Buluarte Pty Ltd v Chief Executive, Department of Natural Resources
[2000] QLC 35
•28 June 2000
|
BRISBANE
28 June 2000
Re: Appeal against Annual Valuation
Valuation of Land Act 1944
Valuation Roll No: 3190
Local Government: Brisbane City - Moggill
(AV99-281).
Buluarte Pty Ltd
v.
Chief Executive, Department of Natural Resources
D E C I S I O N
Background:
This matter relates to a subdivisional estate between Cedrella Street and Bloomsbury Crescent on the southern side of Weekes Road, Moggill, located about 0.6km south-east of the Bellbowrie Shopping Plaza. The subject land has an area of 6.0514 hectares and is described as Lot 10 on RP 27555; Lot 17 on RP 892880; Lot 9 on RP 892881; Lot 104 on RP 908123; Lots 25, 26, 29 to 32 and 34 to 36 on RP 908124; and Lots 90 to 92, and 501 on RP 909739, Parish of Moggill. The land is zoned as "Future Urban" under the Town Planning Scheme of the City of Brisbane, effective at the date of valuation of 1 October 1997. The key issues are the rate of sales, comparison of sales, discount for bulk sales, the value of in globo lands and the nature of the land.
On 9 February 1999, the Chief Executive issued a valuation of the subject land at $1,075,000. Following an objection the Chief Executive confirmed that figure on 1 June 1999. The appellant has now appealed that figure, claiming the unimproved value should more properly be $750,000. The appellant was granted leave to withdraw parts of his appeal relating to a subsequent valuation issued on 9 February 1999, in respect of valuations at 1 October 1998, as those are not within the relevant period.
Mr Eric Gordon Oxenford, Director, appeared and gave evidence for the appellant. Mr Uday Singh, the Departmental Registered Valuer responsible for determining the valuation appeared and gave evidence for the respondent.
The Evidence:
(1) The Nature of the Land -
The subject land is of medium elevation with falls between gentle and moderate from south to north-east and north-west. A contour map (Exhibit 2) shows falls of about 10 metres towards the north-east, and 18 metres towards the north-west. Mr Oxenford does not differ with that description of the topography of the land, but argues that those falls need to be seen in the perspective of the existing market demand for flat building sites suitable for concrete slab construction.
In order to bench and retain each lot so as to provide a building envelope suitable for market expectations, Mr Oxenford argues that further costs of $8,000 to $10,000 per parcel have still to be provided for, including building retaining walls up to 2 metres in height. Mr Oxenford notes that the estate is being developed in five stages, with stages 1 and 2 already completed. The steeper lots will occur on stages 3 and 4 still to be completed. The last stage 5 is low-lying, near to lands to be dedicated as parklands (8,800 square metres), connecting with another estate (Devine Developments) to the south-west of the subject land, along a natural watercourse and discharging through a designed drainage system into a culvert in Weekes Road. All normal utility services are available.(2) The Added Value of the Developed Lots -
At the date of valuation the estate contained 14 developed parcels, which are included in the valuation. Mr Singh estimates those parcels at $700,000, while Mr Oxenford estimates a total value of $691,000, but accepts Mr Singh's figure for the purpose of the valuation.
However, there is a major difference between the parties in respect of any special allowance to be adjusted from that figure, in order to reflect an amount that could reflect the "bulk" nature of ownership of those 14 parcels. While there is no written guidance in either the legislation, or the policy of the respondent, in respect of whether any "bulk" adjustment should be applied for single ownership purposes, it has been Departmental procedure, under certain circumstances, for the respondent's valuers to make a 1% per parcel concession in the total purchased parcel of quantum value for that purpose. However Mr Singh concedes that he had not made specific comparisons with other valuers in respect of the subject land.
Mr Singh argues that each estate development tends to be treated on its particular merits. Restricted selective research of other estates across Brisbane has revealed a "bulk" discount figure of about 1% per parcel. This practice is then generally followed across the board. In this particular matter Mr Singh has drawn some comfort from a bulk sale of 15 parcels to a single owner on an estate in Falbrook Street near "Misty Morn" estate, off Gem Road at Kenmore. That bulk sale of 15 lots reflected a discount of 1.1%.
While those parcels are in a hollow, just off Moggill Road, Mr Singh concedes that land parcels in the Kenmore area tend to be in a higher price bracket ($75,000 to $95,000) compared to parcels in the Bellbowrie/Moggill area ($50,000 to $60,000). Mr Singh also argues that the total number of sales tends to be similar in both localities, although Bellbowrie would be a bit slower in the rate of sales. However, Mr Singh concedes that the comparable size of the parcels is much smaller in the Bellbowrie area, reflecting what was referred to as the "Devine" influence.
It was agreed by both parties that there had been a noticeable change in the market for land in various parts of Brisbane over the last few years, particularly in the Bellbowrie area. Developers have now reduced the parcel size and are tending to sell house/land packages, rather than vacant lots to home builders. There was also a trend to link the price of the land parcel as a means of impacting the cash flow of the later building component.
Mr Oxenford gave evidence that contracts of sale of lots that he sold to one such major developer in that locality, had required a special discount of $8,000 per lot as a condition of sale. The practice then required what was referred to as a "kick-back" marketing strategy of that figure, paid directly to the builder of the houses, while the price of the land parcel was disclosed for public purposes as the price of the lot before the discount was applied. Those matters are discussed later, but the result of that confusing adjustment of costs, tends to inflate the recorded prices paid for lands in such circumstances.
Mr Singh concedes that he had been unable to find any directly comparable locality to Bellbowrie, which had tended to be seen as "broken away from the City" (Transcript 37). However when drawing more specific comparisons about rates of sales, Mr Singh concedes that the "Misty Morn" lands at Kenmore had disclosed overall sales of 35 to 40 over 2 years (20 to 25 per year); compared to the subject land's rate of sales of 11 lots in the same period.
On that specific comparison Mr Singh agrees that the rate of sales at Bellbowrie was only half the Kenmore sales, and the Bellbowrie sales rate was much slower. Mr Singh also advises that sales rates vary across the City, and some sales in the Zillmere area appear to have been sold more rapidly than at Kenmore. Mr Singh also concedes that sales in areas nearer the Central Business District have tended to be seen as more attractive over the last few years.
A further examination of the rate of subsequent sales of Mr Singh's Sale 6 (Lagoon Crescent), reveals that the staging of development of that in globo parcel had extended for about 2½ years, during which time only stage 1 of that area had been developed, and some 10 to 11 lots remain unsold to the present.
In seeking guidance on the rate of sales of the subject land, Mr Oxenford provides the following details:
Period Total Sales House/Land Land Average
Land Price
Mar 96 to Sep 96 13 1 12 $54,175
Oct 96 to Sep 97 9 3 6 $55,158
Oct 97 to Sep 98 7 2 5 $52,370
Oct 98 to Sep 99 7 5 2 $51,475
Oct 99 to Apr 00 14 12 2 $54,000
Of those sales for land, 9 involved the "kick-back" of $8,000, which was re-paid directly to the builder, as part of the special house/land package arrangements. The average rate of sales from 1996 to 1999 was 6.4 per year, or 0.6 per month.
It is clear from the statistics that there has been a marked change in the nature of the market in Bellbowrie from about October 1998. Prior to that date, 79% of total sales were for land only, while after that date 81% of total sales are for house/land packages. The 79% of land only sales also included 31% of total sales within which the $8,000 "kick-back" arrangement had effect as an inducement to negotiating the sale. The average price figures from Mr Oxenford allow for the $8,000 "kick-back" arrangement with the major builder, while Mr Singh's record of sales included the high prices disclosed in the formal advice of the sale to the Government.
In arriving at his estimate of an allowance for "bulk" lands, Mr Oxenford argues that a more realistic figure should be 2½% per lot. That figure he argues is more closely aligned with the level of holding charges inherent in unsold developed lots to which rates and land tax charges alone account for about 2.8%; irrespective of any other commercial holding charges such as interest payments. Mr Oxenford further argues that, to his knowledge, there would be no single buyer of land in the Bellbowrie area, who would be interested in acquiring a single package of 15 parcels at a discount of only 1% per parcel. He based that conclusion upon an annual rate of sale of such parcels to October 1997. Mr Singh has based his assessment of the rate of sales as acceptable, adopting figures from other similar estates in the Bellbowrie area. He also notes that the adjoining "Devine" estate was nearly sold out, although it is noted that sales in that estate are almost entirely house/land packages.
In support of his argument of a higher discount rate, Mr Oxenford made inferences of evidence he might provide, where larger discounts have been applied at other estates of the appellant at levels of Woodlands (20.8%) and Brackenridge (19%). However he elected not to proceed to document those allegations, and I get little assistance from those allegations.(3) Comparison of Sales -
To support his estimate of the subject developed lots, Mr Singh relies upon the following representative sales of vacant lands sold to individual buyers:· Sale 1 - (12 Cedrella Street, Moggill - Lot 187 on RP 906447)
This is a 463 square metre parcel, seen as comparable to the developed lots. The sale sold in June 1997 for $54,950, and was analysed at $54,150, and applied at $47,000.
· Sale 2 - (6 Lisadell Court, Moggill - Lot 11 on RP 892881)
This is a 600 square metre parcel, seen as comparable to the developed lots. The sale sold in February 1997 for $59,000, and was analysed at $58,200, and applied at $52,000.
· Sale 3 - (7 Bloomsbury Crescent, Moggill - Lot 15 on RP 892880)
This is a 600 square metre parcel, seen as comparable to Sale 2. The sale sold in August 1996 for $59,950, and was analysed at $59,150, and applied at $52,000.
In support of the value of the in globo subject land, Mr Singh provides the following sales of vacant in globo lands:
· Sale 4 - (Livesay Road, Moggill - Lots 3 and 4 on RP 221304)
This is a 9.378 hectare "Future Urban" parcel of moderate to high elevation, and moderate slopes. There is a gully across the south-eastern part of Lot 4 near Livesay Road. The sale is seen overall as superior to the subject in globo lands.
The sale sold in July 1997 for $1,000,000, which was analysed at $995,000 ($106,000 per hectare).
· Sale 5 - (Moggill Road, Moggill - Lots 1 and 2 on RP 221304)
This is an 8.129 hectare "Future Urban" parcel adjoining Sale 4, and sold to the same purchaser. The sale is of moderate to high elevation, with moderate slopes and views to the east. The sale is superior to the subject in globo lands. The sale sold in April 1996 for $1,000,000, which was analysed at $995,000 ($122,400 per hectare).
· Sale 6 - (212 Kangaroo Gully Road, Bellbowrie - Lot 13 on RP 905826)
This is a 14.505 hectare "Residential A" parcel of medium elevation, with gentle to moderate slopes from east and west towards the north. Overall the sale is superior to the subject in globo lands.
The sale sold in March 1997 for $1,980,000, which was analysed at $1,880,000 ($134,000 per hectare).
In his estimate of the developed lots, Mr Oxenford provides actual sales of lots from stages 1, 2 and 5. As the parties agree overall on the actual quantum of the developed lots, I will not pursue those comparisons further. However, the trend from Mr Oxenford's sales evidence reveals that the average sale price for vacant lands in stages 1, 2 and 5 represented $54,503 (18 sales) pre-October 1997; and $52,533 (9 sales) post October 1997. It is also noted from the contour map (Exhibit 2) that stages 1 and 2 represent the best land in the estate. Because of the lack of reliability in the true quantum of land component in the house/land packages, I get little assistance from those sales.
In arriving at his value of the remaining subject in globo lands, Mr Oxenford provides a hypothetical subdivision of those 5.172 hectares. He estimates the sale price of $50,500 per lot, a profit and risk component of 35% and development costs supplied by his consulting surveyors at an average of $23,798 per lot. Based upon those detailed estimated costs, he determines an unimproved value of the residual 52 new lots still to be developed at $300,000. By comparison, Mr Singh relies upon direct comparisons with the in globo sales. Mr Singh assesses an in globo value of $92,500 per hectare for the 5.172 hectares, giving an in globo value of $478,410.
Mr Oxenford queries the reliability of such direct comparisons of the in globo lands, as he notes that there is no clear understanding of the level of possible headworks contributions which may, or may not, have been included in those sales. Mr Singh confirms that he was not absolutely sure whether such charges had already been paid prior to the sale, and he had accepted the sale as a bare sale of in globo land, with some headworks charges either paid or bonded with the Council. Mr Singh also concedes that the level of such contributions can vary from vendor to vendor, and agrees that the appellant has still to make significant contributions for public open space (8,800 square metres), and for external contribution towards a traffic roundabout at the intersection of Moggill and Livesay Roads.
While Mr Singh has no difficulty with the use of a hypothetical development approach as a check against the direct comparison of sales, he notes that the hypothetical method has certain features which can give diverging outcomes. As an average starting sale price per lot in his hypothetical check, Mr Singh has adopted an overall range of $55,000 to $58,000 per parcel for the entire 90 lot estate (stages 1 to 5). Mr Singh adopts that level of value based upon sales evidence in that locality, including stage 1 of the subject land.
Mr Oxenford challenges that conclusion, arguing that some sales subsequently developed in Sale 5 (Beauford Heights), sold for up to $100,000 per lot, and an average price of $20,000 to $25,000 more than the subject land. Mr Oxenford further argues that the sales in the Devine estate nearby were also impacted by the "kick-back" arrangement mentioned earlier. Mr Singh had not been aware of those special marketing arrangements with the "Devine" sales, and had relied upon the official sale prices recorded with his Department under section 81 of the Valuation of Land Act.
Mr Oxenford also argues that several recorded sales are inconsistent with the average price per lot adopted for the check hypothetical approach by Mr Singh. Mr Oxenford notes for example that Lot 93 sold to an individual purchaser in July 1997 for only $51,950, while Mr Singh's Sale 1 (Lot 187 - 12 Cedrela Street) was adopted at a sale price of $54,950. Mr Oxenford notes that Lots 93 and Lot 187 are almost adjoining parcels, and both have comparable elevation. However Mr Singh sees no disparity between those sale prices, noting that Lot 93 (769 square metres) is impacted by several easements, and is a battle-axe parcel, while Lot 187 (463 square metres) is not so affected. Mr Singh believes those varying sale prices support his concluded overall sale price for his hypothetical subdivisional check.
In assessing his profit and risk factor at 35%, Mr Oxenford has made no special allowance for the additional development costs of having to bench and retain level building pads on stages 3 and 4 of the estate. He sees that as an inescapable further burden if he is to market the parcel successfully in the current marketplace. Mr Singh agrees that normal profit and risk factors can vary between 33.3% to 35%, and even up to 40% in that area. Mr Singh concedes that the profit and risk factor will vary according to the rate of sales and the risks involved in the development. Mr Singh has allowed a conservative comparison in his estimate of $92,500 per hectare for the subject land, as he seeks to determine an unimproved value a little below full market price, which is the respondent's general policy.
Decision:
(i) The Added Value of Developed Lots -
I turn first to the method of valuing the land, and I note that Mr Singh has valued the subject land in accordance with section 34 of the Act. Under that provision he has valued the in globo land and each of the 14 developed lots as separate parcels, but held in one ownership. The application of a bulk discount for the 14 separate developed lots is a discretionary approach undertaken by the respondent with the view of providing a conservative unimproved value.
That approach would appear to have its genesis in the former section 25(2) of the Act (now repealed), where a discount for residual unsold developed lots was provided for subdivided lands. That earlier provision had been provided to allow for the on-going rates and charges then being paid by developers on lands which had not been sold. By amendments of section 25 (No. 48 assented to 27 November 1998), those discounts were then amended to concessional rating adjustments by local governments.
However there is no formal legislative direction, or fixed policy of the respondent, that any fixed discount should apply. The application of any quantum of discount for bulk rests entirely upon the circumstances of each matter. Key in those deliberations are the elements of risk exposure in the marketplace, including the rate of sales of the parcels.
The matter of allowing for "bulk or multiple holdings" was discussed by the Land Appeal Court in Burns Philp & Co Limited v. Valuer-General (1974) 1 QLCR 161. In that matter the Land Appeal Court found at page 166:"It is apparently a practice in the Valuer-General's Department when several parcels are included in one valuation to make an allowance for 'bulk or multiple holding'. Often this is made at the rate of 2½% per allotment or subdivision. As we understand the practice this is an acknowledgement that larger areas generally command a lesser overall unit value than smaller areas. We see no reason as presently advised to disallow this practice but the quantum thereof is one calling for discretion according to the circumstances of individual cases. The basis of the allowance cannot be a rule of thumb of 2½% for each allotment included in the parcel. Logical and practical considerations require that a maximum limit be applied to the bulk allowance percentage, otherwise increasingly large numbers of allotments would result in inordinately low unimproved values until when 40 allotments are included the absurd position of a nil value would result. "
Clearly the direction from the Land Appeal Court is that discretion must be used in the application of any "bulk allowance". Normal economic forces generally dictate the extent of any stages in a subdivisional development, the rate of sales being an important criteria. It would be a less than prudent developer who sought to develop a stage of new lots, well beyond his likely capacity to sell them to the marketplace. On the subject land the following stages are noted:
· Stage 1A - 21 lots
· Stage 1B - 16 lots
· Stage 2 - 17 lots
· Stage 3 - 17 lots
· Stage 4 - 18 lots
· Stage 5 - 6 lots
TOTAL 95 lots
Based upon the evidence of sales so far experienced, each stage was likely to have had an approximate 2 year horizon, before further development proceeded. On the basis of 11 sales per year, the development must be seen at the lower end of the investment scenario, reflecting, in my opinion, the large impact of the surrounding house/land package arrangements.
Those marketing arrangements are also impacting the actual prices paid for vacant lands bought by the home builders, with large discounts of $8,000 per parcel (15%). While Mr Singh has accepted the officially recorded sale prices of the parcels sold to the Devine Group, the actual price received by the appellant for those parcels is more properly reflected in Mr Oxenford's Exhibit 3. On that basis I accept Mr Oxenford's average price for the land only packages as a reflection of the true market expectation for the subject land. On that basis I accept an average of $54,503 per lot for sales up to October 1997; and an average of $52,533 per lot for sales after October 1997; figures which will be discussed later for the value of the in globo lands.(ii) Any Discount for Bulk Ownership -
In the matter of whether some level of discount could be allowed for residual ownership by the appellant, I believe that should only be assessed in line with market experience. Mr Singh's use of a 1% per parcel discount follows some limited market research, and apparently has been applied elsewhere across the Brisbane area. However Mr Singh concedes that Bellbowrie/Moggill is an area separated from the other surrounding urban developments by large areas of rural residential homesite lands. Mr Singh also concedes that the rate of sales is only about half of the rate experienced in the "Misty Morn" estate in Kenmore, some 9km further to the east. That slower rate perhaps reflects not only the further distance of Bellbowrie from the Central Business Area, but also the smaller size of the parcels compared to Kenmore. On the basis of the lack of direct comparability of the parcels, and their rate of sale, I believe there is some doubt about the direct application of a 1% per parcel discount based upon sales evidence in other localities.
However if I consider Mr Oxenford's estimate of a discount at 2½%, I see that is aligned with the on-going holding charges for rates and land taxes. However in his initial hypothetical assessment of the development, Mr Oxenford would have allowed for those charges in his initial purchase of the in globo land. It is possible that at that time the appellant would have designed the size of the stages of the estate to reflect a rate of sales something comparable to the nearest urban areas at Kenmore (about 20 to 25 lots per year). As it eventuated the rate of sales was only half of that rate (11 sales per year), and the additional holding charges apparently relate more to the extension of time occasioned by the slower rate of sales.
If I then allow for the extended sales period occasioned by the impact of the house/land packages, I believe that the additional rates and land tax holding charges would relate to about half of those charges, or about 1.4% per parcel. In my opinion, the additional holding commercial charges for "interest" would have been included in the profit and risk factor of 35%. Allowing any uncertainty in the appellant's favour and the special factors of this matter, I will allow a discount of 1½% per lot for the bulk single ownership.(iii) The Value of the In Globo Land -
In his approach of seeking direct comparisons with sales of other vacant in globo lands, Mr Singh has followed guidance established by the Courts. When determining unimproved value it has been found that the preferred method is to seek such comparisons, as there is less source of error in determining any added value of improvements upon any sales. That principle was followed in WM and TJ Fischer v. Valuer-General (1983) 9 QLCR 44, where the Land Appeal Court said at page 46:"It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels. "
That was also followed in PH Clough v. Valuer-General (1981-82) 8 QLCR 70, at page 76; and also in R and MM Barnwell v. Valuer-General (1990-91) 13 QLCR 13, at page 17.
In seeking his comparisons Mr Singh provides three sales of in globo lands as follows:
Sale Area Rate per ha Comparison4 9.378ha $106,000 Superior
5 8.129ha $122,400 Superior
6 14.505ha $134,000 Superior
On that basis there is nothing to discredit Mr Singh's comparisons, bearing in mind the rate of sales, and the nature of those sales. However the question that needs to be asked is by how much does each of those sales exceed the subject land? Mr Singh has relied upon his professional opinion, and his broad experience of values in that locality. (See King Ranch Pastoral Company Pty Ltd v. Valuer-General (1968) 35 CLLR 255, at page 259.) That was further clarified by the Land Appeal Court in that matter, where the learned Member in the minority decision, noted at page 262:"In Bingham v. Cumberland County Council (1954) 20 LGR1 at pages 18 and 19, Sugerman J says, 'In the absence of sufficient guidance to be had from sales, the valuer may find himself in a position resembling that to which Lord Romer referred in the Raja case (1939) AC at pages 312 and 313, in which he will have no market value to guide him, and he will have to ascertain as best he may from the material before him what a willing vendor might reasonably expect to obtain from a willing purchaser for the land'. The valuer in arriving at his opinion in these difficult matters may have to draw from his general knowledge and experience, including perhaps experience in other situations which, although lacking in complete comparability, may yet provide an experienced valuer with guidance and suggestions as to the general approach which may be made and as to considerations which may become relevant. "
However, while the judgment of an experienced valuer is a legitimate guide to his professional opinion of an area, it is always important to ensure that such judgment is supported by evidence in the marketplace.
This was outlined in the text in Land Valuation and Compensation in Australia, Rost & Collins (3rd Edition) 1984, which said at page 22:"A registered or licensed valuer is regarded as a person who possesses special training. He is entitled to express opinions as to value or other matters appertaining to his vocation, but these cannot be more valid than the information and reasoning upon which they are founded. In general, opinion evidence is not admissible unless it is given by a witness called as an expert. Court judgments have emphasised that the weight of an expert's opinion concerning the value of land depends upon the foundation upon which it rests. "
That was also followed in the decision of the Land Appeal Court in Santos Limited v. Valuer-General (1988-89) 12 QLCR 231, which followed the principle that a value based upon sales was "to be preferred to a valuation based on opinions" (pages 235/236).
It is always therefore important to contrast the personal views and aspirations of the skilled person in land matters, with the views of the so-called "hypothetical purchaser" in the marketplace. In the end it is the hypothetical vendor and purchaser who establishes the value of land. (See Spencer v. The Commonwealth of Australia [1907] 5 CLR 418, where Griffiths CJ (page 432) and Isaacs J (page 441) set the principles which have ever since determined how a bona fide sale is to be assessed.) In the end the value of a parcel, and the relative value of the locality, must be supported by the evidence of bona fide sales in the free marketplace.
If I then turn to Mr Oxenford's hypothetical subdivisional assessment, as a guide on the level of market support for Mr Singh's comparable rates per hectare, I note that such an approach is often used by developers in order to assess the value of the land for purchase purposes. However, I also note that courts have expressed some concern with how the method should be applied.
On appeal to the High Court of Australia in Turner v. The Minister for Public Instruction (1956) 95 CLR 245, Dixon CJ said at page 268:"The formula, the use of which apparently has become so familiar in valuing land suitable for subdivision, contains a number of factors all of which seem to depend on little or nothing more than opinion and it may be supposed that widely different results may be produced by variations in detail, though no given variation may itself seem considerable. It would appear natural therefore for a judicial valuer to seek to check his result by reference to as many sources of information and inference as may be found, even if he might consider that they would not provide him, had they stood alone, with a satisfactory independent basis for an ultimate conclusion."
In considering further the matter of the "risk of realisation", Dixon CJ said at page 264:
"To no small extent the 'risk' is of the estimate of the net proceeds of subdivisional sale proving too low. The reason may be found in the estimate of the prices for blocks being too high, the sale of the blocks being too slow, the estimated costs attending subdivision and sale proving too low or in any or all of such causes. It is therefore evident that the degree of faith felt in the estimates, whether by the court or the hypothetical purchaser, must bear upon the fixing or allowance of the percentage. In coming to a reliable determination there is no reason why it should not be done by fixing provisional figures and then reducing them, but it would seem that there is equally no reason why it should not be done by making definitive estimates in the first place. It must be borne in mind, of course, that while the estimate of the expenditure may prove too high and the estimate of the return may prove too low, the contrary is equally possible."
Clearly there is seen to be an inter-relationship between the anticipated selling price, the extent of marketing and presentation of the lots, the profit and risk factor and the period of development of the estate. The risk for any potential developer who might undertake the hypothetical subdivision must weigh all of the above factors. His dilemma was perhaps encapsulated by Taylor J in Turner who said at page 298:
"In endeavouring to assess the value of a parcel of land by reference to the amount which a subdivisional sale will realise at some future time the estimated cost of subdivisional expenses must be taken into account. But they are only estimates and other factors, more or less speculative, such as the state of the market, must also be taken into account. The allowance for risk of realisation is made by way of overall adjustment with respect to the contingencies involved in these matters and though, if a purchaser's estimates prove correct, the making of the allowance will be reflected in his ultimate profit, it is an allowance which is made, in the first instance, not with that end in view, but as a contingency against possible losses. Over and above an appropriate allowance for this purpose a purchaser is, of course, entitled to look for a profit. "
The impact of those factors, and in particular the "profit and risk" component was also outlined in Closer Settlement Ltd v. The Minister (1942) 17 LGR 62, where Roper J said at page 65:
"It is of course clear that a person purchasing land in globo for the purpose of subdividing it would not pay the sum of money which is the present equivalent of that estimated return. Many factors in the calculation are speculative: the land in subdivision may not realize the prices which are at present expected, and the subdivision may take longer to realize than is at present anticipated. To compensate for the risk involved in the venture the purchaser would certainly discount the estimated returns. "
In the current matter there is no divergence between the parties in respect of a profit and risk factor of 35%, and I will adopt that figure. I note that in using the hypothetical subdivisional approach as a check on his direct comparison method, Mr Singh assesses the entire 95 lot development (about 8.8 hectares). He notes that in assessing the resultant rate per hectare for the land component, that would include both the more attractive, and less attractive, components of the land.
The subject land would therefore, in Mr Singh's opinion, represent an overall project, against which certain headworks, and open space contributions, could be assessed. It was likely to be on that basis that the profit and risk rate of 35% would have been assessed. It would therefore be unfair to only assess the rate per hectare on the residual 5.172 hectares, and allow for the open space contribution of 8,800 square metres, which relates to 10% of the entire estate area.
In arriving at an overall selling price per lot, I note that sales of vacant lands to the present, represent on average $54,503 to October 1997, and $52,533 since October 1997. The rate of sales in the latter period indicate a tighter market. The lesser quality lands to be sold in stages 3 and 4 therefore suggest an overall asking price of perhaps $50,500 would be reasonable for that section of the estate. On that basis the overall selling price could be:
$53,503 x 22 lots = $1,177,066
$52,533 x 21 lots = $1,103,193
$50,500 x 52 lots = $2,626,000
TOTAL = $4,906,259
Average per lot = $ 51,645
In seeking to assess an overall approach to the estate, I have no detailed estimates provided for stages 1A and 1B. However I note from Exhibit 6 that the overall cost per lot, including headworks charges and the contribution to the external upgrade of the intersection of Livesay and Moggill Roads, represents $29,309 for the 52 lots of stages 2 to 4. On that basis I will adopt an average of $29,300 as the developed cost per lot for the whole estate. Adjusting Mr Oxenford's figures, and allowing for an average selling price of $51,645 per lot, a check hypothetical subdivision approach could reveal:
Sale Price - 95 lots x $51,645 per lot = $4,906,275Less
Commission, advertising & legal costs -
95 lots x $3,112 per lot = $ 295,640
Gross realisation = $4,610,635
Less:
Profit and Loss -
35 x 4610635 = $1,195,350
135
Net realisation = $3,415,285
Less:
Development costs & holding charges &
Interest - 95 lots x $29,300 = $2,783,500
Value of in globo land = $ 631,785
Say, $ 630,000
Average rate per ha = $630,000 ÷ 8.80ha = $ 71,590 per ha
Therefore the value of the remaining in globo for this matter would be 5.172 hectares x $71,590 or $370,263, say $370,000.
Summary:
In concluding an unimproved value for the subject land at 1 October 1997 I find:
· Value of developed lots = $ 700,000
Less: 1½% per lot for 14 lots (21%)
For bulk holding = $ 147,000Unimproved value of developed lots = $ 553,000
· Plus: In globo land = $ 370,000
Total unimproved value = $ 923,000
Conclusion:
Having considered the whole of the evidence I am persuaded that the appellant has partly proved his case. The unimproved value as assessed by the Chief Executive is set aside, and the unimproved value of Lot 10 on RP 27555, Lot 17 on RP 892880, Lot 9 on RP 892881, Lot 104 on RP 908123, Lots 25, 26, 29 to 32 and 34 to 36 on RP 908124, and Lots 90 to 92 and 501 on RP 909739 is determined at Nine hundred and twenty-three thousand dollars ($923,000).
(NG Divett)
Member of the Land Court
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