Many of you may have heard of land readjustment projects. However, few may have a detailed understanding of its specifics and how it works.
As INA&Associates Inc., we consult on real estate matters on a daily basis and receive many inquiries about land readjustment projects. Especially for those who own land or are considering real estate investment, land readjustment projects are one of the most important pieces of knowledge.
In this article, I will explain the basic concept of the land readjustment business, its specific structure, merits and demerits, and the actual flow of procedures in an easy-to-understand manner for the general public. I will also share my practical perspective from my point of view with more than 10 years of experience in the real estate industry.
A land readjustment project is defined in Article 2 of the Land Readjustment Act as "a project to change the shape of land parcels and establish or change public facilities on land within an urban planning area in accordance with the provisions of this Act, in order to improve public facilities and promote the use of residential land.
Simply put, it is a comprehensive urban development project to improve roads, parks, and other public facilities in the city planning area, and at the same time, to improve the use value of residential land. This project is also called the "mother of urban planning," and is positioned as an important method indispensable for the sound development of cities.
The main objectives of land readjustment projects can be summarized in the following two points.
First, to improve public facilities. This includes widening or building new roads, improving parks, and installing water and sewage systems. These improvements will greatly enhance the safety, comfort, and convenience of the community.
Second is the improvement of residential land use. Shaping irregularly shaped land and arranging it so that it faces the street increases the use value of the land. This also contributes to improving the property value of the landowner.
In my experience in the real estate industry, in areas where land readjustment projects have been implemented, there has been a definite increase in land prices and revitalization of the area. This is not just a simple land readjustment project, but an important project that leads to the creation of value for the entire community.
Land readjustment projects are implemented based on the Land Readjustment Law enacted in 1954. This law stipulates the method of implementation of the project, adjustment of rights, and details of procedures, and plays an important role in ensuring the fairness and transparency of the project.
It is also closely related to the City Planning Law. Since many land readjustment projects are implemented as city planning projects, an urban planning decision is required. This allows the project to proceed while maintaining consistency with the future vision of the entire region.
The core of the land readjustment project is the mechanism of " land readjustment. Land conversion refers to land that is newly allocated after the project, replacing the land that existed before the project (land previously occupied by the project site).
This mechanism of land conversion makes it possible to reasonably change the shape and layout of the land while maintaining the existing rights. For example, land that did not face a road may be converted to face a road, or irregularly shaped land may be converted into a shaped lot.
I have seen many cases in which land conversion has significantly improved the use value of land. In particular, it is not unusual for the value of land to increase several times, especially when land at the end of a cul-de-sac is converted to face a main road.
In the land readjustment project, the concept of " reduction of the footprint " is inevitable. The "reduction of the footprint" means that the landowner donates a part of his/her land for the project free of charge.
There are two main types of reductions.
Public dedication is the provision of land necessary for the construction of public facilities such as roads and parks. This improves the convenience and safety of the entire community.
Reservation reduction is the provision of land for a reservation, which is set aside to cover project costs. The reserved land is sold by the project owner and the proceeds are used to cover project costs.
The rate of reduction varies depending on the district and the nature of the project, but generally ranges from 10% to 30%. Although the land area is reduced, the overall property value often increases because the value of the remaining land rises due to the improved infrastructure and environment.
Reservation land disposal is an important means of securing financial resources for land readjustment projects. Reserved land is land that is neither used for public facilities nor converted into land for landowners, and is sold or leased by the project entity to raise funds for the project.
Proceeds from the sale of reserved land are the primary source of funding for project expenses. In addition to this, government subsidies, subsidies from local governments, and contributions from public facility managers are also utilized to support the financial basis of the project.
In my experience, reserved land is generally offered at a discount to market prices, making it an attractive option for investors and homebuyers. However, there are some points to note, such as the fact that mortgages may not be available for the purchase of reserved land.
The duration of a land readjustment project varies greatly depending on the size and content of the project. Generally, projects take from 10 to 20 years to complete, and larger projects may take even longer.
The main factors that contribute to the length of time are as follows.
First, it takes time to build consensus among all landowners. Due to the nature of the project, the understanding and cooperation of many landowners is necessary, and this coordination takes a considerable amount of time.
Second, the larger the area of the district, the longer the period tends to be. In addition, the number of buildings to be relocated and the scale of public facilities to be developed will also have a significant impact on the project period.
In terms of costs, landowners do not, in principle, directly pay for the project. Instead, they provide a portion of the land in the form of a reduction in the amount of land, which is their contribution to the project. The project costs are mainly covered by the proceeds from the sale of the reserved land and various subsidies.
Land readjustment projects bring a wide range of benefits to landowners.
The most significant benefit is the improvement of convenience through the construction of infrastructure. The living environment will be greatly improved by widening roads, installing water and sewage systems, and constructing new public facilities such as parks. In particular, all roads will, in principle, be at least 6 meters wide, allowing emergency vehicles to pass through, which will dramatically improve safety in the event of a disaster.
Improved land use value is another important benefit. By shaping irregularly shaped land so that it faces the road, it becomes easier to construct buildings and make effective use of the land. It is not uncommon for the assessed value of land to double or triple after the project is completed.
Clarification of rights is another benefit that should not be overlooked. The establishment of accurate registries and official maps based on actual measurements clarifies land boundaries and rights. This will facilitate future land transactions and inheritance procedures.
Land readjustment projects bring significant benefits not only to individual landowners, but also to the community as a whole.
The enhancement of disaster prevention functions is particularly important. Widening of roads will have the effect of blocking the spread of fire, thereby expanding the range of firefighting activities. Parks and other open spaces can also serve as evacuation centers in the event of a disaster.
The economic ripple effect cannot be overlooked. The development of new residential land and the supply of reserved land will promote the construction of housing and the attraction of commercial facilities. This can be expected to bring an influx of population into the area and stimulate economic activity.
Improvement of the urban environment will make the city a more livable place to live. The planned land use will create a favorable living environment and enhance the attractiveness of the area.
On the other hand, land readjustment projects have disadvantages and points to note.
A reduction in land area is inevitable. The area of land owned will surely decrease due to the reduction of land area. The total reduction of public land and reserved land is generally from 10% to 30%.
Another major issue is the long project period: the project will continue for as long as 10 to 20 years, which limits the use of the land during that time. Restrictions on building activities and other factors prevent free use of the land for an extended period of time.
Relocation or reconstruction of the residence may be required . Due to changes in the location or shape of the converted land, it may be necessary to relocate or reconstruct existing buildings. The cost of this will be compensated, but the impact on living conditions is unavoidable.
Liquidation fees are also a consideration. Liquidation payments or receipts may be incurred to adjust imbalances between exchanged lots. This may result in unforeseen financial burdens.
Speaking from my experience in the real estate industry, it is important to fully understand these disadvantages before participating in a project. In particular, I recommend that you seek professional advice on land use planning and financial planning during the project period.
The Land Readjustment Law limits the types of entities that can implement land readjustment projects to seven. Each of them has its own characteristics and requirements, and the most suitable executor is selected according to the actual conditions of the area.
| Type of Entity | Characteristics | Requirements |
|---|---|---|
| Individual (joint) enforcement | Joint enforcement by one or several right holders | Requires consent of all right holders |
| Land readjustment association enforcement | Most common enforcement method | More than 7 right holders and more than 2/3 of the right holders agree. |
| Enforcement by a land readjustment company | Enforced by a joint-stock company whose shareholders are right holders | Strict requirements |
| Enforcement by local public entities | Implemented by prefectures and municipalities | Requires urban planning decisions |
| Urban Renaissance Agency (UR) | Utilizes advanced technical capabilities and extensive experience | Legal approval |
| Enforced by Minister of Land, Infrastructure, Transport and Tourism | Directly implemented by the national government | Limited to special cases |
| Enforcement by Local Housing Supply Corporation | Implemented by the public corporation | Legal approval |
Individual (joint) enforcement is a method in which one or more right holders work together. It is suitable for small-scale projects and requires the consent of all right holders. The procedures are relatively simple, and projects can be implemented quickly, but financing and technical issues may be difficult to address.
Land readjustment association is one of the most common methods. A land readjustment association is formed by seven or more right holders working together to establish a land readjustment association, which is implemented with the consent of two-thirds or more of the right holders. Since the landowners take the initiative in carrying out the project, it is possible to flexibly manage the project according to the actual conditions of the area.
In the case of a land readjustment company, the project is carried out by a joint-stock company whose shareholders are the right holders. While this method can utilize the management know-how of the private sector, it has strict requirements, and its implementation is limited.
Local Public Entity Enforcement is implemented by prefectures and municipalities. It has high public credibility and can be used for large-scale projects, but requires an urban planning decision.
The Urban Renaissance Agency (UR) method is implemented by the Urban Renaissance Agency, an independent administrative agency, and offers advanced technical capabilities and a wealth of experience.
The Minister of Land, Infrastructure, Transport and Tourism and the Rural Housing Supply Corporation also have legally recognized enforcement methods.
Enforcement methods can be broadly classified into public enforcement and private enforcement.
Public enforcement (e.g., local governments and UR) is characterized by a stable financial base and high technological capabilities. Public enforcement is capable of handling large and complex projects, and can be expected to provide highly public services. On the other hand, procedures may be complex and time-consuming, and it may be difficult to respond to detailed local needs.
The private sector (partnerships, individuals, etc.) is characterized by its ability to flexibly manage projects according to the actual conditions of the community. It is easy to directly reflect the intentions of landowners, and quick decision-making is possible. However, financing, dealing with technical issues, and ensuring expertise in project management can be challenges.
In my experience, the key to success is to select the most appropriate implementation method, taking into account the scale of the project, the characteristics of the area, and the intentions of the landowners in a comprehensive manner. In particular, in the case of cooperative enforcement, it is extremely important to build consensus among landowners and establish a system of continuous cooperation.
Land readjustment projects are an important method for realizing sound urban development and improving the value of the community. As explained in this article, this project is not just a simple land readjustment, but a comprehensive urban development project that improves the living environment and asset value of the entire community.
The essence of the land readjustment project is to simultaneously improve public facilities and enhance the use of residential land through the mechanism of land readjustment. Although the land area will decrease due to land readjustment, the overall asset value can be expected to improve due to infrastructure development and environmental improvement.
The project period is long, ranging from 10 to 20 years, during which time the area will undergo a major transformation and be transformed into a livable city. In terms of costs, landowners do not, in principle, bear the direct financial burden of the project, but contribute to the project in the form of a reduction in the amount of land use.
Landowners who may be involved in land readjustment projects are particularly requested to understand the following points.
First, they should accurately understand the nature and impact of the project. It is important to confirm specific conditions, such as the rate of reduction, the location of the replacement land, and the expected liquidation fee, in advance and reflect them in future land use plans.
Next, it is important to understand the restrictions during the project period. Because of restrictions on building activities and land use, it is necessary to create a financial plan and utilization plan that takes the project period into consideration.
It is also recommended to actively utilize the advice of experts. Land readjustment projects are complex systems, and appropriate decisions must be made according to individual circumstances.
If you are interested in learning more about land readjustment projects or are currently involved in one, we recommend that you consider the following actions.
First, gather accurate information from the local government and the project entity. Get a detailed understanding of the project through business plans, briefing materials, etc.
Second, consult with a real estate professional. Since land readjustment projects have a significant impact on real estate values, advice from a professional perspective is effective.
Land readjustment projects are important projects that create the future of the community. We hope that with correct understanding and appropriate response, you will contribute to the realization of a prosperous community through this project.
A1: The duration of a land readjustment project varies greatly depending on the scale and content of the project, but in general, it takes from 10 to 20 years. Large-scale projects may take even longer.
The main reasons for the longer period are that it takes time to reach a consensus among all landowners, the area of the district is large, and the number of buildings to be relocated is large. In some cases, the period may be longer than originally planned due to delays in reaching consensus with landowners and relocating buildings.
Each stage of the project (planning, project approval, designation of temporary relocation site, construction implementation, and land readjustment) requires a certain amount of time, and it is common for the consensus building and construction implementation stages in particular to take a large amount of time.
A2: In many cases, land value increases as a result of a land readjustment project. However, this is an overall evaluation, and it is necessary to judge both the decrease in area (reduction in footprint) and the increase in value in a comprehensive manner.
The main factors that increase value include the development of public facilities such as roads and parks, land shaping, improvement of road access conditions, and the development of infrastructure such as water and sewerage systems. These will increase the use and market value of the land.
In my experience, there have been cases where the assessed value of the land has doubled or tripled after the project is completed. However, since the area of the land will decrease due to the reduction of the lot size, a detailed study of the overall change in property value is required for each individual situation.
A3: Participation in a land readjustment project differs depending on the method of implementation.
In the case of partnership implementation, the consent of two-thirds or more of the right holders is required to implement the project, but once the project is decided, the right holders who are opposed to the project will also participate in the project. However, the opportunity to express opinions on the content of the project plan and the land readjustment plan is legally guaranteed.
In the case of a public entity, they can express their opinions by submitting a written opinion or speaking at a public hearing during the city planning decision-making process.
In both cases, once the decision to implement the project has been made, the rights are protected within the legal framework. If you have an objection, it is important to consult with an expert at an early stage and express your opinion through appropriate procedures.
A4: It is possible to sell the land during the land readjustment project. However, there are some restrictions and points to note.
After the designation of the provisional replacement land, the right to use and profit from the provisional replacement land will be sold instead of the former land. In this case, the buyer acquires the right to use and profit from the provisional replacement land and will acquire formal ownership after the project is completed.
The calculation of the sales price requires specialized knowledge. It is necessary to comprehensively consider the value of the former land, the condition of the provisional replacement land, the rate of reduction, and the expected liquidation proceeds.
In addition, there are restrictions on building activities during the project period, which may be a risk factor for the buyer. If you are considering selling your property, we recommend that you consult with a real estate agent who is familiar with land readjustment projects.
A5. The cost burden of the land readjustment project differs depending on the implementation method, but the basic structure is common.
In principle, landowners do not directly pay any money. Instead, they provide a portion of the land free of charge in the form of a reduction in the amount of land area, which serves as their contribution to the project.
The main sources of funds for project expenses are as follows.
Proceeds from the sale of reserved land are the most important financial resource. The proceeds from the sale of the reserved land generated by the demarcation will be used to cover project expenses.
Government subsidies and subsidies from local governments are also important financial resources. Various subsidy programs are utilized in consideration of the public nature of the project.
In some cases, the administrator of a road or park (usually a local public body) will bear the cost of the project as a public facility administrator's contribution.
In the case of cooperative projects, the members of the cooperative (landowners) may bear additional costs for any shortfall in these financial resources, but this is an exceptional case.