How does a Redevelopment Project work?

An urban redevelopment is a mega-scale real estate project to turn an existing conventional town into a new townscape consisting of high-rise buildings, public space and facilities, etc. An easement of the total floor-area ratio (see the note below) by the local authorities is a key factor in the urban redevelopment. This easement is what attracts a developer such as Sumitomo Realty and Development Co., because the easement will provide the developer with an opportunity to procure significantly expanded floor space in the high-rise buildings with little business risks on their side.

The project being proposed by Sumitomo in Sengakuji falls into “category 1” of the redevelopment as provisioned by the urban redevelopment law. This category states property owners (not Sumitomo) to assume principal business risks involved in the project. Accordingly, the laws and regulations require voluntary participation of local property owners as well as consent of at least two-thirds of property owners who will be affected.

From the property owners’ viewpoint, they have to give up their precious land for the project, while having to assume substantial business risks. Nevertheless, they are only entitled to receive new building floors of equivalent property value as a consideration.

On the other hand, the situation is totally different for SUMITOMO.
The project would be quite lucrative because a relaxation of the floor-area ratio will allow them to design a high-rise building, with an option for them to procure newly created floors while shifting principal project risks onto property owners.

It follows that, unless property owners affirmatively speak out for their rights and consideration, an experienced developer would take an initiative and unilaterally carry out the project in their favor, at property owner’s risks. Therefore, property owners must carefully contemplate this issue before they consent to the project. Otherwise, they may end up having to put themselves into a situation similar to “Turkeys voting for Thanksgiving”.

What is Floor Area Ratio?


The Floor Area Ratio (FAR) can be calculated by the following formula:
The FAR easement is often used as one of regulations in city planning as a means of promoting high-rise buildings in the urban redevelopment project.