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First steps for the implementation of land management instruments in Peru
The sustainable development of cities in Latin America and the Caribbean (LAC) has a base on Transit-Oriented Development (TOD). Still don’t know what TOD is? Don’t worry, in this blog we explain the concept, and show you how in Peru, with the support of the IDB, the first steps are being taken to start putting it into practice. Read on and find out all the details!
What is TOD and why is it necessary to carry out land readjustments?
TOD projects integrate urban planning and mobility to promote compact neighborhoods around mass public transportation. They are projects that build quality public spaces, with healthy and attractive areas for living and working.
In order to implement TOD in urban areas that have already been built, it is common to carry out a land readjustment in that part of the city. Land readjustment refers to real estate integration processes, where property owners contribute their land to make way for new projects that involve the reconfiguration of an urban area.
Which are the implications for land readjustment in the Peruvian context?
In June 2021, the Sustainable Urban Development Law (DUS Law) was approved, which defines instruments for land readjustment, regulation and urban financing. In this way, the country is now aligned with the objectives of the new urban agenda that promote “inclusive sharing of the value generated by sustainable urban development“.
Given the extensive land occupation model that prevails in all Peruvian cities, access to good locations for social housing projects or the development of facilities and public space becomes more costly and complex. The DUS Law proposes the readjustment of land, with which greater heights or land use can be offered (“benefits”), and part of the profitability of these real estate operations can be captured by the public sector to finance part of the requirements of services, public spaces and equipment of the urban operation (“burdens”).
How will land readjustment take place in Peru?
The “Sustainable Cities” project for the Metropolitan Area of Lima and Callao implemented by the Ministry of Environment, with funding from the Global Environment Facility (GEF), institutional support from the IDB as implementing agency, and WWF as executing agency, proposes the regeneration of the surroundings of the Naranjal station of the Bus Rapid Transit (‘Metropolitano’) system in northern Lima. This regeneration area contains large areas of industrial use and is located between the future Metro Line 3 station and the next cable car station.
Following TOD principles, the aim is to concentrate investment in areas with greater potential for densification, such as this one, to generate high quality urban spaces with an appropriate mix of uses and a pedestrian – design orientation. This transformation implies the total restructuring of the existing urban fabric and property structure, changes in zoning regulations and the creation of new roads, public spaces and facilities. This requires the approval of specific regulatory planning instruments that will determine uses and parameters, and the definition of the Urban Management Units (UGU) that will establish the charges and benefits among the owners.
Left image: Current state of the area | Right image: Urban architectural modeling of the development of the intervention area.
What are the key steps to achieve the process?
In the case of Lima, the proposal and regulation of the Specific Plan (normative instrument) for the urban regeneration area which includes 22 UGUs, must be approved by the Municipal Council of the Metropolitan Municipality of Lima. These units have been formulated so that they can be executed independently, where the consulting firm that developed the proposal (IDOM) made sure to balance the profitability of each unit. At the same time, the design takes advantage of the existing property structure to facilitate the execution and the role that the land owners will play.
Image: Delimitation of urban development management units (UGU) on the existing property structure
The Land Readjustment will give rise to a land redevelopment process through an urban habilitation that defines the future plots and establishes the urbanization costs (new roads, urban services, green areas, etc.) for the developments. Likewise, the benefits for the owners are determined, obtained from the value of the new uses to be implemented (housing, commercial areas, etc.), which must be higher than the charges (redevelopment costs, real estate development costs and construction costs of the new uses).
As most of the municipalities do not have instruments to carry out an effective property valuation, the Residual Land Value methodology has been proposed, which is based on commercial values from a market study, which will be fundamental for the municipalities to adequately capture the generated surplus value. The DUS law establishes that they are entitled to receive between 30 to 50% of what is generated, which can be granted in cash or in plots. The transfer of plots represents an opportunity for a municipal Public Land Operator (a figure provided for in the DUS Law but still non-existent in Peru) to enter the market and make this land available for the production of low-income housing.
As part of the Land Readjustment Project, mechanisms have been established for the creation of an Urban Development Trust, where it would be expected that the municipal Public Land Operator could purchase the land of those owners who don’t wish to be part of the real estate operation.
Given that in Peru the urban development function is not considered to be of public utility (and, therefore, does not allow for expropriation), the role of the municipalities as promoters of urban development will be fundamental in convincing property owners of the benefits of exploiting their property.
What are the lessons learned from this experience to promote urban regeneration and TOD projects in the region?
- It is fundamental for local governments to understand the dynamics of the real estate market and engage with the private sector.
- The Public Land Operator is an important figure to guarantee a secure development of the project, acquire land and ensure that the social functions behind real estate operations are fulfilled.
- The transformation of the uses and structure of the property, as well as the management of social demands are complex and very long-term processes that require sustained governance over time, active participation of the community to ensure social validation and constant support from the authorities.
- The development of a “pilot” sector (tactical urban planning or a first mobility improvement project) is important to trigger the interest of owners and developers.
If you are interested in learning more about TOD in LAC, we recommend that you do not miss the following IDB publications: