteria – QSE’s; EME’s;

18. EASE OF DOING BUSSINESS IN YOUR CITY • AFFORDABILITY • IS YOUR VACANT LAND RATES A SOURCE OF DISINVESTMENT ? • REVIEW YOUR POLICY!!!

20. THANK YOU