Where real estate and urban development meet
The Transit-Oriented Development (TOD) itself, if properly planned and implemented, can lower the barrier to the use of public transport, lessen the dependency on private vehicles, contributing to the liveability of communities and cities, write Avison Young Vietnam analysts.
Like many cities in Asia Pacific, the rapid growth of Hanoi and Ho Chi Minh city is in tandem with urban challenges, including traffic congestions, housing shortages, overburdened public facilities, and lack of recreational places and green areas.
Both cities are piloting the Transit-Oriented Development (TOD) model - an urban planning and development method that promotes efficient and balanced land use by locating housing, public facilities, commercial, and entertainment space in the vicinity of public transportation nodes.
Looking into real cases of TOD, this analysis offers insights into potential development directions for the real estate market in Hanoi and HCMC.
Trusted public-private partnership critical to the development of TOD
The TOD model aims to create dynamic and liveable urban areas by concentrating jobs, housing, services, and amenities around urban railways (Mass Rapid Transit, MRT) or rapid buses (Bus Rapid Transit, BRT).
Development or redevelopment under the TOD model requires a multi-functional approach, combining residential units, commercial spaces (offices, retail), and entertainment venues to attract residents, workers, shoppers, and visitors.
On the one hand, TOD can induce higher ridership for public transport, foster the certainty of demand which is critical for cashflow projection, and likely to be of interest to infrastructure investors.
On the other hand, it can provide real estate developers with the probability to estimate the population size, traffic flow, footfall, and growth potential of an area. Another aspect is that from TOD developments, new revenue sources arise from the space surrounding and within the stations, cultivated from advertising, taxation, etc. and can be shared among stakeholders.
Opportunities emerges for public-private partnerships in infrastructure investment and project development.
“The proper TOD development requires a clear vision and long-term planning, high levels of co-ordination between different stakeholders, and consistency across levels of implementation (from regional to municipal agencies). Here comes the critical node of transparency and trust building among stakeholders, apart from financial resources, capability and long-term commitment,” said David Jackson, principal and CEO of Avison Young Vietnam.
Real cases of TOD adoption
Metro Vancouver, British Columbia, is an example of large-scale, mixed-use TOD projects that converge to form “closed urban areas” - essentially cities within cities.
In 2011, the federal government of 21 cities developed a regional growth strategy (RGS) called Metro Vancouver 2040: Shaping Our Future. This plan emphasizes the concentration of mixed-use TOD developments around public transport hubs, identifying key locations and providing design and construction guidelines, especially in areas with limited land availability.
Based on this master plan, local governments and real estate developers adapted their strategies, redeveloping traditional industrial and commercial land into high-density, self-contained complexes of housing, retail, office, and public spaces.
These projects are directly linked to or located near public transportation, such as SkyTrain rapid rail lines and the TransLink bus system. Today, Metro Vancouver has become the most populous region in the Lower Mainland of British Columbia, capable of accommodating millions of new inhabitants each year thanks to sound planning and design based on three pillars: architecture, infrastructure, and sustainability.
Another example is the Shibuya Station’s redevelopment in Tokyo, Japan. Shibuya station has eight rail lines go through the central area and a daily ridership of about 2.1 million people.
However, the area had a lack of public space, congestion, complex line transfers, insufficient capacity, and decrepit buildings. Office vacancy rate in Shibuya has been declining, pushing the rise of average office rents faster than the five central wards of Tokyo.
Adding to those challenges is the public budget constraints and the demand for sustainable energy use. Hence, there was a desire to reduce the impact of redevelopment of the Shibuya railway terminal on the public budget.
The TOD model is adopted for Shibuya redevelopment project, and it is being completed in stages, with the participation from both the public and private sectors, including key stakeholders: Tokyu Corporation, Tokyo Land Corporation, East Japan Railway Co., and Tokyo Metro Co.
The integrated city-station redevelopment enhances accessibility among various urban spaces for city residences and visitors, also turning the stations to not only transport hubs but also integrated city spaces.
Closer to Vietnam, there is the example of the efficacy of TOD in Singapore. The city state has integrated its urban transit development with spatial design and planning, resulting in a constellation of satellite towns that surround a central core, with rail networks that link these towns to industrial parks and the city centre.
These satellite towns are self-sustaining, with common public amenities within walking distance and a reduced need to venture out for common daily needs.
Singapore’s adoption of TOD also includes affordable public housing in well-connected areas. Joint developments come from the efforts of state agencies and key value chain players for TOD such as real estate businesses, financiers, legal and construction advisors.
The robust urban planning and TOD help instil confidence for the participation of developers and investors, also technology providers and operators.
Mixed-use TOD projects with a focus on sustainability
TOD itself, if properly planned and implemented, can lower the barrier to the use of public transport, lessen the dependency on private vehicles, contributing to the liveability of communities and cities.
This is in line with the goals of sustainable development in real estate: conserving energy, reducing emissions, and promoting healthy lifestyles. “That said, developing projects in an integration with TOD model can create sustainable communities which balance the benefits of people, the environment, and the economy,” Jackson added.
In the case of Metro Vancouver mentioned above, beyond mixed-use functionality, the area also emphasizes sustainability in its development projects.
On the notion of green real estate projects often being associated with heightened development costs, the answer can be found in the 2013 report of "The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors, and Occupants" by the World Green Building Council. In this report. the authors analysed five key aspects of business benefits associated with green building development:
Design and construction costs
Green building construction does not necessarily have to be more expensive if cost, environmental, and project management strategies are integrated into the development process from the outset.
Asset value
As investors and tenants become more aware of the environmental and social impacts of a project, green-certified buildings tend to have higher liquidity and asset value.
Operating costs
Green buildings reduce long-term operating and maintenance expenses by minimizing energy and water usage.
Workplace productivity and health
The design and indoor environment of green buildings can enhance worker health and well-being, leading to increased productivity and benefits for businesses.
Risk mitigation
Effective risk control can significantly influence future rental rates and property values, thereby affecting the return on investment (ROI).
Implications for Vietnam
Hanoi and Ho Chi Minh city have long been the economic magnets, hosting the highest number of businesses in Vietnam. As the two major hubs, these are also the most populous cities in the country, of which HCMC takes the lead with roughly 9.5 million people and a population density of 4,513 people per square kilometer.
Hanoi follows with a population of more than 8.5 million and 2,556 people/km2 in terms of population density. If using the criterion of 10 million people for a megacity, HCMC is going to become the first megacity in the country, and Hanoi is expected to follow soon. Hence the pressure on land management and infrastructure development will only be heightened if not being properly addressed.
The two cities are adopting the TOD model as one of the solutions for sustainable urban development, prioritizing the construction of urban railway lines to meet travel demands and address traffic congestion.
By 2030, with a vision towards 2050, Hanoi is expected to have eight metro lines, three monorail lines, and eight BRT lines. Currently, Line 2A (Cat Linh-Ha Dong) and Line 3 (Nhon-Hanoi Station section) are operational.
Meanwhile, HCMC plans to develop eight metro lines, one tramway, and two monorail lines by 2030; among which Line 1 (Ben Thanh-Suoi Tien), with three underground stations and 11 elevated stations, nearing completion.
While financial puzzles, a commonality of urban development in developing countries, are to be tackled, some good insights can be learnt from the real cases mentioned above.
Additionally, the case of Singapore shows that TOD can contribute to suburbanization. On the one hand, the expansion of urban railway network improves connectivity, increases accessibility, and enables the ease of travelling. On the other hand, it helps to shape satellite communities, in a sense new suburban CBD.
For developers, the suburban development cost is usually not too high, hence they can deliver to the market real estate products at more affordable prices. And it has long been known that property prices tend to go up when infrastructure and connectivity are improved, something of interest for both developers and investors.
But for the above-mentioned to be realized, a concerted planning and implementation is in place. Not to mention that the robust projection of revenue, and long-term commitment are crucial to call for participation from real estate developers, infrastructure investors, technological providers, operators, etc.
“It is also of great importance to ensure transparent communication, keeping all stakeholders engaged and get them buy-in along the way,” Jackson concluded.
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