INTEGRATED LAND USE AND TRANSPORT

PLANNING A SUCCESS STORY

Andrew McCusker
BSc, CEng, MIMechE, FCMI, MCIPD
MTR Corporation Limited

SUMMARY
This paper describes the success of MTR Corporation in funding and financing a commercially-orientated
railway in Hong Kong with growth through an integrated rail-property model. The MTR network covers a
total route length of 211 km, and provides metro, suburban railway service, light rail, feeder buses and
intercity through-trains to Mainland China. The integrated rail-property model translates land development
rights from the Government for railway construction into property profits to help bridge funding gaps for new
railway construction and future asset renewal and upgrade. The Corporation is responsible for both the
railway and property development. This provides a unique opportunity to optimise integration of land use
and transport facilities, as well as provide socio-economic benefits. In the past years, MTR Corporation has
generated over HK$177 Billion (A$23.8 Billion) of value accretion for the Government.

However, even in countries such as the United

States, city planners and politicians are now
seriously proposing increased rail city transport.
But
how
can
public
transport
achieve
competitiveness over private cars in cities where
there is already high car ownership?

INTRODUCTION
Land scarcity and high population density in Hong
Kong has shaped the requirement for effective
land use and capital resources through integrated
land use and transport planning. MTR Corporation
adopts a rail-property model by undertaking
residential and commercial developments along its
railway lines to create the required integration.
The model is highly successful and contributes to
business sustainability of the railway and
generates major socio-economic benefits. More
recently, MTR Corporation has entered into
overseas agreements on a variety of models
including PPP concession as well as with the Hong
Kong Government on future rail lines using a
range of financing models.

Among high income cities worldwide, Hong Kong

has the most intensive supply of public transport
service. Hong Kongs public transport service
intensity measured by annual vehicle km per
square km is 7 times that of Western Europe, 54
times of Australia, and 81 times of United
States. [2] This has been possible for Hong Kong
through its high population density, high
employment density and a compact urban area.
The Hong Kong mass transit rail systems were
built in compact urban areas. The suburban
network was built well before urban development,
supported by a large feeder bus network to
provide a dense service that is highly competitive
to private cars. Private cars provide the
convenience of point-to-point travel, therefore for
the public mass transit system to be competitive,
the public transport system has to provide large
numbers of origin-destination trip pairs for
commuters to choose this mode of transport. Hong
Kong has been able to do just that, although this
has taken almost three decades. Public transport
service levels in Australia, for example, would
need to be 300 times as high to equal Hong
Kongs public transport competitiveness [2].

CREATING THE DESIRED OUTCOME

Many city governments have ambitious plans to
revitalize city centres, rehabilitate old areas and
build new suburban hubs. There is a revival of
interest in maintaining better integration of land
use planning and public transport. The reality is
that many cities find it difficult to create the desired
outcome of increasing market share of public
transport.
Car ownership is generally associated with wealth.
Australian / New Zealand (ANZ) and North
American cities are leaders in car ownership with
over 500 cars per 1000 people. On the metric of
cars per US$1000 GDP, ANZ and Canadian cities
have 25 to 30 cars per US$1000 GDP, US cities
are less at 19, Western European cities at 13 and
Chinese cities at 11. [1]

To understand why Hong Kong has been so

successful, it is worth looking at the extent of
supply and ease of travel:

Conference On Railway Engineering

Perth 7-10 September 2008

Andrew McCusker
MTR Corporation Limited

Integrated Land Use and Transport Planning

A Success Story

All public transport services are provided at

affordable prices ferry, franchised bus, rail
and metro.
Personal security is assumed and crime on
transport is almost non-existent.
Public transport capacity and ratings result in
a very high percentage of the population
having access to public transport within 200
metres of their home and workplace.
Discount for park-and-ride and intermodal
public transport trips is provided.
These attributes of a high intensity, well utilized
pubic transport service are as a result of a city
planning policy that favours public transport and
seeks integrated residential, commercial and retail
within development plans.

Figure 1 Relation of Fare Structure and Operating

Costs Recovery from Revenue (source: CoMET)

Railways have an exceptionally long economic life.

Apart from recurrent operation and maintenance
needs, asset replacement and enhancement is
another area requiring funding. Ageing assets will
need to be reviewed to deliver necessary
performance. There is a continual need to
enhance assets to keep up with public demand,
improving regulatory requirements, and increased
standards as demanded by societal development.

This process has ensured an environment which

discourages car use for the CBD due to very high
parking costs, facilitating public transport
interchange facilities making it easy for the public
to travel in the long term within developer
proposals. The Government contributes to
developer plans in the provision of traffic
interchange planning and facilities, and other
developer incentives.

Therefore, before city governments embark on

major plans for rail transport development, they
need to assess the affordability of the railway to
society and ensure that the railway is sustainable
while meeting the economic development and land
use planning needs.

Similarly, having created something of a virtuous

cycle, property on the main arteries to the city and
at interchange hubs within the city trades at a
premium, thus encourages clustering around
transport hubs and spokes. This mixed use
development increases real utility to the public at
large as well as enhancing rail patronage.

The UITP has compiled a database of 100 of the

worlds major cities to make available to the
transport industry a set of metrics for
benchmarking or measuring industry performance.
Figure 2 compares transportation costs measured
as a percentage of GDP against population
density. Hong Kong benefits from a high
population density, and is more efficient than
developed cities such as New York and Paris, with
about five percent GDP expenditure to serve an
average 320 inhabitants per square hectare.

AFFORDABLE TRANSPORT
City governments will note that the construction
costs of railway are high and need to cover
stations, tunnels, tracks, signalling, rolling stock,
etc. Where land may be freely granted by the city
government, uptake of land by the railway actually
constitutes an opportunity cost and can deprive
society of alternative land use. This is not always
appreciated.
City governments need certainty about recurrent
transport costs. However, most railways depend
on Government grants and subsidies to continue
operation and fund necessary asset renewals and
upgrade.
The extent to which fare and non-fare revenues
can cover railway or metro operating costs is not
well understood by those who benefit from usage.
Figure 1 is based on a CoMET benchmarking
study which ranks 20 typical metros by their ability
to recover operating cost. According to revenueoperating cost ratios, about 70% of these metros
could not support their operating expenditure by
farebox and commercial revenues alone. MTR
Corporation is among the few metros operated on
high revenue-operating costs ratio.

Figure 2 Urban Transportation Cost v. Population

Density (Source: Sustainability Report 2007, MTR)

Conference On Railway Engineering

Perth 7-10 September 2008

Andrew McCusker
MTR Corporation Limited

Integrated Land Use and Transport Planning

A Success Story

Figure 3 shows transport expenditure as a

percentage of household expenditure in developed
major countries or cities. When compared to
developed cities like Tokyo, London and New York,
Hong Kong transport costs are the lowest, and are
considered most affordable by the general
population.

Guangzhou and Shenzhen in Mainland China.

The high speed rail link is scheduled for
completion by 2014/15. MTR Corporation will
operate the line for 50 years through the payment
of annual concession fees under a build-operatetransfer contract, and with profit sharing
arrangements.
With the existing cross-boundary services and the
planned Express Rail Link, the Corporation is set
to play an influential and important role in
facilitating integrated land use and transport
planning in Hong Kong and in the broader Pearl
River Delta region.

Transport expenditure as % of
household expenditure
17.4%

Portugal (1)
France (1)

15.5%
15.1%

New York (2)

14.7%

United Kingdom (1)

Germany (1)

In 2007, the Corporation achieved a net profit of

HK$15.2 Billion (A$2.1 Billion). Profit generated
from property development was HK$8.3 Billion
(A$1.1 Billion)
and
property
rental
and
management
income
was
HK$1.8 Billion
(A$0.3 Billion).

14.5%

Spain (1)

13.0%

London (3)

12.8%

Italy (1)

12.5%

Tokyo (4)

10.0%
9.0%

Hong Kong (5)

10

15

20

Percentage
(1)
(2)
(3)
(4)
(5)

On a standalone basis, the Hong Kong based

recurrent business operates at a 59% EBITDA
margin. The Corporation is one of the most
successful railway operators in the world. The
integrated rail-property business model is the main
reason for these financial achievements.

Source: Eurostat; UK National Statistics

Source: US Bureau of Labour Office
Source: UK National Statistics
Source: Japanese Statistics Bureau
Source: HK Census & Statistics Department

Figure 3 Transport Expenditure as Percentage of

Household Expenditure

GOVERNMENT URBAN PLANNING

Therefore, what kind of city would you want to be?
The obvious choice is one with sustainable
economic growth backed by an affordable and
financially sustainable public transport system, at a
minimum burden to the city government and
inhabitants. Hong Kong has been able to achieve
this position. Best practices that underpin meeting
these aspirations and insights are as follows.

The Hong Kong Government has the role of

formulating sustainable development strategies
and plans, guiding the use and development of
land, facilitating suitable development and
redevelopment, and encouraging community
participation. In 2007, the Government completed
the Hong Kong 2030 Study which sets the
preferred spatial development pattern for the city.

UPDATE ON THE MTR NETWORK

According to the 2030 Study, core urban areas will

remain as the focal point of development and
urban activities. For other newly developed areas,
there should be lower level development. The
Government advocates mixed land use planning to
cover housing, commercial, industrial and
educational uses with convenient access to mass
transit systems. [3]

After the merger between MTR Corporation and

Kowloon-Canton Railway Corporation which took
place on 2 December 2007, the network has
expanded to cover a total route length of 211 km,
with a daily patronage of 4 Million. Apart from the
metro, the Corporation now operates a suburban
railway service, distributor service e.g. light rail and
feeder buses, intercity through-trains and freight
trains to Mainland China. Additionally, a number of
important public transport interchanges have been
provided to enable efficient integration between
the railway system and adjacent land use and the
Corporation has the right to lease land by paying
an annual fee to the Government.

The 2030 Study affirms the Governments

transport policy to focus on better integrated
transport and land use planning, with the aim of
providing a transport infrastructure in a timely and
cost-effective manner.
The Government recognizes the importance of
providing new systems, and improving existing
infrastructure, with priority given to railway
development and upgrade of the public transport
system. This will involve rationalizing and
improving public transport services to better match
demand and minimizing wasteful competition.
Convenient and comfortable interchange facilities
at transport hubs, e.g. railway stations, will be in
plans for new and major land-use or transport

Plans for constructing new line extensions in Hong

Kong are also advanced. By 2019, the MTR
network route-km will have grown from 211 km in
2008 to 273 km with the number of stations
increasing from 85 to 103.
In April 2008, the Government approved HK$39.5
Billion (A$5.3 Billion) for an Express Rail Link to
connect Hong Kong to the important cities of

Conference On Railway Engineering

Perth 7-10 September 2008

Andrew McCusker
MTR Corporation Limited

Integrated Land Use and Transport Planning

A Success Story

developments to minimize unnecessary duplication

generated by point-to-point services.

to improve regulatory requirements, and increase

standards.

The whole Government urban planning framework

is conducive to the viability of a commercially
driven rail-property business model.

Various funding and financing models have

therefore been considered by the Corporation to
suit the type of investments. The choice depends
on both immediate capital requirements and future
funding needs to ensure business sustainability.
Governments and railway operators need to
develop a model each time that best suits the
situation. The important issue is to develop a 50
year view encompassing the long term role of the
railway with a vision for the land use priorities, then
to construct a sustainable business model which
can work in the particular environment.

RAILWAY AND CITY VITALITY

The economic vitality of modern cities is heavily
underpinned by effective and efficient transport
systems, and for people movement, railway
systems are the transport of choice. However,
railways are low return-on-asset businesses which
are expensive to build and operate and where all
investments must be evaluated over many
decades if a sustainable business and financial
model is to be achieved.

The high density of population in Hong Kong and

high employment complemented by the high value
of land suggest significant funds can be available
from an integrated rail-property model to build new
railway extensions and to undertake asset renewal
and enhancements.

With rising energy costs, commodity and food

prices, and growing concern for carbon emissions,
cities increasingly turn to rail transport to provide
the major infrastructure backbone for economic
growth. Many cities wish to establish a long term
vision for sustainable development. The vision is
not just about the physical environment, but also
about the economy and society. The city has to
balance these different areas to arrive at an
optimum outcome for the future community and its
people.

MTR Corporation has applied the rail-property

model since the 1970s which has worked well.
The merger with Kowloon-Canton Railway
Corporation has given an extra 1.2 million square
metres GFA into the Corporations land bank for
property development. However, as future railway
extensions will be in developed areas, land is less
readily available for property development. The
granting of land development rights even at fair
market value is always politically sensitive. For
future railway extensions, the rail-property model
will have to allow for possible Government
subsidies, other commercial ventures or special
concessions for these railways to become
commercially viable and more importantly,
sustainable standalone entities.

MTR Corporation has over 41 percent market

share of all franchised modes of public transport in
Hong Kong. Efficient and cost-effective transport
facilities have been an important support for
sustaining the Hong Kong economy. Hong Kong
recognizes that the best way to support the
economy is through integrated land use and
transport planning that can lead to reduced
dependence on the private car, improve
accessibility to public transport and encourage
public transport use while at the same time
reducing greenhouse gas emissions.

RAIL-PROPERTY MODEL
How does the rail-property model work? The
Government grants MTR Corporation the
development rights for land above or adjacent to
the railway stations to help finance the
construction work, in lieu of injecting cash or
providing direct subsidies. The Government
receives proceeds at full market value (land
premium) for the land grants evaluated on a
greenfield basis, i.e. before any value added.

MTR Corporation aims to be recognized as a

leading company that helps connect and
contribute to the growth of local communities
without additional cost to taxpayers, thus
supporting the Hong Kong economy.
CHOICE OF FUNDING MODELS
The Government regulates rail fares by a Fare
Adjustment Mechanism which determines future
fare adjustments based on the Government
Composite Consumer Price Index and changes in
Nominal Wage Index.

The Corporation invites developers through tender

to develop the land, and shares the profit with the
developers. Property development spins off initial
capital supporting the building of new extensions.
Profits brought in over the years help to fund future
asset renewal and enhancement needs of the
railway.

MTR Corporation is obliged to enable the railway

to operate safely, reliably and efficiently so that
committed service standards are achieved.
Railway assets have exceptionally long economic
life. Asset replacement and upgrade is a major
area requiring funds and there is a continual need
to enhance assets to keep up with public demand,

The developers are responsible for the

construction cost and land premium for property
while the Corporation is responsible for all costs of
the railway provision. Risks borne by the
Corporation are low in these property development

Conference On Railway Engineering

Perth 7-10 September 2008

Andrew McCusker
MTR Corporation Limited

Integrated Land Use and Transport Planning

A Success Story

arrangements as the only risk associated with this

business model is the cost of advance foundation
works [4]. The foundations for property
development above a railway station need to be
constructed before a site is put out to tender. The
cost of these works is borne upfront by the
Corporation and later recovered from the property
development. Dependent on the Corporations
appetite for risk, it can consider advancing an
interest-free loan to the developer in return for an
increased sharing in kind of the development.

Using the Tseung Kwan O extension as an

example, the project was completed in 2002 at a
project cost of HK$15.4 Billion (A$2.1 Billion).
MTR Corporation self-financed the construction
through retained profits and debts. The new line
comprises five stations and a depot, providing
gross floor area of 2.3 million square metres.
INSTITUTIONAL APPROACH
The rail-property model of MTR Corporation
adopts an institutional approach [5]. The
Corporation is at the centre stage in planning and
coordinating both the railway and the property
development.
This approach does not remove
the need for statutory plans, land lease documents
and government regulations, but allows the
Corporation to undertake comprehensive masterplanning.

The rail-property model creates a win-win

situation for the developers, the Government, MTR
Corporation and the travelling public. Developers
can access premium sites for property
development with acceptable risks and cost in
infrastructure planning and construction. The
Government does not need to use public funds for
the railway construction but only grants the land
use to the Corporation and receives the full value
of land in return and lease payments from the
operating company on an annual basis. This also
maximises land revenue to the Government as
new towns are developed along the constructed
railways, and the Corporation has a proud record
in building communities.

The success factor is that MTR Corporation is able

to have a vision for a long-term conceptual
planning of the integration of land use and the
railway. The Corporation has the flexibility to work
out site development details together with
developers and the Government. This way, MTR
Corporation is able to maximise the value of the
whole development project and external benefits
generated from the integrated railway and property
development within government zoning land use
plans. The Corporation is able to react
responsively and flexibly to the market needs
without
constraints
from
long
prepared
Government land use plans which may have
become unsuitable or redundant.

In the past years, MTR Corporation has generated

over HK$177 Billion (A$23.8 Billion) of value
accretion for the Government through this
business model.
The typical MTR rail-property model is illustrated
by Figure 4. District centre functions with high
value private housing will normally be above the
railway station. The catchment within 400 m walkin zone to station will be characterised by traffic
free high density mixed housing. Further extension
of the catchment will connect to the railway station
via feeder services e.g. buses, mini-buses or light
rail.

Being able to manage joint development of the

railway and property by the same business entity
allows more comprehensive planning. Different
possible development options can be explored and
evaluated at the planning stage. MTR Corporation
can also assist in resolving conflicting interests of
different parties with an optimum outcome for the
overall development.
Success for the railway system and the community
relies on good integration with other transport
modes and feeder services through efficient
transport interchange facilities. This requires
appropriate planning from a very early stage.
Appropriate planning leads to cost-effective
transport solutions.
The sites of MTR property developments are
attractive. People enjoy working, living and
shopping in properties near the railway stations as
they are value adding, convenient and efficient.
Their places of work, home or leisure directly
situated above are fully integrated with the railway
station below, and people can travel free from
unpleasant weather conditions.
The planning
extends to landscaped open spaces for the public
and other recreational facilities.

Figure 4 : Rail-Based Integrated Community

Conference On Railway Engineering

Perth 7-10 September 2008

Andrew McCusker
MTR Corporation Limited

Integrated Land Use and Transport Planning

A Success Story

MTR property developments include residential

and commercial premises and shopping centres,
all integrated with the railway infrastructure. The
theme, quality and provision of the property
developments become the focal point of the local
community.

public transport interchange for park-and-ride e.g.

Hong Kong Station. An old industrial area has
been revitalized to become a modernised
residential area with seamless connection between
public transport, shopping and community e.g.
Tsing Yi Station. MTR Corporation has built new
towns, and connected the local communities to
other business areas through efficient rail services,
and contributed to local economic activities e.g.
Tung Chung (Figure 6) and Tseung Kwan O areas.

MTR Corporation also promotes seamless

integration between the railway station and
property to maximise convenience to the residents,
local businesses, passengers, visitors and
shoppers.
Over the years, pedestrian links have been
retrofitted to connect the railway stations to
adjacent properties (Figure 5). This move
improves accessibility and convenience, but may
only provide a second-best option. Retrospective
development of these pedestrian links is unlikely to
have exploited the best opportunities, including
cost, timing, resources and design. The cost of
negotiation between the Corporation and the
property developers can be high, thereby resulting
in project delay or termination.

Figure 6 : Tung Chung Integrated Community

One latest property development LOHAS Park on

top of the Tseung Kwan O depot builds on the
LOHAS concept. LOHAS stands for Lifestyle of
Health and Sustainability and is a worldwide trend
of an emerging customer group concerned about
residents health and fitness, environment and
sustainable living. LOHAS aims to build a local
community with self-sustaining educational and
recreational
amenities
and
promote
environmentally-friendly, efficient rail as the means
of connection to other parts of the Hong Kong
territory. The project echoes the Corporations
vision to grow community with caring services and
enhance quality of life 30 minutes to CBD with
trains every 3 minutes but located in the country.

Figure 5 : Connection to Shatin Station

Property owners and transport operators may have

different considerations and priorities. Shopping
centres may want to retain the shoppers longer,
whereas the transport operator aims to provide
efficient people movement.[5] If the owners of the
railway and the adjacent property are separate
organizations, our experience is that it can be
costly to resolve their conflicts in pedestrian links
arrangement to allow maximisation of benefits.

PROMOTING THE HONG KONG APPROACH

Through an international growth strategy, MTR
Corporation has active involvement in public
transport projects outside of Hong Kong. While
MTR Corporation continues to look for
opportunities for rail-property model applications, it
hopes to help other cities to deliver the Hong Kong
magic - customer oriented focus and integration
with other transport modes and local communities.

To date, MTR Corporation has successfully

instituted reform to local communities. It has
developed new commercial centres integrated with
high quality hotel and premium residential
developments e.g. Kowloon Station. The
Corporation has made the existing central
business district more efficient, with fully integrated
premium offices, retail and hotel facilities,
extensive public space for the local community and

In China, the Corporation is building Phase 2 of

Shenzhen Line 4 and will operate Phase 1 and
Phase 2 under a 30-year concession. Beijing Line
4 is being built and will be operated through a
Public-Private-Partnership (PPP) arrangement.

Conference On Railway Engineering

Perth 7-10 September 2008

Andrew McCusker
MTR Corporation Limited

Integrated Land Use and Transport Planning

A Success Story

In Europe, MTR Corporation has just embarked on

a 7-year concession with effect from November
2007 to operate the London Overground service
through a joint venture with Laing Rail Limited.
London Overground is a semi-orbital route of five
rail lines serving West, North and East London and
will act as a crucial link for the 2012 Olympic
Games. The Corporation will aim for consistent
high service performance. The vision is to provide
safe, friendly, accessible and secure transport for
Londoners, a service that will make passengers,
the local community and Londoners feel proud.

REFERENCES
[1] Kenworth JR Transport Energy Use and
Greenhouse Gases in Urban Passenger
Transport Systems: A Study of 84 Global
rd
Cities International 3 Conference of the
Regional Government Network for Sustainable
Development,
Notre
Dame
University,
Fremantle, Western Australia, 2003.
[2] Cox Wendell - Performance Indicators in Urban
Transport Planning 8th International
Conference on Competition and Ownership in
Land Passenger Transport (Thredbo 8), Rio de
Janeiro, 2003.
[3] Hong Kong Special Administrative Region
Government Hong Kong 2030 Planning
Vision and Strategy. 2007 October.

In addition, MTR Corporation is actively bidding or

negotiating for three other lines in China and two
internationally.
CONCLUSION

[4] Ho T. Interview - Property as a Means of

Financing Railway Infrastructure. PTI Journal.
2003 June: 32-34.

The integrated land use and transport planning

model adopted by MTR Corporation ensures
business sustainability of the railway by translating
land development rights from the Government for
railway construction into property profits to help
bridge the funding gap for new railway
construction and future asset renewals and
upgrade. The Corporation is at the centre stage of
both the railway and property development and
provides a unique opportunity to optimise cost and
socio-economic benefits. The model is well
recognised throughout the world and is considered
a success story by many railway operators. Of
course, it has to be backed up by provision of a
high frequency, no problems and affordable cost
railway service which is MTR.

[5] Tang BS, Chiang YH, Baldwin AN, Yeung CW.

Integration
of
Property
and
Railway
Development: An Institutional Economic
Analysis. Hong Kong Surveyor. 2005 June 23,
16(1).

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