Boyle v Townsville City Council
[2002] QLC 100
•19 December 2002
LAND COURT OF QUEENSLAND
CITATION:Boyle & Anor v Townsville City Council [2002] QLC 100
PARTIES:Mercia E Boyle and the Estate of Ada I Power (Deceased)
(claimants)
v.Townsville City Council
(respondent)
FILE NO: A2001/0117
DIVISION: Land Court of Queensland
PROCEEDING: Determination of compensation payable consequent upon the resumption of land by Townsville City Council for sewerage purposes under the provisions of the Acquisition of Land Act 1967.
DELIVERED ON: 19 December 2002
DELIVERED AT: Brisbane
HEARD AT: Townsville
MEMBER: Mr RE Wenck
ORDERS:1. Total compensation is determined in the amount of Five Hundred and Eleven Thousand Nine Hundred and fifty-seven Dollars Eighteen Cents ($511,957.18).
2.It is ordered that interest at the rate of 6 per cent per annum be paid by the respondent to the claimants on the amount of $497,500 for the period commencing on and including 3 November 2000 ending on 21 March 2002 then on the amount of $152,500 for the period commencing on 22 March 2002 ending on and including the day immediately preceding the date on which payment of that balance amount is made.
It is further ordered that interest at the rate of 6 per cent per annum be paid by the respondent to the claimants on the legal and valuation fees for the periods commencing on and including the dates to be proved by the claimants, on which payments of those fees were made, up to and including the day immediately preceding the day on which payment is made by the respondent.
CATCHWORDS: Valuation – In globo Island land – Highest and best use considerations– Town planning issues – Effect of Development Control Plan and Strategic Plan on development potential – Transitional planning scheme from Local Government (Planning and Environment) Act 1990 to Integrated Planning Act 1997 – Reconfiguration not a zoning use right.
Valuation – Methodology – Direct comparison with sales – Whether mainland sales should be used as evidence of value of Island land – Hypothetical development as check methodology.
Valuation – Factors affecting in globo value – Effect of Goods and Services Tax – Lack of market evidence at date of valuation – Theoretical, yet factually based calculation of GST implications acceptable – Alternative to increase profit and risk allowance in hypothetical development exercise.
COUNSEL: Mr R Jones for the claimants
Mr R Needham for the respondent
SOLICITORS: Wilson Ryan & Grose for the claimants
Suthers Taylor for the respondent
Under the provisions of the Acquisition of Land Act 1967 by Notice appearing in the Government Gazette dated 3 November 2000, Townsville City Council took for sewerage purposes, on and from that date, land described as Lot 2 on RP 721497 containing an area of 13.812 ha, being the whole of the land in title reference 20724137, Parish of Magnetic.
The land is a near regular shaped vacant parcel with frontage to Yule Street, Magnetic Island, about 1.3 km north-westerly of the Picnic Bay beach and commercial centre. The Magnetic Island Golf Course adjoins the eastern boundary, separating the land from existing residential development. Lands to the north comprise unallocated State land then a National Park, while to the south land in its natural state is incorporated in a Special Lease. The respondent Council owns land adjoining to the west and has, subsequent to the date of resumption, constructed sewerage treatment works on that adjoining land. Further to the west Yule Street leads to West Point which comprises rural homesites and large lots and a beachside community with limited services.
Magnetic Island lies approximately 8 km off the coast from Townsville and has a resident population of about 3,000 persons. Picnic Bay is one of four main established bays, the others being Nelly Bay, Arcadia and Horseshoe Bay. At the relevant date, Picnic Bay was the main arrival point for ferry passengers with regular services provided to and from the mainland. When completed, the Nelly Bay/Magnetic Harbour development will incorporate a new barge and ferry terminal.
The subject land is severed almost centrally by a gully system running north to south then extending laterally (generally east-west) near to the Yule Street frontage. Falling away from mountainous areas which lie externally to the north, the areas of highest elevation on the subject land are in the north-eastern section of each physically severed area with moderate to undulating mainly south-westerly slopes, then steeply sloping lands into the gully systems, rising again to the Yule Street frontage. The land is described as being moderately to heavily timbered. Soils are of a decomposed granite type. There is a rock outcrop feature extending externally into the State land and there are areas with granite boulders within the subject land. Outlook from within the site is limited by existing vegetation. However ocean views are available from the elevated areas within the eastern and north-eastern sections.
As at the date of resumption Yule Street had recently been bitumen strip sealed along the full frontage of the subject property. Access to the site off Yule Street is limited by the location of the gully systems. Electricity, reticulated water and telephone services were available for extension to the land. No reticulated sewerage service existed.
The site is included in the "Residential 1" zone in the Townsville City Planning Scheme gazetted in September 1994. Prior to that the land had been included in the "Residential A" zone since 1982. However, the land was included in the Special Development Area (SDA) 6 designation in the Magnetic Island Development Control Plan 6 as included in the Planning Scheme. Land in this designation is the preferred location for Park Residential development. Similarly, in the Strategic Plan which was gazetted as part of the Planning Scheme, the land was shown as included in the Park Residential Preferred Dominant Land Use (PDLU) designation.
The respondent's solicitors initially referred the matter to the Land Court in an originating application seeking an order that compensation be determined in the amount of $345,000. The claim for compensation was subsequently filed as follows:
Land $675,000.00
Valuation Fees $6,875.00
Legal Fees $7,583.21
The respondent's final valuation before the Court was in the amount of $475,000, excluding valuation and legal fees.
Agreement was reached between the parties in the amounts of $6,875 for valuation fees and $7,582.18 for legal fees.
The primary issue between the parties is the highest and best use potential of the land and as a consequence, its market value.
Witnesses for the claimants were, in the order called:
Mr PAG Dance, Town Planner
Mr ID Ivers, Real Estate Agent and Valuer
Mr MA Zappala, Civil Engineer
Mr GW Jensen, Development Designer and Cost Estimator
Mr GW Eales, Valuer
Witnesses for the respondent were, in the order called:
Mr CJ Schomburgk, Town Planner
Mr PV Flanagan, Civil Engineer
Mr WG John, Real Estate Agent
Mr BG Duncan, Valuer
Highest and Best Use
Although alternative concepts were seen as open for consideration both from a town planning and valuation point of view, the case argued by the claimants was that the highest and best use of the land was for a mixed "Residential 1" and Park Residential style of development. Mr Eales described the potential as being for subdivision into "a mixed development concept of traditionally residential style lots on the eastern section of the property with some rural residential style development on the western section of the property. The development of the western section would be in the longer term with the eastern section having an immediate potential for development". A "low key residential development which would focus on the frontage of the site to the golf club" was designed by Mr Jensen who prepared a concept plan of subdivision. That plan provided:
·A 5 metre wide setback buffer along the Yule Street frontage.
· 14 "Residential 1" type lots, 4 with area of 600 m², 10 with area of 800 m² "with direct frontage to the Magnetic Island Golf Club".
· 1 internal cul-de-sac with access from Yule Street.
· 14 Park Residential lots on the western side of the cul-de-sac (with lot sizes of 2,000 m²).
· 1 rural homesite (with area of approximately 8.612 ha being the balance area of the parent parcel).
· Road access to the cul-de-sac for all lots.
· Connection of all lots to the Council reticulated water supply.
· An integrated waste water disposal system utilising a suitable package plant.
The respondent's case was that the highest and best use of the land was for subdivision as a Park Residential style development with minimum lot sizes of 4,000 m², in conformity with the intent of the Strategic Plan and the respondent's interpretation of the relevant Development Control Plan. Mr Flanagan produced a conceptual plan of subdivision in which 11 Park Residential lots were yielded from the eastern severance area off a central cul-de-sac road. In that layout, a large balance area remained fronting Yule Street. A second concept plan over the whole site yielded 23 Park Residential lots with minimum size of 4,000 m² but averaging 4,959 m² overall, together with a park area of 1.386 ha (10% of the parent parcel). Each lot in the overall layout was accessed by an internal road system incorporating the cul-de-sac in the eastern section.
The claimants' case had received town planning support from Mr Dance while the respondent's case was based on town planning interpretation supported by the opinion of Mr Schomburgk.
It was submitted by counsel for the claimants that considerable weight should be given to the fact that, despite the introduction of the Strategic Plan and the Development Control Plan, the Townsville City Council had made a conscious and deliberate decision to include the subject land in the "Residential 1" zone. Then, in considering an application to develop the land in conformity with the claimant's proposal, the Council, it was submitted, would accept that s.6.1.28(3)(a) of the Integrated Planning Act 1997 (IPA) was applicable, the zoning and the provisions in s.6 and s.18 of the Town Planning Scheme would be relevant and it would remain to be considered whether the proposal was in conflict with the Strategic Plan or Development Control Plan 6. It was submitted that the factors which were relevant in determining whether there was conflict are:
"(i) the subject land bears use rights for the Residential 1 use;
(ii) a Strategic Plan or DCP cannot take those use rights away;
(iii) the DCP only expresses a "preference" for Park Residential. The use of the word preference is in itself a strong acknowledgement that the DCP does not purport to take away the use rights conferred by the zoning;
(iv)the DCP sets out the reasons why there is a "preference" for Park Residential;
(v)the supporting data reinforces that reasoning;
(vi)the reasons for the preference can be overcome;
(vii)other provisions of the DCP which support the claimants' position are –
· Section 3.1.3
· Section 3.1.12
· Section 2.2
· Section 2.3
· Section 3.1
· Section 4.1"
It was suggested that by taking all of those factors into account it would be entirely open to a local government to find that there was no conflict with the Strategic Plan.
It is noted that s.3.1.3 of Development Control Plan (DCP) 6 describes the Preferred Dominant Land Uses (PDLU) of the Park Residential zone; s.3.1.12 the PDLU of Special Development Areas; s.2.2 states – "This plan" (DCP 6) "applies to all land within the Planned Area after the commencement date. It should be read in conjunction with other elements of the Planning Scheme and is supplementary to that scheme."; s.2.3 states – "Nothing in this Plan should be construed to confer any additional rights to use land, which right (sic) remain vested in the provisions of the Planning Scheme."; s.3.1 refers to PDLU and s.4.1 describes the character of Picnic Bay.
As counsel for the respondent pointed out, in s.4.1 the reference in Special Development Area (SDA) 6 is to a "preferred location" for Park Residential development rather than a "preference" for Park Residential development. It is the respondent's contention that, as had been conceded by Mr Dance (transcript p.28 and following), the land enjoyed no "reconfiguration rights" and a development application for reconfiguration required assessment against the transitional planning scheme, and under s.6.1.29(h)(ii) of the IPA against the matters stated in s.5.1(3) of the Local Government (Planning and Environment) Act 1990 (PEA). Then, under s.6.1.30(3)(c) of the IPA, the application must be decided under s.5.1(6) and (6A) of the PEA which provide as follows:
"5.1(6). In deciding an application made to it pursuant to this section a local government is to –
(a) approve the application; or
(b) approve the application, subject to conditions; or
(c) refuse to approve the application.5.1(6A). The local government must refuse to approve the application if-
(a)the application conflicts with any relevant strategic plan or development control plan; and
(b)there are not sufficient planning grounds to justify approving the application despite the conflict."
Prior to the hearing, the town planners had conferred and for the benefit of the Court had prepared a written summary of the points of agreement and the fundamental point of difference. That document became Exhibit 13. The points of agreement include the factual position with regard to the Planning Scheme, then:
"• The Strategic Plan shows the land with a 'preferred dominant land use' of 'Park Residential';
•The Strategic Plan does not confer or withhold land uses rights for the site;
• The DCP shows the land as 'Special Development Area 6', the intent of which is predominantly for 'park residential' development;
•The DCP does not confer or withhold land use rights;
•Land uses are conferred by the Table of Development for the prevailing zone, which for this site is Residential 1;
•The minimum size and dimensions for residential subdivision are set out in section 18 of the Planning Scheme;
• It may be possible for the subdivision layout to be modified to preserve significant vegetation (including 'building envelopes'), although this would be more difficult to achieve on the proposed smaller lots along the site's eastern boundary (abutting the golf course);
• The other relevant legislation (including the Vegetation Management Act 1999, the Coastal Protection and Management Act 1995, the Commonwealth Environmental Protection and Biodiversity Conservation Act and the Wet Tropics World Heritage Protection and Management Act may have had some effect but not of any real consequence in a development sense."
The fundamental point of difference was their respective assessments of the relevant legislation – the IPA and the superseded PEA with respect to subdivision under a transitional planning scheme, as is the subject scheme.
Mr Dance's stated opinion was that "nothing in the strategic plan or development control plan derogates from the use and configuration rights which the land enjoys". Mr Schomburgk disagreed, saying that the reconfiguration rights are impacted upon by the Strategic Plan and the Development Control Plan by reason of s.6.1.30(3) of IPA which enlivens s.5.1(6A) the provisions of which were set out above.
The town planners agreed that it would be a matter of degree as to what weight, if any, ought be given to s.5.1(6A) of PEA in the assessment of any reconfiguration application. Mr Schomburgk was of the opinion that s.5.1(6A) would be fatal to the claimants' proposal. Mr Dance did not accept that the Council would have been obligated to refuse such an application.
In his oral evidence Mr Dance expressed the opinion that if there was seen to be, prima facie, a conflict between such an application and both the Strategic and Development Control Plans, then those plans would need to be considered as parts of the overall planning scheme just as the table of development for the "Residential 1" zone in s.6.1 of the Planning Scheme and the table in s.18.6 (Minimum Size and Dimensions of Allotments) would need to be considered. Because the Planning Scheme gives guidance as to what is achievable in the various zones, it was Mr Dance's opinion that the planning scheme should be read as a whole. His interpretation was that the Strategic and Development Control Plans should not be read down as being representative of "defined dogma and outcome which must be adhered to". He sees those forward planning documents as indicating only Preferred Dominant Land Uses, objectives and ideals.
Mr Schomburgk while accepting that the Strategic Plan does not confer any land use rights, saw that plan as the highest order forward planning document and one which would carry significant weight in the assessment of any development application.
There was no dispute that there would have been the opportunity for the Council to approve a proposal such as the claimants', if conflict existed with the Strategic and Development Control Plans, provided it could be shown that there were "sufficient planning grounds" in terms of s.5.1(6A)(b). Mr Schomburgk was of the opinion that no sufficient planning grounds existed. Mr Dance referred to three matters which he believed would constitute sufficient planning grounds. Those matters together with Mr Schomburgk's responses are summarised as follows:
(a)Land as a resource, especially on Magnetic Island is finite, should be managed wisely and it was not a sensible planning outcome to restrict development of the subject land to 4,000 m² lots.
Mr Schomburgk disagreed. In his opinion the Council made a conscious decision to designate the land, not for "Residential 1" purposes as zoned but for Park Residential and that should be regarded as the dominant town-planning basis for the consideration of future applications.
(b)Any constraint which might have applied to the subject land could have been removed, in particular by the provision of a waste water treatment facility as proposed by the claimants' conceptual development.
Mr Schomburgk agreed that waste water treatment was one of the constraints of the subject land which, with engineering technology having advanced since the gazettal of the planning scheme, might have been capable of removal. However he pointed out that that was not the only constraint to which reference had been made in the scheme. Regardless whether constraints were capable of being overcome or removed Mr Schomburgk did not see it as a reasonable outcome for the intent and objectives of the scheme to be put aside.
(c)There was the option to develop this land with a group title subdivision with careful selection of building envelopes on each developed block for the purpose of protecting existing vegetation and minimising disturbance to the natural terrain.
Mr Schomburgk agreed that development by way of a group title subdivision was an option available but subject to a proviso. In the special development standards set out in section 5 and in particular 5.2.9 of DCP 6, group title subdivision would be encouraged by Council on land including the subject land specifically "which in its opinion is subject to significant site constraints provided that the proposal demonstrates increased preservation of existing vegetation on site, reduction in earthworks and a more efficient drainage system" (his emphasis).
In this matter, the conceptual plan of development submitted by the claimants became the focus of the town planning argument. Mr Dance was of the opinion that an application for subdivisional approval in keeping with that concept plan was not in conflict with the Strategic Plan or the Development Control Plan. Even if it was considered to be, it was his opinion that there were sufficient planning grounds to justify the Council approving such an application. Mr Schomburgk was of the opinion that such an application was in conflict with both the Strategic Plan and the Development Control Plan and there were no planning grounds sufficient to justify its approval.
In terms of the relevant legislation an application to reconfigure would have brought with it the need for the Council to follow a process described by the Court of Appeal in Grosser v Gold Coast City Council (2001) 117 LGERA 153 at p.166 as "a simple two-stage process which first requires the identification of conflict with the Strategic Plan, then, if conflict is present, the application must be refused if there are not sufficient planning grounds to justify approving the application despite the conflict". The Court in that matter was considering the provisions of s.4.4(5A) of the PEA, but, as counsel for the respondent pointed out, that provision is identical to the one in s.5.1(6A) in relation to the assessment of subdivision applications.
Conclusions – Town Planning Issues
On consideration of the town planning evidence and the legal arguments, I have come to the conclusion that prudent, well-informed persons, after proper consideration of the claimants' concept plan would accept that it did not represent a genuine proposal for group title subdivision and was then in conflict with DCP 6 and the Strategic Plan. In my opinion, despite such conflict, there were no exposed planning grounds sufficient to justify the Council approving an application to reconfigure the land in accordance with that concept plan.
I accept that a reconfiguration application for a Park Residential development such as either of those proposed by Mr Flanagan over the whole property would not be in conflict with DCP 6 or the Strategic Plan and prudent well-informed persons would be confident that Council approval for Park Residential development would be forthcoming.
However I do not see consideration of highest and best use ending with a proposal for Park Residential development based on lots with minimum area of 4,000 m².
The designation of the land in DCP 6 is not Park Residential as in the Strategic Plan. Its designation is Special Development Area and the PDLU (s.3.1.12) states:
"This designation identifies areas which require special development guidelines for any development. Land included within this designation may be subject to drainage problems created by high water table levels or subject to site constraints due to adjacent land uses or the absence of adequate service infrastructure.
The particular guidelines for each individual location is described within the respective settlement statement under s.4 of this Plan."
In s.4.1 – Picnic Bay – is found reference to the location of the subject land:
"On the outskirts of Picnic Bay, along the road to West Point is an opportunity for a Park Residential development area. The particular constraints at the site and existing significant vegetation should be considered in its future development."
The subject land is the whole of the area included in Special Development Area 6 which is described in s.4.1 as follows:
"This area is located outside the existing settlement of Picnic Bay and is the preferred location for Park Residential development. The Council will require that existing substantial vegetation be retained and any development be responsive to the on-site environmental elements of drainage, topography, vegetation and existing access.
In assessing any development proposal, the Council will have regard to the satisfactory resolution of on-site effluent disposal.
Any development of the site is required to incorporate an appropriate setback buffer from the existing road frontage to reduce potential conflict with proposed adjoining future land uses. Appropriate buffer treatment would include retention of vegetation along the road frontage."
At s.5.2.9 of DCP 6 – Group Title Subdivision – is the following:
"This provision shall apply to development on land at Nelly Bay designated as preferred Park Residential, land designated SDA 6 at Picnic Bay and in areas designated as SDA 3 at Horseshoe Bay.
(a)The Council shall encourage the use of Group Title subdivision on land which, in its opinion is subject to significant site constraints provided that the proposal demonstrates increased preservation of existing vegetation on site, reduction in earthworks and a more efficient drainage system."
At s.5.3 – Special Development Areas – is the following:
"5.3.1 Introduction
(a) It is intended that the provisions of this subsection shall apply to development within each of the designated Special Development Areas within the planned area
(b)Development within these preferred designations shall not be approved by the Council unless the proposal complies with the requirements of this Section.
5.3.2 – Plan of Development
(a)The Council shall not approve rezoning of land designated as Special Development Area except where a Plan of Development pertaining to the land has been approved by the Council.
(b)The Plan of Development shall show the layout of buildings and other structures, land uses, roadways/driveways, and car parking and landscape areas in accordance with the stated objectives and statement of Preferred Dominant Land Use as determined in this plan and the provisions of the Planning Scheme."
At s3.1.3 – the PDLU Park Residential contains the following:
"This designation identifies areas preferred for Park Residential living. A minimum allotment size of 4,000 m² applies to these areas except within group title subdivisions where smaller lot sizes may be allowed provided the total site density does not exceed 2.5 lots per hectare.
The majority of land in this designation is considered unsuitable for a higher density of development due to site characteristics. Such characteristics may include environmental significance, drainage problems, steepness of slope and the impracticality of supplying reticulated sewerage services."
The objectives of the forward planning sections of the Planning Scheme appear to be capable of being met in an application for group title subdivision. Such a proposal would require careful planning for the production of a Plan of Development, no doubt after negotiation with Council to satisfy various provisos including the need for demonstration of "increased preservation of existing vegetation on the site, a reduction in earthworks and a more efficient drainage system". It seems to me as reasonable to consider such provisos as being in comparison with, say, a standard type Park Residential development. The golf course adjacency, the outlook and views are desirable features of the eastern section of the site. Group title subdivision of the eastern section to provide residential lots is seen as capable of being achieved, provided the lot yield from the proposal did not exceed 2.5 lots per ha based on the total area of the site or, in theory, 34 lots.
It was argued by the respondent that "Residential 1" type lots (ie down to 600 m²) as conceptually located adjacent to the golf course would afford little, if any, opportunity for retention of existing vegetation in that specific location and that would offend the proviso in s.5.2.9(a) of DCP6. It is accepted that limited vegetation could realistically be retained in that specific location on "residential lots of minimum size". However, while retention of all, or a substantial portion of, "significant" vegetation is an environmental objective of DCP 6, specific examples of "significant" vegetation are given. For example, the "Moreton Bay Fig Trees" at Picnic Point receive specific mention. In SDA 6 the Council would require that "substantial" vegetation be retained and that development be responsive to environmental elements including vegetation. If it could be demonstrated that a group title subdivision proposal despite the potential for destruction of vegetation, allows as a net result, increased preservation of vegetation in comparison with another form of development, then it seems open to interpretation that such a group title proposal could be expected to be favourably considered in the assessment process.
The group title lots capable of being produced from the eastern section (say 34 lots from a gross area of in excess of 5 ha) would be significantly larger than "residential lots of ... minimum size." However, it seems to me that it is the treatment of and extent of the common area in a group title subdivision of the subject land which could be the key to the protection of natural vegetation and topography, in meeting the Strategic Plan Park Residential objective of retention of the character of the land and minimisation of environmental damage, whilst meeting the intention of providing a potentially exclusive "lifestyle option" for purchasers wishing "to incorporate aspects of rural living in their residential environment". Individual lot entitlements in a relatively large common area, retained in its vegetated natural state for environment protection purposes, is seen as a potentially exclusive feature of group title subdivision of the land.
Conclusion – Group title Subdivision Potential
I have concluded that a group title subdivision development is capable of being designed to ensure that an application for such a proposal did not conflict with the relevant Strategic Plan or Development Control Plan.
The difficulty which arises from that conclusion is that the conceptual plan adopted by the claimants does not constitute a group title subdivision development proposal which is capable of cogent consideration as an acceptable Plan of Development. As a consequence any hypothetical development valuation exercise conducted on the claimants' conceptual plan is of no substantive assistance. The gross realisation based on, say, a 34-lot group title development has not been established and the development costs associated with the proposal before the Court are only partly relevant to the type of Plan of Development which is envisaged as capable of meeting with approval.
It would seem reasonable to expect that a carefully designed Plan of Development with a potential lot yield density higher than the Park Residential development concept proposed by Mr Flanagan, but not greater than 34 lots (2.5 lots/ha), might have proved to constitute the highest and best use of the site. However highest and best economic use will be considered later.
The claimants' case was conducted on the basis that Mr Jensen's conceptual plan represented the highest and best economic use of the land. It was necessary for the evidence of Mr Jensen, and Mr Zappala for the claimants, and Mr Flanagan for the respondent to be placed before the Court for the purpose of considering the costs associated with such a development. I am unable to relate, with confidence, the overall evidence on development costs to the type of group title subdivision which would not conflict with the forward planning documents. It is seen as unproductive therefore to make findings with regard to specific parts of the evidence of these experts. However if it came to deciding any disputed items of development cost I found Mr Flanagan's evidence to be generally more persuasive.
The Magnetic Island Real Estate Market and Evidence of Value:
Mr Ivers is a registered real estate agent with long experience in the Magnetic Island real estate market. He is also a registered valuer. It was his opinion that the commencement of work on the Nelly Bay Harbour project in 1999, together with the increased demand for coastal property generally, had resulted in an active and buoyant market having existed on the island at the date of resumption. This had been in contrast to a depressed market which had been experienced during the earlier 1990's. In his opinion, sewered residential style lots adjacent to the golf course, as designed in the claimants' conceptual layout, would have been saleable in the price range of $70,000 at the date of resumption, in comparison with what he described as an average price of $60,000 for unsewered lots in Picnic Bay. The larger "park residential" (2,000 m²) sewered lots as designed in the conceptual plan would have been saleable, in his opinion, in the price range of $90,000. In his opinion, the balance area of the parent parcel, being the western severance area, would have had market value of $395,000, as a rural homesite. He valued the subject in globo land at $57,500 per ha overall, rounded to $760,000 which valuation he supported by a hypothetical development exercise.
When Mr Ivers' hypothetical development exercise was placed under scrutiny, his calculation of the interest component on development costs was incorrect, providing an inflated result, and the overall market and valuation evidence indicated that his valuation of the balance area had no identified market support. Despite his long agency experience and his obvious enthusiasm as to the development potential of the subject land and its marketability once reconfigured, I did not find his in globo valuation evidence to be convincing.
Mr John, also a real estate agent of longstanding on Magnetic Island was called to give evidence for the respondent. He was far more cautious as to the marketability of the subject land either in its in globo state, or in subdivision. In fact, it was his opinion that the land would not have been readily marketable at the date of resumption, either in its in globo state or in subdivision, at the level of values found by the respondent's valuer, Mr Duncan.
I am satisfied that Mr John expressed honestly held views and his opinions as to the need for a conservative approach to be taken in interpreting the marketability of Magnetic Island real estate, were based on the historical volatility of that local market, and should not be ignored. Nevertheless, where owners have been dispossessed of their lands, they are entitled to have the benefit of any doubts resolved in their favour, and any doubts caused by Mr John's interpretation of the marketability of the subject land will be resolved by consideration of the relevant valuation evidence.
The valuation evidence which is accepted as being of particular relevance to the determination of the claim for compensation was that provided by Mr Eales for the claimants and Mr Duncan for the respondent. Their in globo valuations relied, in the first instance, on a direct comparison with sales evidence.
Mr Eales' valuation was in the amount of $675,000 calculated as follows:
"5.2 ha immediate englobo potential @ $70,000/ha $364,000
8.612 ha longer term potential @ $36,000/ha $310,032$674,032
Adopt $675,000 "
Mr Eales' hypothetical development check assessment produced an in globo result in the amount of $680,000. This assessment was based on the concept plan discussed earlier. In that exercise, sewered lot values in the range of $60,000 (for the 600 m² lots), $70,000 to $80,000 (for the 800 m² lots) then $85,000 to $95,000 (for the 2,000 m² lots) were adopted. The large balance lot was valued at $275,000. Selling costs were calculated as $109,962 (including advertising/marketing at $750 per lot). Development costs including interest were based on the estimates of Mr Jensen, in the total amount of $1,188,162. An allowance of 25% was made for "profit and risk".
During the course of the hearing Mr Eales conducted further valuation exercises based on the Park Residential concept plans produced by Mr Flanagan. He found that the concept which involved subdivision of the eastern section into 11 lots with the balance area retained as one lot, was the more viable development and as it happened, even more viable, on his calculations, than the concept plan which he had adopted as the highest and best development potential of the land. On the 12-lot Park Residential concept, Mr Eales' in globo valuation was $785,000.
Mr Duncan's valuation of the land by direct comparison with the sales evidence which he selected as relevant, was in the amount of $475,000, calculated as follows:
"5.35 ha superior eastern severance @ $57,500/ha $307,625
5.00 ha inferior western severance with reduced
yield and low-lying areas @ $30,000/ha $150,000
3.462 ha timbered drainage corridors and natural
buffer @ $5,000/ha $17,310$474,935
For practical valuation purposes adopt $475,000 "
Mr Duncan's valuation equates $34,390/ha overall or $45,894 per ha for the area which he described as "developable" (10.35 ha). During the course of the hearing he also considered hypothetical development exercises based on Mr Flanagan's concept plans. His assessments resulted in agreement with Mr Eales that the concept yielding 11 lots from the eastern section and one large balance area lot, produced the more economically viable result. However, in that exercise his calculations produced an in globo result of $490,000. As the hypothetical development exercise was adopted as a check against his primary direct comparison approach, he saw no reason to alter his formal valuation of $475,000.
Mr Duncan had also considered the hypothetical development exercise carried out by Mr Eales based on the claimants' concept plan. He considered the lot values adopted by Mr Eales to be within an acceptable market range and, for the purpose of the exercise, commenced his critique of Mr Eales' calculations by adopting the same gross realisation. It was his opinion however that, at the date of resumption, the implications to a developer of the then recently introduced Goods and Services Tax (GST) required consideration. On his calculation of the effect of GST alone, Mr Eales' in globo valuation would have reduced to $560,000. He calculated that if the profit and risk allowance in Mr Eales' exercise was adjusted first to 30% and then alternatively to 33⅓%, in globo results of $495,000 and $455,000 respectively would have been found. It was his opinion that in Mr Eales' primary approach, the in globo values of $70,000 per ha for the eastern section and, in particular the $310,032 or $36,000 per ha for the balance area (which had been valued by Mr Eales at $275,000 as a developed site in the hypothetical exercise) could not be supported. Apart from the GST implications, Mr Duncan was of the opinion that the advertising/marketing allowance made by Mr Eales was insufficient and should have been $1,250 per lot, together with an allowance for estate management during the selling period, because of the premium prices adopted for the development by Magnetic Island standards. Then, based on Mr Flanagan's evidence, development costs overall would have been more expensive than had been allowed by Mr Eales on the advice given by Mr Jensen. In the circumstances of those criticisms, Mr Duncan was of the opinion that the profit/risk allowance made by Mr Eales was inadequate.
The Sales Evidence
Mr Eales gave consideration to eight sales, all of land on Magnetic Island, in arriving at his valuation. Mr Duncan analysed and considered nine sales. Of these, two were of land on Magnetic Island and common with Mr Eales' evidence. Mr Duncan provided a schedule of another five Magnetic Island "site" sales of which he had knowledge. Three of those sales had formed part of Mr Eales' evidence.
Brief details of the five sales which were common to both valuers' overall evidence, together with the relevant comparisons with the subject land are as follows:
1.28 Yates St., Nelly Bay (Eales' Sale 1 – Duncan Sale 7) – 2.968 ha, sold November 2000 (Duncan) or February 2001 (Eales) for $340,000 or $114,555 per ha, zoned "Residential 3 and Tourist Facilities (Tourist Accommodation)".
Mr Eales described the sale land as "having a creek/gully running through". However the evidence produced confirmed Mr Duncan's description of the site as comprising a northern severance area (the creek/gully having been excised by survey) of 6,053 m² and a southern severance of 2.363 ha. On Mr Duncan's analysis the sale could be apportioned to show $230,000 for the southern severance or $97,334 per ha with a projected yield of 20 lots. His investigations indicated that at the date of sale an approval existed for a 5-lot subdivision of the northern severance, to which he apportioned $110,000 of the total sale price. Mr Duncan described the land as a "prime infill parcel" with individual reconfigured lots having potential for "utilisations ranging from single occupancy to duplex and multiple dwelling development." In comparison with the subject land Mr Duncan commented as follows:
"The land had multiple zonings and was sold with yield expectations of between 23 and 26 lots. Positioned in Nelly Bay and encompassed in a leafy bushland setting the property was well positioned to take advantage of developments with the Nelly Bay Harbour project. Significantly smaller and possessing advantages in respect to infrastructure access and approvals. Similar number of saleable lots to subject. Considered significantly superior on a per hectare basis. Sale transacted at relevant date."
Mr Eales described the sale land as "overall a superior site compared to the whole of the subject, however the eastern section of the subject has superior topography, aspect and views ...". It is clear from his oral and written evidence that his deliberations and comparisons with the subject land had been on the basis that the sale land included the gully area and with that area excluded the sale would have reflected a value of $130,400 per ha for the "developable" area.
I accept Mr Duncan's evidence, however, that this sale reflected $97,500 (rounded) per ha for the 2.363 ha southern severance.
Mr Eales was of the opinion that when considered in light of the totality of the evidence, this sale offered support for his valuation of the eastern in globo section of the subject land at $70,000 per ha, with immediate potential for development with a mixed residential and park residential reconfiguration in keeping with the claimants' concept plan.
Mr Duncan agreed that this sale although of land not directly comparable was of some assistance in finding the market value of the eastern section of the subject land, particularly if a reconfiguration in keeping with the claimants' concept plan was capable of receiving approval. On that basis he suggested that the market value of the eastern section would more likely have been in the range of $60,000 to $65,000 per ha, but accepted that in the absence of better in globo sales evidence, Mr Eales' opinion was arguably supportable. Mr Duncan did not accept however that the eastern section of the subject land had immediate potential for reconfiguration for development other than park residential in keeping with the Strategic and Development Control Plan PDLU.
2.Apjohn Street, Horseshoe Bay (Eales' Sale 7 - Duncan Sale 6) 8.09 ha, sold November 2000 for $225,000 or $27,798 per ha, zoned "Future Urban", mixed PDLU designation of primarily Special Development Area 3 together with some open space in Development Control Plan 6, then primarily Residential and Open Space in the Strategic Plan. SDA3 designation identifies land subject to significant site constraints (on the evidence in connection with engineering matters associated with the need to connect to the sewerage system) generated by high water table levels and proximity to the Horseshoe Bay lagoon. Once identified constraints are resolved "Residential 1" or "Residential 2" zoning was considered appropriate. "Consideration should also be given to the use of 'group titling' or 'cluster housing' principles to concentrate buildings in certain areas of the site where site constraints are identified."
Mr Eales described the resumed land as having superior location, topography, views and aspect in comparison with the sale land. The sale was seen by him as one which, in company with others, determined an "underlying" value of $40,000 per ha for in globo land on the Island.
Mr Duncan described the sale land as part of the bank of "Future Urban" zoned land located in Horseshoe Bay, removed from existing development but "reasonably well positioned to Horseshoe Bay Esplanade". He said the sale was the result of the vendor company disposing of a non-productive asset to an adjoining owner.
There was agreement between Mr Eales and Mr Duncan that any development potential of the land was long term. In Mr Duncan's opinion the sale price was not inconsistent with prices paid for larger hectarage sites with potential limited to the nature of a rural homesite in the foreseeable future. He saw the sale as providing a "useful comparison" for the valuation of the western section of the subject resumed land, being of comparable size and having been transacted at a date very close to the date of resumption.
3.Pacific Drive, Horseshoe Bay (Eales' Sale 3 – Duncan Site Sale 2) – 5.86 ha, sold March 1998 for $220,000 ($37,540 per ha) zoned "Future Urban", Development Control Plan PDLU designation Non-Urban Buffer and Rural in Strategic Plan.
There is no dispute that the land has poor existing access and is lacking in services or that the highest and best use of the long narrow site is limited to that of a rural homesite. It is fairly close to the beachfront but separated from it by sand dunes and some tidal influences. Views of the water are available.
Mr Eales saw the sale as supporting an underlying and minimum value of $40,000 per ha for the subject land which he described as "far superior in location, topography, aspect and views".
Mr Duncan did not include this sale as basic evidence of value but rather as an indication of the level of value capable of being achieved for a larger rural homesite. In his opinion, the site value is its dominant feature rather than the rate per ha reflected by the sale price.
4.105 Gifford Street, Horseshoe Bay (Eales' Sale 4 – Duncan Site Sale 4) – 4.047 ha, sold August 1998 for $150,000 ($37,037 per ha) – zoned "Future Urban" with PDLU designation of Residential – Low Density and SDA3 in the Development Control Plan and Residential in the Strategic Plan.
Mr Eales described the land as being located in an area used predominantly for rural residential type purposes, with longer-term potential for subdivisional development "albeit it with restrictions", the SDA3 designation (see sale reference 2) constraining about 65% of the site. This sale was seen to support his contention that the subject property described as being in a far superior location with superior topography, aspect and views, had an underlying value no less than $40,000 per ha.
Mr Duncan's evidence was that this sale was from father to son at a hectarage homesite level of value.
5.91 Gifford Street, Horseshoe Bay (Eales' Sale 5 – Duncan Site Sale 5) – 3.91 ha sold August 1998 for $115,000 ($29,411 per ha) – similar zoning to 4 above, which adjoins.
Similarly described by Mr Eales as 4 above, while Mr Duncan included this sale as being evidence of the value of a rural homesite.
The remaining sales included as basic evidence of value by Mr Eales were as follows:
His Sale 2 – 59 Gifford Street, Horseshoe Bay, 4.04 ha sold October 1999 for $160,000 ($39,604 per ha), established by the evidence as being zoned "Residential 1", designated Residential – Low Density and SDA3 (see Sale 2 earlier) with a strip of Open Space, in the Development Control Plan and residential in the Strategic Plan.
As I understood his oral evidence, Mr Eales saw the economic subdivisional development potential of this sale land as being long term, although sewerage connection could have been extended at the date of sale, subject to the capacity of the existing treatment plant, to resolve the constraint identified in SDA3. He agreed that this land and the land in his Sale 6 of the same size and immediately adjoining, were purchased separately by a father and then his daughter, on the same day for the same price, although the adjoining land was zoned "Future Urban". He accepted that it was a possibility with regard to these lands, that the zoning may not have been a consideration of consequence and that the purchases represented rural homesite acquisitions, because the subdivisional potential was "quite a long way out".
His Sale 6 – 75 Gifford Street, Horseshoe Bay, 4.04 ha (adjoining his Sale 2 above) sold October 1999 for $160,000, zoned "Future Urban" but generally similar designations in the Development Control Plan and Strategic Plan. See the comments above.
Mr Eales described the subject resumed land as having far superior location, topography, aspect and views to these adjoining sale lands. Again the sales were adopted as evidence that the underlying value of the subject land was not less than $40,000 per ha.
His Sale 8 – 54 Horseshoe Bay Road, Horseshoe Bay, 3.01 ha, sold July 1994 for $180,000, zoned "Residential 1".
This land was described by Mr Eales as "one of the very few residentially zoned englobo sites without restrictions to have sold on Magnetic Island". The sale price reflected $59,800 per ha but Mr Eales saw it as "a guide only in comparison with the subject's developable land due to the sale occurring at a much earlier date ... in a very depressed market with development into residential lots only commencing recently ...." He felt that at least the sale assisted in underpinning a rate per ha for the eastern section of the subject land.
Mr Eales described this sale land as being "inferior in topography, location, aspect and views as compared to the eastern section of the subject".
In the process of comparing the subject land with the Horseshoe Bay sale lands, Mr Eales gave consideration to factors including size differentials, the superior location, aspect, views and outlook of the subject land, its "immediate potential for development" as compared to the long-term potential of the sale lands and pondered the question as to "how much higher a value should be attributed to the subject site over the underlying value of $40,000 per ha?" In his opinion the value of the subject land overall should be substantially higher. He concluded that, in comparison with his analysis of Sale 1 at $130,000 per ha for the area which he had assumed was developable (see earlier comments in relation to the gully area) and which had yielded 26 lots being marketed in the range of $70,000 to $90,000, a value of $70,000 per ha for the eastern section of the subject land indicated good relativity. This was on the basis of the subject land being of superior quality but unsewered and producing a lower pro-rata lot yield in the claimants' concept plan of development. Mr Eales was of the opinion that Sale 8, when considered in light of the later in time Sale 1, also supported an in globo value of $70,000 per ha for the eastern section of the subject land based on that conceptual proposal.
The Horseshoe Bay sales evidence was interpreted by Mr Eales as supporting a value of $36,000 per ha for the full balance area in the concept plan (8.612 ha) once particular consideration was given to the large size of that balance area.
Mr Eales' total valuation of $675,000 reflects a pro-rata value of $48,870 per ha overall.
The sales which had been considered by Mr Duncan in his formal report were scheduled as:
Sale 1 – a 29.45 ha mainland site zoned "Residential B", described as the Carlyle Gardens site, purchased for a retirement village development in August 1996 for $1,100,000 or $37,351 per ha, analysed to show an adjusted value of $45,840 per ha.
Sale 2 – a 20.81 ha mainland site at Annandale, zoned "Residential 1", sold in August 1997 for $515,000 or $24,747 per ha, being the balance area of a residential development but "low-lying and marginal in terms of viability for traditional residential subdivision".
Sale 3 – a 3.738 ha mainland site at Annandale, zoned "Residential 1", sold July 1997 for $310,000 or $82,932 per ha, with yield potential of 41 lots, some infrastructure benefits as balance area of subdivisional development.
Sale 4 – a 10.811 ha mainland site at Condon, zoned "Residential 2", sold November 1997 for $500,000 or $46,249 per ha, traditional residential yield potential of 121 lots, with infrastructure benefits as balance area of subdivisional development.
Sale 5 – a 4.707 ha mainland site at Mt Louisa, zoned "Future Urban", sold March 1998 for $175,000 or $37,178 per ha, purchased by an adjoining owner for medium-term residential development, lacking service infrastructure.
Sale 6 – see Magnetic Island common Sale 2 (Eales' Sale 7).
Sale 7 – see Magnetic Island common Sale 1 (Eales' Sale 1).
Sale 8 – a 13.875 ha mainland site at Bushland Beach, zoned "Residential 1 and Sports and Recreation", sold December 2000 for $750,000 or $54,054 per ha, yield potential of 107 traditional residential lots with a developable area of 11 ha (1.875 ha in "Sports and Recreation" zone comprising drainage corridors), reflects $68,182 per developable ha, external stormwater infrastructure requirements – full developer contributions required for sewerage headworks.
Sale 9 – a 16.05 ha mainland site (Range Drive-In site), zoned "Particular Development – Drive-In", Strategic Plan designation Park Residential, sold July 2001 for $1,100,000, analysed to show land value excluding dwelling of $980,000 or $61,059 per ha, subsequently developed to yield 58 Park Residential blocks of 2,000 m² (3.6 per ha).
Magnetic Island Site 1 – 42 Horseshoe Bay Road, 2.394 ha site zoned "Residential 1", sold February 1997 for $318,500 with substantial residential improvements – analysed to show a land value of $83,500 per ha.
Magnetic Island Site 2 – (common Sale 3 – Eales' Sale 3).
Magnetic Island Site 3 – Parker Street, Horseshoe Bay, 4.052 ha site zoned "Future Urban", sold August 1998 for $120,000 – family sale.
Magnetic Island Site 4 (common Sale 4 – Eales' Sale 4).
Magnetic Island Site 5 (common Sale 5 – Eales' Sale 5).
Mr Duncan conceded in his oral evidence that the sales which were of most relevance in his valuation considerations were his Sales 6, 7, (the common Magnetic Island Sales), then the mainland Sales 8 and 9. His primary basis for the valuation of the eastern severance came from his Sales 7 and 9 with support from Sale 8 and his primary basis for the valuation of the western severance, apart from the drainage corridors and buffer areas as identified by him came from his Sale 6. He saw his Sales 1, 3, 4 and 5 as being of lesser importance in the direct comparison process although Sale 3, in particular, was considered useful in supporting the level of value shown by his Sale 7. Sale 2 was seen as being of least assistance.
Mr Duncan suggested that local developers of subdivisional lands were profit motivated and did not necessarily restrict their activities to one or the other of mainland or Island developments. He was of the opinion that, provided analyses of sales and development costs were reduced to a potential yield lot basis, meaningful comparisons could be made between the Island and mainland localities. In his comparison process he found that no sale property was directly comparable to the subject land "having regard to land area, location, topography and planning constraints". In arriving at his valuation, he had made allowances for "the land area, lot yield expectations, mix of land quality and associated risk of realisation of the potential ".
Mr Eales' opinion was that the use of mainland sales evidence to value Magnetic Island real estate, or vice versa, was unacceptable valuation practice because of the differing factors influencing market value. However, he was prepared to concede that Mr Duncan's Sale 8 of land at Bushland Beach, in a locality well removed from the main Townsville market, might be capable of providing some valuation assistance.
Regardless of Mr Duncan's defence of his use of mainland sales evidence, that evidence would have been seen as providing little, if any, assistance had there been strong sales evidence of comparable land on Magnetic Island. However, in the circumstances, with the lack of such sales evidence and with the valuation difficulty compounded by the town planning issues involved, it seems to me that Mr Duncan was entitled to extend his forensic research for evidence as widely as he considered necessary.
Conclusions – In Globo Valuations
Eastern Severance
On a direct comparison basis, I would see Mr Eales' valuation of the eastern section of the subject land as well supported, if not conservative, on the basis that the unsewered land had the immediate potential for the mixed residential/park residential development on which his valuation was said to have been made. The best evidence of value would then have come from an analysis of the Yates Street sale which I have accepted as reflecting $97,500 per ha for the southern severance. For the reasons given however, I do not accept that the claimants' concept plan would have been seen in the marketplace as capable of receiving approval. Even if it had, the process involved in obtaining such approval would have significantly delayed the "immediate" potential for such development.
Based on the Yates Street sale, and before giving any consideration to the hypothetical development exercise conducted by Mr Duncan, his valuation of the eastern section based on Park Residential development, appeared generous. Indeed, his valuation of $57,500 per ha appeared generous on the basis of direct comparison with any of the sales evidence.
With regard to my finding relative to the town planning issues, there remains to be considered the market value of the eastern section as part of an overall Plan of Development embracing the whole of the site, but based on a group title subdivision of up to 34 residential lots produced from the eastern section. The balance area of the land would become the common area. The potential market resistance to on-site effluent treatment is a significant consideration in such a development in comparison with the southern severance of the Yates Street sale, as is the less dense potential lot yield per ha and from a larger area of developable land. Offsetting those factors however would be the somewhat exclusive Plan of Development, the larger residential lots caused by the restricted lot yield, then the superior Picnic Bay location adjacent to the golf course, the superior topography, aspect and views. The locational and topographical superiority of the subject land seems to be generally accepted. I am not assisted by valuation evidence with regard to such a Plan of Development, but it seems to me that the disabilities and peculiarities involved would slightly outweigh the positive features in comparison with the southern section of the Yates Street sale land. For the purpose of the exercise I will adopt a discount of 5% from the $97,500 per ha resulting in an in globo valuation of a rounded $92,500 per ha, or $495,000 for an eastern section area of 5.35 ha.
The Western Severance or Balance Area
In their hypothetical development valuation exercises, the western or balance area of the subject site was accepted by the valuers as having highest and best use, at the date of resumption, for excision from the eastern section as a single large rural homesite. I am unable to accept then that the land should have been further classified as had been done by Mr Duncan in accordance with its physical qualities and suitability for later development.
As Mr Duncan observed, there is an inherent conflict between the in globo value ascribed to the western section by Mr Eales, ie $310,032 or $36,000 per ha, on the basis of its "longer term potential", as compared with the eastern section, and the application of a site value of $275,000 as a hypothetically separately surveyed site.
Mr Duncan's total valuation of this balance area as classified by him was $167,310, which equates about $19,775 per ha in its in globo state. There was some criticism that, in comparison with the rural homesite type sales on Magnetic Island, this hectarage rate was significantly too conservative. Mr Duncan's valuation was clearly intended to reflect the in globo value of the land as part of the parent parcel's overall potential. Nevertheless, with potential in the foreseeable future to produce nothing more than a single balance area lot, basically as an excision from the eastern section, I think the discount factor from the value of a surveyed site of, on his figures, $255,000 to $167,310, is too harsh. On the assumption that the potential of this land was for excision from the eastern section as a large single site with topography as described by Mr Duncan, I have decided to adopt an in globo valuation of $22,500 per ha overall.
The western severance area whilst potentially an important feature as the common area component of a group title residential style subdivision of the eastern section, carries no individual market value in a Plan of Development of this nature. Its contribution to such a development would be reflected in the individual lot values including entitlements to the common area.
Conclusions – Direct Comparison Valuation Methodology
Based on Highest and Best Use as Park Residential
I have commented that Mr Duncan's valuation of the eastern section appears generous based on the sales evidence and highest and best use for Park Residential development. If that is correct then he has provided the benefit of doubt in favour of the claimants. That is a desirable approach in this type of matter. However, I have then been persuaded that he has been too conservative in his valuation of the western balance area. Rather than deny the claimants the initial benefit by accepting his overall valuation, I will adopt the following assessment, based on highest and best use being for Park Residential development of the eastern section with one large rural residential lot excised as the balance area:
5.35 ha eastern section @ $57,500 per ha in globo $307,625
8.462 ha balance area @ $22,500 per ha $190,395
Total$498,020
Alternatively
13.812 ha @ $36,000 per ha in globo overall $497,232
Adopt$497,500
Plan of Development for Group Title Subdivision
Based on this concept, and for the reasons given earlier, in particular, on comparison with the Yates Street sale, I would find as follows:
5.35 ha eastern section @ $92,500 per ha, including
any common area added value of balance area $494,875
Adopt$495,000
Hypothetical Development Methodology
Consequent upon my findings relevant to the town planning issues and the evidence relevant to economic viability, no purpose is served by an analysis of this check valuation methodology for any Park Residential development other than the 12-lot subdivision. The application of the methodology to a group title subdivisional development has also been given consideration.
Park Residential – 12-Lot Subdivision
The areas of disagreement between Mr Eales and Mr Duncan relative to the 12-lot Park Residential proposal as designed by Mr Flanagan, were widespread, commencing at the assessment of lot prices, and as a consequence, the gross realisation.
The lot value and gross realisation comparisons were as follows:
Eales Duncan Proposed Lot 1 $120,000 $98,000 Proposed Lot 2 $120,000 $98,000 Proposed Lot 3 $120,000 $105,000 Proposed Lot 4 $120,000 $108,000 Proposed Lot 5 $120,000 $110,000 Proposed Lot 6 $120,000 $115,000 Proposed Lot 7 $115,000 $115,000 Proposed Lot 8 $115,000 $115,000 Proposed Lot 9 $115,000 $100,000 Proposed Lot 22 $105,000 $90,000 Proposed Lot 23 $105,000 $87,500 Balance Lot $275,000 $255,000 Gross Realisation $1,550,000 $1,396,500
Mr Eales' evidence was that in his opinion, the Park Residential lot values applied by him were consistent, after adjustment for size, with the values applied to the individual lots in the claimants' concept plan and Mr Duncan had been prepared to accept those latter values as forming the gross realisation from that proposal. However, Mr Duncan's response was that in considering Mr Eales' hypothetical subdivision exercise based on the concept plan, the lot values were within "an acceptable range overall" and for the purpose of that exercise he had been prepared to accept Mr Eales' assessment of gross realisation. He had not been prepared to accept the in globo valuation result. For the Park Residential exercise Mr Duncan had given specific consideration to each proposed lot, as best he could, from an on-site inspection. He then made value judgments based on location (and for example proximity to the golf clubhouse as a negative feature relative to Lots 1 and 2), topography, aspect, views etc. He also pointed out that the Park Residential lots were not serviced by an effluent disposal system and an allowance had been made for the cost of provision of individual installations.
I have not been persuaded that there was any significant inconsistency in Mr Duncan's evidence or that his individual Park Residential lot values were too conservative.
Based on a notional acquisition price of $475,000, Mr Duncan calculated that by utilisation of the "Margin Scheme" the GST payable by a developer would be $83,772.73 ($1,396,500 - $475,000 ÷11). That calculation reflected accountancy advice received by the respondent's solicitors, tendered as Exhibit 37. The advice was based on several "assumed facts" some of which were relevantly as follows:
"● A developer ("developer") is registered for GST and conducts an enterprise of land sales and land development.
· The owner disposes of the land to the developer on 3/11/2000 for a certain amount ("acquisition consideration").
· After acquiring the land, the developer incurs certain costs ("development costs") to develop the land into a number of residential lots for sale.
· The developer disposes of the land, as residential lots, all at once (for the purpose of simplicity of calculation) for an aggregate amount ("supply consideration").
The analysis of GST implications of the above relevant assumed facts included:
"● The supply by the developer to other parties is subject to GST.
· The developer would be entitled to use the Margin Scheme (Division 75 GST Act 1999) to calculate GST included in the supply consideration.
· The amount of GST payable is 1/11 of the margin – Section 75–10(1).
· The overall margin would be the difference between the acquisition consideration and the supply consideration – Section 75–10(2), (ignoring any potential effect of Section 75–15 because the individual lots were assumed to have been sold all at once, thus allowing the supply consideration to be treated as an aggregate amount).
· The development costs are not included when calculating the margin – ATO interpretative decision 2001/633. (Interpretative decisions of the ATO do not have the force of law, but are considered to be persuasive authority for the propositions and interpretations they offer.)
· The developer would be entitled to claim input tax credits for all creditable acquisitions used to develop the land – Section 11-20.
· If the developer chose not to apply the Margin Scheme, the developer would be liable to pay GST, at the rate of 1/11 of the supply consideration, on the supply to other parties."
Mr Eales made no allowance for GST implications. He accepted that the introduction of GST on 1 July 2000, shortly before the relevant date of valuation in this matter had been of real concern within the real estate industry. However, as he saw it, the actual effect of GST in the real estate marketplace had not been established and could not be established through adoption of theoretical calculations. He raised the issue of the then unknown effect in the marketplace on sale prices of individual developed lots, compared to pre-GST sale prices and the lack of market evidence relative to the effect on in globo land values.
I accept that there was no market evidence, at least in this matter, at the relevant date of valuation which would assist in determining the transitionary effect of GST on estimated sale prices of developed lots, then the effect on in globo value. The marketplace had not shown the proof which Mr Eales felt was necessary. However, by the relevant date of valuation, GST was a factor which a developer could not ignore. If some theoretical, but factually based calculation was to be set aside, then, clearly, the risk in realising profit margins acceptable to a developer pre-GST, would realistically increase. For the purpose of the exercise I will adopt the methodology used by Mr Duncan in consideration of GST implications.
Under the heading "Cost of Sales", the first difference between the valuers resulted in the allowance for commissions, Mr Eales' figure based on a GST inclusive gross realisation and Mr Duncan's proportionally lesser allowance based on a GST exclusive gross realisation. Then, Mr Eales allowed $750 per lot for advertising/marketing, while Mr Duncan allowed $1,250 per lot under that heading and then a further $350 per lot for "estate management". Both allowed $400 per lot for "legals".
It is not possible to resolve the differences between the valuers in their approach to selling costs. Mr Eales' approach was that the subject development would not require any abnormal marketing or presentation strategies or continuing estate management during the selling period. He conceded that developers were prepared to expend amounts higher than average on marketing and presentation of their product, but only when premium prices were capable of being achieved. It was his opinion that in the hypothetical Park Residential development of the subject land, the individual lot prices adopted did not represent "premium prices". Mr Duncan on the other hand was of the opinion that the prices he had assessed, albeit generally lower than those found by Mr Eales, fell within the prestige category by Magnetic Island standards. In the end result the differences, apart from commissions, amounted to about $10,000 and that is relatively insignificant in the overall calculations. However, on the overall evidence I am inclined to the view that the adopted Park Residential sale prices even at Mr Duncan's level of assessment, fell within the prestige end of the local Magnetic Island market.
Mr Eales adopted development costs as estimated by Mr Jensen, "based on Flanagan rates" in the amount of $383,348, before interest. Mr Duncan's allowance, based on rates extrapolated from the Flanagan's estimates as to the development costs associated with the 23-lot proposal and adjustments to Mr Jensen's estimates, came to $435,749 including an entry statement costed at $20,000. While Mr Flanagan had not provided specific development cost estimates for the 12-lot proposal, I have been persuaded by Mr Duncan's evidence, that his overall development cost estimate is more reliable for the purpose of this exercise.
Remaining differences between the valuers related to the difference in development and selling period, (Mr Eales estimating one year and Mr Duncan 1½ years including approvals), then the consequent holding and acquisition costs. Again, I prefer Mr Duncan's estimates where differences in these areas occurred.
Both valuers adopted an allowance of 25% for developer's profit and risk of realisation. However, it is observed that had Mr Duncan not made the provision for GST implications, his exercise would have provided an allowance of about 33% under this heading. Conversely, had a GST allowance been made in Mr Eales' exercise, the quantum allowed for profit and risk would have equated an allowance of about 21.3%.
Mr Duncan's overall hypothetical development exercise is preferred, although if any adjustments were made where some doubt existed, for example in the advertising/marketing, and estate management allowances, a slightly higher result would have been found. Mr Duncan saw the exercise as a check which supported and did not necessitate adjustments to his direct comparison valuation. However, the adjustment which I see as warranted to his primary approach is more closely supported by this check exercise.
Group Title Subdivision
From the extrapolation of criteria from the hypothetical development exercises conducted by the valuers relative to the claimants' mixed Park Residential/Residential proposal, then adoption of an in globo land value of $92,500 per ha based on direct comparison, for the 5.35 ha eastern section, I have calculated that a 34-lot group title subdivision would need to be capable of yielding an average $87,500 sale price per lot, post-GST, over a three-year selling period, if development costs averaged $40,000 per lot including interest and if a profit of 25% was to be achieved. The levels of value generally adopted by the valuers for developed sewered lots would suggest that such sale prices for the larger-than-average sized residential group title lots "is within an acceptable range". It is seen as arguable however whether a 25% allowance would be acceptable to a developer, even after allowance for GST implications, for this relatively large non-traditional subdivision, as a group title development.
Hypothetical Development Exercise Conclusions
It was considered necessary for some analysis to be made of the exercises conducted by Mr Eales and Mr Duncan relative to the Park Residential 12-lot proposal, due to the significantly different in globo valuation results. Regardless of this methodology being preferred as a check against the direct comparison method rather than a primary valuation method, it has been helpful in this matter where the sales evidence of comparable in globo land is relatively weak. In the end result the conclusions reached on the basis of direct comparison with the available sales evidence, are seen to be supported.
Overall Conclusions – Highest and Best Economic Use
The valuation results indicate that the alternative 12-lot Park Residential or group title development potentialities of the land do not identify conclusively the highest and best economic use. The quantum of profit available from the group title development would be greater, although, on the analysis conducted, the profitability margin from either development might be similar. It is arguable that the risks involved in the larger and more expensive group title development would be seen by developers as greater than in the relatively straightforward Park Residential proposal. However, from a vendor's point of view, the existence of alternative development potentialities would be seen as a positive marketing feature of the land.
Finding – Value of Land Taken
I will adopt a valuation of the land based on an overall rate of $36,000 per ha rounded to a total figure of $497,500, as in globo land with potentiality for reconfiguration either as a Park Residential development or as a Group Title residential subdivision.
Determination of Compensation
Compensation is determined as follows:
Value of land taken - $497,500.00
Disturbance:
Legal Fees as agreed $7,582.18
Valuation Fees as agreed $6,875.00 $14,457.18
Total Compensation $511,957.18
Interest
The Court was advised that an advance payment in the amount of $345,000 was made to the claimants on 22 March 2002.
Orders
1.Total compensation is determined in the amount of Five Hundred and Eleven Thousand Nine Hundred and fifty-seven Dollars Eighteen Cents ($511,957.18).
2.It is ordered that interest at the rate of 6 per cent per annum be paid by the respondent to the claimants on the amount of $497,500 for the period commencing on and including 3 November 2000 ending on 21 March 2002 then on the amount of $152,500 for the period commencing on 22 March 2002 ending on and including the day immediately preceding the date on which payment of that balance amount is made.
It is further ordered that interest at the rate of 6 per cent per annum be paid by the respondent to the claimants on the legal and valuation fees for the periods commencing on and including the dates to be proved by the claimants, on which payments of those fees were made, up to and including the day immediately preceding the day on which payment is made by the respondent.
RE WENCK
MEMBER OF THE LAND COURT
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