Land-Based Financing Approaches for Climate Action

The central theme of this paper is whether climate induced extreme events, such as urban flooding, affect property values. Assessment of this impact assumes significance for devising optimal adaptation strategies. The study relies on two approaches: a hedonic analysis of the sales price of around 900 properties transacted from 2015 to 2019 covering the flooding episode of 2017 and an analysis of officially defined zonal Annual Statement Rates (ASR) of residential properties from 2003 to 2023 for around 740 revenue zones of Greater Mumbai. A novel method is adopted for delineating flood risk (FR) and other (NFR) areas. The hedonic analysis reveals that flood risk lowers the mean sales price of residential homes by a margin of 12.6% to 15%. The difference-in-difference analysis reveals a reduction in average sales price of all sample properties in the post-2017 period. Defying expectation, however, the extent of the fall in price is less for properties in the FR zone. The net impact of the flooding event is difficult to isolate from the cumulative impact of a series of important policy changes implemented around the same time, affecting the property market as well as countering effects, if any, of the climate action strategies adopted by the city and amenity effects of inner-city land use changes.

The ASR differed significantly in FR and NFR zones until 2010. However, the results of quartile regression reveal that the difference is significant in high-end ASR zones. Though the magnitude of the difference has come down in recent years, the ASR is still 13% to 15% less for FR zones within high-end ASR zones. Differences are also emerging in middle-level ASR zones in recent years. However, these details require careful reading in the backdrop of the valuation practice being followed.

From the perspective of land-based financing instruments for climate action, familiarity with and use of land value capture tools remain favorable factors in Mumbai. However, there could be challenges of well-functioning land and property markets, climate risk perceptions, and properly designed mitigation programs for the city.