PRP Impact Issue 1 - Land Valuations Final PDF

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Impact!

March 2012

Land Valuation – Is it worth objecting? Most people are directly or indirectly affected by fluctuations in land values: whether it be through increased Land Tax Assessments, rising Council Rates or additional outgoings for your business, Land Valuations have inherent consequences . Under the Valuation of Land Act 1916, you have the right to lodge an objection to 1) The Notice of Valuation and 2) The Land Tax Assessment Notice issued. Preston Rowe Paterson has a proven track record of lodging successful objections to Land valuations and as a result, achieving significant savings in Land Tax payable. In this issue What is Land Value? How is Land Valued? The mass valuation approach – Theory What is Land Tax? How much do I have to pay? What does this mean to me? Objecting to the Land Value on your Notice of Valuation. Objecting to a Land Value on your Land Tax Assessment. Grounds for objection of Land Value. What can form an objection? How can we help? What can PRP do?

What is Land Value? According to the Valuation of Land Act 1916 Land Value is defined as: Section 6A (1) headed Land Values provides: The Land Value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner’s predecessor in title had not been made. Section 7B (1) headed Land Values provides: (1) The Land Value of a stratum is the capital sum which the fee-simple of the stratum might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require assuming: (a) that the improvements, if any, within the stratum and made or acquired by the owner or the owner’s predecessor in title had not been made: Provided that where the stratum is wholly or partly in an excavation it shall be assumed that the excavation of the stratum had been made, (b) That means of access to the stratum may be used, and may continue to be used, as they were being used, or could be used, on the date to which the valuation relates, and (c) that lands outside the stratum, including land of which the stratum forms part, are in the state and condition existing at the date to which the valuation relates, and, in particular, without limiting the generality of this assumption, that where the stratum consists partly of a building, structure, or work or is portion of a building, structure, or work, such building, structure, or work, to the extent that it is outside the stratum, had been made. How is your Land Valued? Most Australian states apply the mass appraisal method to assess residential land and or property values, which is in turn used to determine local government rates and taxes. The NSW land calculation process

2012 - Issue # 1

uses the concept of indentifying groups of properties, (called a component) with like characteristics in an LGA, such that the land value of the selected properties within the group, move at a similar rate over time. R e p re s e n t a ti ve prope rties (benchmarking) in each component are individually valued as at 1st July of each year to determine how much the land value has changed from the previous year. The most important factor considered when determining land values is property sales in the component area. Other factors considered include: property market conditions at time of valuation, most valuable use of land, locality, physical statistics, zoning of land and nearby development and infrastructure. Some statutory restrictions on the use of the land are also taken into account when assessing Land Value, including LPA’s and heritage listings, as well as crown lease restrictions and rent controlled land pursuant to the Landlord and Tenant (amendment) Act 1948. The mass valuation approach—Theory By definition a component consists of like properties with similar value movements, As a result is it often a valid argument (and one which is commonly used by the Valuer-General’s office) that tracking the Land Value of one or two properties (benchmarking) in the component should be sufficient to carry out re-valuation of the entire component. A relatively simple method however is subjective in nature, given that it relies on an adequate and well constructed sample of properties initially selected for inclusion in a component. It is equally important that the benchmarking properties, that is those properties that are looked at in the revaluation process, are a typical representation of properties in the component and hence, whose value is considered close to the middle of the range within the component. Making suitable adjustments to individual lots in previous valuation cycles is not feasible given the number of parcels in a component and therefore valuation errors are perpetuated each year. The propensity to over or under value property is inevitable. The mass appraisal system is a robust system for what it is. However, as it is

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based on groups/components and benchmarking. Often individual property values will differentiate from Land Values arrived at by the mass appraisal approach. What is Land Tax? Land Tax is a levy placed on owners of land (excluding principal place of residence, and primary producing farm land) in New South Wales, as at midnight on 31 December of each year. The implementation and administration of land tax is subject to the Land Tax Valuation Act of 1916. Land by definition, refers to land only, and does not refer to the value of your home or other improvements. Examples of types of properties which may require land tax to be paid are: Vacant land (whether residential, rural or commercial) Holiday homes or investment properties Company titles including industrial, residential, retail, hotels and parking Crown Land leased from state or local government. How much do I have to pay? The Valuer General has determined that the Land Tax threshold for the 2012 Land Tax year is $396,000, with the premium Land Tax threshold for that same year being $2,421,000. The Land Tax Levy is calculated on the combined value of ALL property owned, above the Land Tax threshold. The rate of Tax in New South Wales is $100 plus 1.6% of the Land Value between the threshold of $396,000, and the premium threshold of $2.421 million, which is subject to 2% thereafter. Special Trust’s however do not have a minimum threshold amount and Land Tax is charged at a flat rate of 1.6%, up to the value of the premium threshold of $2.366 million, which is

also subject to 2% thereafter. What does this mean to me? There are many implications to increases in Land Tax, not just for commercial properties, but for small business and individuals alike: Land Tax increases are usually higher than inflation putting downward pressure on commercial property valuation. Tenant’s paying net rents for their commercial premises will usually pay for the Land Tax via increases in outgoings Gross rent paying tenant’s are indirectly affected by Land Tax. Increases in Land Tax ,places downward pressure on company profitability. In the current leasing market landlords are unable to pass on the increases in taxes to future tenants, placing further pressure on the commercial property market returns. Indirectly, superannuation funds invest in commercial property, downward pressure on property valuations adversely affects the wealth of many members of the public. Council Rates are calculated using Land Valuation figures. Objecting to the Land Value on your Notice of Valuation The Notice of Valuation carries a right of objection to the Land Value. The Valuer-General supplies land values to councils every three/four years in the determination of your Council Rates. When your council reviews Land Values, a Notice of Valuation is issued to the landowner, stating the properties Land Value. The last date to object to the Land Value on your Notice of Valuation is stated in the bottom left hand corner of your Notice of Valuation.

Objection to a Land Value on your Land Tax Assessment Under the Valuation of Land Act 1916, a Land Tax Assessment carries a right of objection of the land value. The Office of State Revenue (OSR) is supplied a copy of Land Values, issued by the Valuer- General each year. The OSR manages Land Tax and issues a Land Tax Assessment to land owners. Land Tax objections have to be lodged 60 days from the issue date printed on their Land Tax Assessment. Grounds for objection of Land Value Section 34 of the Valuation of Land Act 1916 provides for an objection process for the review of Land Values. 34 Grounds of objection (1) In relation to land the only grounds upon which objection may be taken under this Act are: (a) that the values assigned are too high or too low, (a1) that the area, dimensions or description of the land are not correctly stated, (b) that the interests held by various persons in the land have not been correctly apportioned, (c) that the apportionment of the valuations is not correct, (d) that lands which should be included in one valuation have been valued separately, (e) that lands which should be valued separately have been included in one valuation, and (f) that the person named in the notice is not the lessee or owner of the land. (2) In relation to a stratum the only grounds upon which objection may be taken under this Act are: (a) that the values assigned are too high or too low, (b) that the situation, description, or dimensions of the stratum are not correctly stated,

Basic Land Tax Calculation Total Taxable Value of land $470,000

Rate of Land Tax payable

Example

Land Tax Payable

Total Value of Land

$470,000

Threshold

$396,000

Value of land above the Land Tax threshold

$74,000

1.6 Cents for each $1

$1284 ($1,184 + $100)

Rate of Land Tax Payable

x 1.6% (plus $100)

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Premium Land Tax Calculation Total Taxable Value of land

$2,759,000

Rate of Land Tax payable 2 cents for each $1 over the premium threshold

1.6 cents for each $1 over the Land Tax Threshold

Example

Land Tax Payable

Total Value of Land

$2,759,000

Premium Threshold

$2,421,000

Value of land above the Premium Land Tax threshold

$338,000

Total value of land under premium threshold

$2,421,000

Threshold

$39,260 ($6,760 + $32,400 +$100)

$396,000

Value of land above the threshold

$2,025,000

Rate of Land Tax Payable

($338,000 x 2%) Plus ($2,025,000 x 1.6%) Plus ($100)

Land Tax Calculation for Special Trust Total Taxable Value of land $470,000

Rate of Land Tax payable 1.6 Cents for each $1

Example Total Value of Land Threshold Rate of Land Tax Payable

(c) that strata which should be included in one valuation have been valued separately, (d) that strata which should be valued separately have been included in one valuation, and (e) that the person named in the notice is not the lessee, occupier, or owner of the stratum. (2A) In either case, an objection against the Valuer-General’s refusal to determine an allowance or apportionment factor may be made on the ground that such an allowance or apportionment factor should have been determined. (3) For the purposes of the application of this section to an objection under this Act to an allowance or an apportionment factor determined in respect of land or a stratum, a reference in this section to "values" is to be taken to include a reference to the amount of the allowance or the apportionment factor, as the case requires. What can form an objection? An objection cannot be lodged against the ‘average’ or taxable land value, rather the value of land stated for each of the three base years used. When objecting to a Land Tax Valuation, you must provide valid informa-

Land Tax Payable $470,000

$7,520

Does not apply x 1.6%

tion to support your objection and contended Land Value. Valid objections are based on factors relating to your property and how the Land Value relates to comparable sales evidence and supporting documentation. Valid supporting information includes: Specific sales evidence (either vacant land or improved sales), including address, sale price and when the sale occurred e.g. 1st July in the valuation year. A list of sales evidence used by the valuer at the time of valuation is provided. Features of the land, including location, nearby development, land statistics and quality, may have not been considered in the determination of land value. Concessions and allowances, which may not have been calculated, or incorrectly calculated in relation to the valuation. Incorrect ownership details Permissible use of the land, e.g. Heritage, LPA and zoning and encumbrances. For the 2012, Land Tax year, the taxable value of land will generally be the average of the land values apply-

ing for the valuing years 2009, 2010 and 2011. Where a parcel of land was only recent created, by subdivision or amalgamation, the average value will be determined based on the land value for those average years when the land did exist. How can we help? At PRP we can help lodge your objection. Our dedicated team of valuer’s both commercial and residential can take the hassle out of the objection process, we can act on your behalf to ensure the most accurate and valid information relevant to your property is presented to the Valuer Generals office. As the objection can only be lodged once, it is imperative to the decision making process that this lodgement is completed accurately in the first instance. What can PRP do? Initial review Check the Facts: land area, title with Town planning etc Assess whether an objection is appropriate Make recommendation to object or not? Apply for time extension if necessary

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Prepare support documents/ arguments Lodge objections on your behalf with supporting documents Follow process of Valuer--General (VG) and Land Property Management Authority (LMPA) objection review Attending review meetings on your behalf with the VG and LPMA If your recommendation is not accepted, make a recommendation whether or not to lodge an appeal in the Land and Environment Court Represent you in court as an expert in proceedings.

Types of Real Property We regularly provide valuation, property and asset management, consultancy and leasing services for all types of Real Estate including: CBD and Metropolitan commercial office buildings Retail shopping centres and shops Industrial, office/warehouses factories Business parks

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Hotels (accommodation) and resorts Hotels (pubs), motels and caravan parks Residential development projects Residential dwellings (individual houses and apartments/units) Rural properties Special purpose properties such as: nursing homes; private hospitals, service stations, oil terminals and refineries, theatre complexes; etc. Extractive industries, land fills and resource based enterprises

Types of Plant & Machinery

Investment advisors Lessors and lessees Listed and private company corporations Listed Property Trusts Local, State and Federal Government Departments and Agencies Mining companies Mortgage trusts Overseas clients Private investors Property Syndication Managers Rural landholders Solicitors and barristers Stock brokers Trustee and Custodial companies

For more information, please visit our website: www.prpaustralia.com.au

We regularly undertake valuations of all forms of plant, machinery, furniture, fittings and equipment including: Mining & earth moving equipment/ road plant Office fit outs, equipment & furniture Agricultural machinery & equipment

Our Research At Preston Rowe Paterson, we pride ourselves on the research which we prepare in the market sectors within which we operate. These include Commercial, Retail, Industrial, Hotel & Leisure and Residential.

Our Corporate Property Services Real Estate Investment Valuation Real Estate Development Valuation Property Consultancy and Advisory Transaction Advisory Property and Asset Management Listed Fund, Property Trust, Super Fund and Syndicate Advisors Plant & Machinery Valuation General and Insurance Valuation Economic and Property Market Research

Heavy, light commercial & passenger vehicles Industrial manufacturing equipment Wineries and processing plants Special purpose plant, machinery & equipment Hotel furniture, fittings & equipment

Our Clients Preston Rowe Paterson acts for an array of clients with all types of real estate, plant, machinery and equipment interests such as: Accountants Banks, finance companies and lending institutions Commercial and Residential non bank lenders Co-operatives Developers Finance and mortgage brokers Hotel owners and operators Plant & Machinery Valuation Institutional investors Insurance brokers and companies

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Offices Sydney (Head Office) Associate Directors Level 11, 80 Clarence Street Sydney NSW 2000 PO BOX 4120, Sydney NSW 2001 P: 02 9292 7400 F: 02 9292 7403 E: [email protected] Directors Greg Preston M: 0408 622 400 E: [email protected]

Asset Management Ben Greenwood M: 0448 656 103 E: [email protected] Commercial Valuation/Advisory Neal Smith M: 0448 656 647 E: [email protected] Rachel Cooper M: 0448 757 134 E: [email protected]

Residential Valuation Ben Toole M: 0448 886 335 E: [email protected] Asset, Plant & Machinery Valuation Greg Mason M: 0448 757 046 E: [email protected] Manager - Research & Marketing Tammy Smith M: 0416 004 964 E: [email protected]

Greg Rowe M: 0411 191 179 E: [email protected]

Capital City Offices

Regional Offices

Adelaide Brisbane Canberra Darwin Hobart Melbourne Perth

Albury Wodonga Ballarat Cairns Central Coast/Gosford Geelong Gold Coast

Gippsland Mornington Newcastle Wagga Wagga Warrnambool

Preston Rowe Paterson NSW Pty Ltd ABN: 61 003 139 188 The information provided within this research report should be regarded solely as a general guide. We believe that the information herein is accurate however no warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and nor any responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether expressed or implied (i ncluding responsibility to any person or entity by reason of negligence) is accepted by Preston Rowe Paterson NSW Pty Ltd or any of its associated offices or any officer, agent or employee of Preston Rowe Paterson NSW Pty Ltd.

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