There are few examples of financially sustainable public transport projects around the world, with the Hong Kong and Singapore mass transit systems being notable exceptions.

These systems have generated an average annual return for shareholders of around 9% and 11%, respectively, over the past five years1. Exceptions aside, rail typically requires financial support from governments, which – faced with multiple funding requests – are under increasing pressure to look for innovative ways to fund infrastructure projects.

The success of transit-oriented developments (TODs) in markets such as Hong Kong and China has created excitement about the opportunity to leverage such models into other markets. However, local nuances influence the outcome. Hong Kong and China benefit from a combination of high population densities, high property prices, an effective rail network, and government ability to appropriate land and contribute it to TOD projects at ‘pre-railway’ valuations.

The TOD at Kowloon station in Hong Kong is arguably one of the better global examples of effective place-making and robust financial outcome. It encompasses a transport hub that includes an airport rail link, subways, buses, rail connections, and taxis. It also encompasses hotels, office towers, a high-end retail mall, food and beverage venues, and apartments that can house up to 20,000 residents. Kowloon station is indeed a mini-city in itself.

Japan is another market that has reaped the benefits of TOD, particularly in inner Tokyo. However, Japanese companies approach TOD from a different perspective. The focus is not on real estate assets, but on mapping the activities of residents and workers along rail corridors and establishing assets and businesses that capture a high daily proportion of passenger spend.

For example, Tokyu Corporation, whose assets include the Tōyoko, Meguro and Ōimachi lines, owns department stores, supermarkets, hotels, banks and property developments along its rail lines. Thus, it generates revenue every time passengers move in, shop, travel or eat along the rail lines. In 2015, Tokyu Corporation secured the concession to operate the Sendai Airport around 330 km south of Tokyo, which no doubt offers further opportunities to ‘follow the passenger’.

The Japanese approach is a private sector alternative to land value capture (LVC), which has typically relied on governments funding the rail infrastructure and subsequently realising returns through incremental taxes or rates on higher property values along the alignment. The traditional LVC approach is difficult to achieve in emerging markets, where accounting records and land valuations may not be properly regulated. The Japanese model could be a viable alternative for these markets, but it would require an ecosystem of investors with an eye for long-term returns.

TOD is an elegant solution to integrated urban design, but it is not the perfect financing tool unless a specific set of conditions exist. The Japanese LVC model might present a more effective alternative.


MTR Corporation. Annual Report 2017.