New Perspectives on Climate Finance for Cities: Case Study

São Paulo
Capturing land values in Água Espraiada, São Paulo

In recent years, the area around Água Espraiada has undergone a complete transformation including the development of a medical center. The value capture strategy deployed by the local authority raised substantial amounts of public revenue to pay for infrastructure projects in the area, including social housing projects for displaced favela residents to move into. In 12 years, São Paulo has raised approximately US $2 billion through the sale of bonds, of which a staggering 75 percent came from Água Espraiada. São Paulo identified the zone for redevelopment and established a bond trading scheme where developers could purchase bonds at an auction. A certain number of certificates permitting additional construction potential, known as CEPACs, entitle developers to build extra density in the area. The bonds were auctioned through the Bank of Brazil and certified by the Securities and Exchange Authority and have become an established investment vehicle for pension funds and investors. Developers are entitled to build bigger buildings than traditionally allowed by law. Proceeds from the bonds can be used by the government to invest in housing, roads and other infrastructure within the same zone.