PROMES Real Estate
Does the current rail economy really help us form a better developed urban city? ( Part One )
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In recent years, according to reports from newspapers and magazines, we have learnt that new rail development often drives up the surrounding land and housing prices. Such phenomenon can be attributed to the land planning around the new rail station involving mixed developments including residential, commercial office, and retail developments such as shopping centers. That is to say, cities have developed a similar feasible pattern of land development for governments and private developers when it comes to the new rail and adjacent land development. However, such development pattern depicts its unchanging and yet boring product planning which not only restricts better use of land, but also fails to demonstrate the functional and local characteristics of real estate properties where located. There is a high repetition of such product positioning in the content of urban rezoning among many urban areas of Taiwan. When compared with the mature business district, the urban rezoning district is merely a “newer” substitute of the former, later causing an oversupply of the same type of real estate products in the market, leading to some problems such as price competition, lack of differentiation in product planning, causing imbalance in the development of new and old city districts...
Although the current rail economy can have a positive economic impact on the land and housing value around the station, the above-mentioned problems make us wonder whether the current land planning around the new rail station in Taiwan today really help us form a better urban environment? And whether the land is really being used effectively. In this article, we are going to explore the below topics:
1. Understand the current situation, challenges, and future development trends of the rail economy in the perspective of fostering industry clusters and nearby supporting amenities for the local communities and its end users.
2. Borrowed from foreign experience about the possibilities of the land development and real estate product planning around the rail development, how can Taiwan learn from those experiences and enrich and balance the development of its urban life.
What is rail economy?
It is quoted in a report from the United Daily News (2021/9/29) that in the first three quarters of year 2021 alone, the total amount of recorded private investment in Taoyuan land development has reached 17.4 billion NTD, a five-year record high. Among those investments, land transactions in the areas along the A7 and A20 MRT routes of Taoyuan Airport particularly have attracted some local developers like Xingfufa, Runlong Construction, and Huajian to acquire those lands. Hence, the stereotype of “city fringe area” is no longer seen in The Qingpu High Speed Railway Special Zone , with various corporate brands service amenities such as Huatai Premium City, XPARK, and Heyi Hotel moving into this area, equipping the area with more commercial and living amenities for the communities. So, from the article, it is learnt that the investment and planning of new rail development in urban remote areas can attract developers to invest and are likely to increase the value of the surrounding land. By doing so, it is expected that the land can be utilized more efficiently.
Using the example of building a new railway station, it can attract more people to the surrounding area by putting up high-rise buildings with multiple use on top of the station. For instance, the CITYLINK Nangang store which sits on top of Nangang Station in Taipei city has commercial offices, hotels, shopping malls, and cinemas. It has been built to meet the needs of people for work, accommodation, business travel, and entertainment, attracting different groups of customers at different times; The residential building "Runtai Jingcai" and the shopping center CITYLINK Neihu is another example that is built on the MRT Neihu Station, which gradually evolves into a "mini station city" that is self-contained with the railway station serving as the core, so that local residents living in the building can easily access to the MRT or go shopping within walking distance.
It goes without saying that new rail development will help to promote certain industry clustering through proper land planning around the railway station. For example, after the official operation of the Airport MRT A9 Linkou Station, Linkou has been regarded as a hub station from Taoyuan to the greater Taipei area. Hence, it can be seen that Linkou has successfully attracted migrants outflowing from other parts of the greater Taipei area. According to the latest statistics from the National Population Database (2021), Linkou's population has grown from 106,000 to 121,000 in the past three years, with an increase of 14.22%, making it the fastest-growing administrative region in Taiwan. With such an increase in population, Linkuo has also successfully attracted more investment to the local government designated special planning zone named "New Taipei Film and Television City Project" next to the MRT station. This project includes the development of an International Media Zone which has attracted Dongsen International, Sanli Group, Mitsui and other private investors to develop the area, by making a 24 billion investment to build a world-class film and television entertainment park. The park is expected to become a trendy destination for domestic and international tourists. Thanks to the rail economy, the rise of Linkou's major development zone will help to further nourish Linkuo’s diverse and innovative atmosphere, which can ultimately be beneficial to the clustering of local industry and economic development.
Therefore, the rail economy is built based on Transit-oriented development (TOD) as the main axle of the metropolitan area development, with mass transportation hubs and stations acting as the core, coupling with efficient development and utilization of surrounding land through commercial uses, offices, hotels, long-term care, public residences, and tourism. The metropolitan area development will then be able to further drive economic growth (Rail Economy and Old Urban Renewal, 2019/6/20, Zhuang Menghan). The rail economy is also a policy tool leveraged by the government, which is used to effectively alleviate urban traffic and at the same time more effectively drive local or regional economic development. However, while the development and construction of the land around the railway can bring in more flow of funds and people for local communities, it may also be argued that such development has caused an imbalance within urban development.That is to say, the rise of new business districts may be accompanied by the gradual decline of business activities in old business districts.
What kind of difficulties and challenges does the development of the current rail economy face in Taiwan?
If we look in a bigger picture, it seems that the rail economy has brought some problems to urban development in the long run. Although the rail economy can accelerate urban development, there are some deficiencies in the mechanism or appear to have the lack of considerations during the planning process that will ultimately limit the increase in land value and cause a high homogeneity in the urban land real estate planning. The following points are highlighted from the perspective of the surrounding area development concerning the acceleration of industry clustering and supporting amenities for the local communities . Has the current rail economy really brought a better development to our city? Has the land been utilized in the most effective way? If not, how can the situation be improved?
Problem 1: Real estate planning around urban stations is too homogeneous.
In recent years, many residential buildings, shopping malls, commercial offices and other buildings have been built in the rezoning area around the newly established rail stations which usually sits at the city fringe with little properties. Although following the market mainstream of product planning can give people and enterprises more choices of the same type of products and improve the quality of living and working environment in such rezoning area, it also faces drawbacks such as the excessive supply of homogeneous products, which indirectly leads to the decrease of commercial activities in mature business districts or old business districts due to the gradual migration of local enterprises or residents to the rezoning area . The decline of companies’ demand for commercial offices in the old business district resulting the decrease of that for employees’ accommodations in the business district will have implications in rental and house prices; Consequently after businesses relocate, the living and leisure consumptions in the mature business district will drop, which can have a further impact on the local residents’ income and lead to the business area becoming obsolete. For example, the traditional Nanjing East Road business district and the Songjiang-Dunbei business district are both well developed commercial areas, and are ideal locations for many local corporate headquarters and financial institutions. However, as the surrounding area of Nangang Station gradually develops into the sub-center of Taipei City next to Xinyi district, with more commercial offices, shopping centers, residences and restaurants being built (Nangang will add more than 280,000 ping of commercial and office supply in five years), which may attract many companies concerning competitive rents and brand-new building amenity and specifications to move in. Because of the high homogeneity between the old and new business areas, it is inevitable to see the likely replacement effect to take place in the near future. Another example is the bustling Hsinchu Railway Station, which was once a gathering place for people in the greater Hsinchu area. However, with the rise of the commercial district around Hsinchu High Speed Railway Station, as well as the upcoming construction of Zhubei Light Rail which have gradually attracted different clusters of industry and shopping malls, Zhubei has become the emerging commercial core of the greater Hsinchu area. Although the new commercial district has successfully attracted a lot of people moving to Zhubei, the repetitive land planning measure around the station — building shopping malls, commercial offices, and hotels — has put The Hsinchu Railway Station business district at the expense of losing more commercial activities to Zhubei.
On the other hand, the high homogeneity between the new and the old city districts may also deprive the characteristics of newly rezoned areas. In the case of an over supply real estate market, the old city areas are prone to price competition from the new city district – rezoning area. This is definitely not a long-term approach to maximize the value of real estate. Price competition indicates the consequences of taking an improper product planning approach. When an urban area develops, it seems that it has to sacrifice the development of other old business districts for the new area. The newly rezoned districts have not brought us any new and different choices, but instead have become a new substitute for other old business districts. Under such circumstance, does the rail economy really bring better changes to our urban environment? Does the rail economy really make a positive impact on our city?
Solution: A plan to give real estate an industrial gathering function.
To solve the problem of high level urban functional duplication across different city districts, governments must differentiate the positioning of each district, and incentivize developers to build suitable products according to the local district’s different characteristics. For example, if the enterprises around Nangang Station in Taipei city are targeted mainly at music, cultural and creative industry, as well as the biotechnology industry, then commercial office development can be positioned to attract companies of these industries, and can design facilities and functions that cater to the needs of those companies during the phase of development, so as to help to nourish the formation of industrial ecosystem in the area. If the clustering of industries can be successfully achieved, it would help to exhibit the important functional characteristics of the local area, in which the value of each district can be presented, while price competition can be avoided and companies from other industries that pursue competitive rental prices will not be attracted.
Take music, cultural and creative industries as examples, developers can be incentivized to introduce related facilities to support the industries. Referring to the case of Japan, Tokyo Roppongi Hills is the new cultural center of Tokyo. It is home to a large number of artistic, cultural and leisure amenities such as art galleries, theaters, and museums in Tokyo. Among them, the Mori Art Center in Mori Building provides modern art exhibitions and art collection services. Therefore, viewing from the perspective of overall land planning strategy around the station, the construction of buildings with certain functions, such as music performance stages, museums, and music and cultural and creative markets, can help form a music and cultural and creative industry’s ecosystem, for example, companies of the cultural and creative industries such as academics, equipment vendors, recording studios, talent training classes, performance brokers, venue management, merchandise sales, restaurants, bars and venues. In addition, music and cultural festivals can be held regularly. In this way, a true music cultural center can be created, differentiating itself from other cities' commercial district, and transforming into a city popular sightseeing spot.
此外，規劃者可以在重要軌道車站周遭建造指標型的大型裝置藝術建築，成為地區指標。例如The Vessel為美國Hudson Yards車站新地標，其結合建築、美學、觀景、體驗等功能，供民眾進入探索建築奧妙。民眾可以登高遠眺哈德遜河和紐約市的風采，除了達到城市行銷的效果之外，也能在高樓林立的都市計畫區中展現獨特的藝術氣息，帶動地方觀光活動發展。總之，規劃者必須為每個城市做妥善安排，找到各個城市的區域消費習性、適合產品，賦予不同定位，解決同質性太高所造成不同商圈發展失衡的問題。
In addition, building iconic large-scale art buildings around important railway stations can help to become a regional scenic spot. For example, The Vessel is a new landmark of Hudson Yards Station in New York city. It serves multiple functions such as architecture, aesthetics, and sightseeing, providing the public an opportunity to explore the beauty of the architecture. People can climb up and overlook the Hudson River at New York City. By doing so, it helps to market the city regionally and internationally, creates unique atmosphere around the landmark and promote tourism to the area. In short, finding a proper positioning for each city district, identifying the local consumption pattern and suitable products can help solve the problem of imbalanced development of different business districts caused by the homogeneous urban landscape.
Problem 2: The rail company is not allowed to play the main lead role of development project due to regulations, resulting in a lack of overall consideration about urban development around rail station and its adjacent land.
According to Zhang Zhengyuan, author of "Face the Rise of the Rail Economy" (2021/03/09), Taiwan's railway construction is subject to government regulations, which prevent state-owned companies like Taiwan Railways from being the owner of development projects. We can learn from the statistics of the transportation and subsidiary income of the importance of the overall development strategy to make full and effective use of the land around the rail station. For example, in 2019, Taiwan Railway's annual transportation industry revenue was 18.4 billion, but its subsidiary industry income was less than 3%; Taiwan High Speed Railway's annual transportation industry revenue was 46.1 billion, and its subsidiary industry income had a relatively good performance. In contrast, take the Hong Kong MTR as an example, in 2019 Hong Kong MTR’s ticket box revenue was 19.9 billion Hong Kong dollars, and the station commercial revenue and real estate development income reached 11.9 billion Hong Kong dollars. The MTR's ballot box revenue only accounted for 37.6% of the overall revenue. Zhang Zhengyuan further pointed out that the most important asset of the MTR is the income of real estate development, because the Hong Kong government has granted the MTR the right to develop the land along the railway stations and railway lines, making the shopping malls and residential properties along the Hong Kong MTR, East Rail, West Rail, and Airport Express lines part of MTR’s properties and rights.
Thus it can be concluded that by leading the real estate development project and collaborating with the local government to implement the overall development strategy, the additional revenue acquired from the development can be reimbursed to the Taiwan Railway or the Taiwan High Speed Railway as its affiliate income, and the implementation of the strategy can also prevent the land around the rail station from being sold or rented separately to developers who would build properties based on their business interest, indirectly pushing up development costs, and ultimately passing those costs on to end users who purchase or rent residential or commercial properties. At the same time, allowing the state-owned Taiwan Railway to have the legitimate project ownership can avoid more homogeneous mainstream products being built and sold in the market causing an oversupply issue. In addition, it can also allow the government to make distinctive plans for the development of railway stations and surrounding land in accordance with local conditions, and differentiate products to meet local needs, achieving a win-win situation and a balanced development within the city districts.
Solution: The deregulation of the rail company's role in project development.
According to the previous Article 28 of the State-owned Property Law, state-owned railway institutions cannot freely utilize self-owned real estate assets. Therefore, even if Taiwan Railways owns many lands along the railway, it cannot develop them independently. Taiwan’s railway institutions have to invite local developers to develop the land around the station in the form of Build Operation Tranfer (BOT). In addition to BOT, railway institutions can also apply the urban renewal method to utilize its assets around the station. However, Taiwan Railways has to convert the railway land to a developable business blocks through modification to its urban planning policy. But it may take at least two years for the administration process to be completed, and the operating procedures are usually quite tedious.
Fortunately, in September, the Executive Yuan passed the draft amendment to the "Railway Law", in which Article 21-1 of the regulations on the development and utilization of the property of the state-owned railway organization was loosened. If the amendment is officially passed in the future, Taiwan Railways can own the project ownership over its self-owned real estate assets and independently develop or cooperate with the developers to develop the railway routes, stations and other state-owned real estate under its own management, which will help the overall planning of urban areas to its better use. In addition, compared with developers who need to bid for land and pay rent, railway institutions have lower development costs and lower profit pressure. Therefore, when planning products, they can form a comprehensive development strategy to develop real estate with more diversified and local characteristics, and to help alleviate the problem of rising real estate prices.
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# 軌道經濟 # 都市規劃 # 不動產開發
# 不動產產品定位 # 資產價值最大化