Can Gurgaon Build Better Infrastructure By Allowing Taller Buildings?

Gurgaon has come to be known as a skyscraper city that does not even have a city-wide sewage system. Well, most Indian cities do not have city-wide sewage systems. But, it is true that Gurgaon deserves a much better infrastructure.  More importantly, there is no conflict between having skyscrapers and having a good sewage system. In some of the best cities in the world, skyscrapers and a well-functioning sewage system coexist.

Gurgaon can work its way out of its infrastructural woes by allowing taller buildings. Why?

The private sector in Gurgaon is growing much faster than its infrastructure. Gurgaon contributes much to the economy of Haryana. The money the Haryana state government spends on building infrastructure in Gurgaon is much less in comparison. If this is true, there is a mutually beneficial deal that the government and firms can benefit from. The government can urge real estate developers and private firms to contribute to build better infrastructure in Gurgaon, in return for the right to build tall buildings.

The government, for example, can charge higher property taxes. Property taxes are an efficient way of funding infrastructure development. Other real estate taxes like stamp duty and registration charges discourage real estate development. The revenues that accrue from such transaction taxes are not high, either.

Property tax does less harm than other alternatives. At present, the relationship between property tax and the market value of properties is not strong in Indian cities. In many Indian cities, property taxes correspond more to rental rates than to market prices. As many properties in major Indian cities are under rent control, there is an unusually low property tax collection. But the best the authorities could do is to strengthen the link between property taxes and the market value of real estate assets.

Urban local bodies could also collect impact fee for building taller buildings. Impact fee is a better way of funding infrastructure, because a tall building is likely to generate more traffic through roads than a short building. As the Haryana government intends to raise the floor area ratio, many argue that the roads in Gurgaon will become more crowded and congested. So, it is possible to charge a greater impact fee for building a tall building. It is also possible to charge more for building, say, a retail outlet. A retail outlet is likely to generate greater traffic than an independent house. Such impact fee may even lower the price of the land.

When Indian cities charge real estate developers for building tall, this is usually done in the suburbs or periphery, where the infrastructure is not well-developed. But this is inefficient, because the motive behind charging an impact fee should not be to fund infrastructure but to allow taller buildings in areas where there is great demand for real estate. So, if authorities decide to levy an impact fee in Gurgaon, this is something they should keep in mind.