CHEVRON AUSTRALIA PTY LTD and VALUERGENERAL
[2019] WASAT 7
•28 FEBRUARY 2019
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: VALUATION OF LAND ACT 1978 (WA)
CITATION: CHEVRON AUSTRALIA PTY LTD and VALUERGENERAL [2019] WASAT 7
MEMBER: JUDGE T SHARP, PRESIDENT (ACTING)
MR B ZUCAL (SESSIONAL MEMBER)
HEARD: 25 & 26 SEPTEMBER, 30 OCTOBER AND 5 NOVEMBER 2018
DELIVERED : 28 FEBRUARY 2019
FILE NO/S: CC 2501 of 2017
BETWEEN: CHEVRON AUSTRALIA PTY LTD
Applicant
AND
VALUERGENERAL
Respondent
Catchwords:
Unimproved value - Market value - Comparable sales evidence - Income capitalisation approach - Valuation principles applicable to determination of unimproved value
Legislation:
Improvement Scheme 1 Ashburton North Strategic Industrial Area
Shire of Ashburton Local Planning Scheme No 7, cl 7.9
State Administrative Tribunal Act 2004 (WA), s 17(1), s 27(1), s 29(1), s 29(3)
Valuation of Land Act 1978 (WA), s 4(1), s 18, s 32, s 32(7), s 33, s 33(1), s 33(2)
Result:
Valuation set aside and new value assessed
Category: B
Representation:
Counsel:
| Applicant | : | Mr D Jackson SC |
| Respondent | : | Ms C Ide |
Solicitors:
| Applicant | : | Norton Rose Fulbright Australia |
| Respondent | : | State Solicitor's Office |
Case(s) referred to in decision(s):
CSR Ltd v ValuerGeneral (1977) 17 SASR 446
McKay v Commissioner of Main Roads [No 7] [2011] WASC 223
Ord Irrigation Cooperative Ltd v Department of Water [2018] WASCA 83
Paul Holmes a Court and the Nicholson Grazing Co Pty Ltd and Others and Valuer General [2012] WASAT 114
Spencer v Commonwealth (1907) 5 CLR 418
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
This matter comes before the Tribunal by way of a request from the respondent (ValuerGeneral) to review a determination by the ValuerGeneral on objection by the applicant (Chevron). The objection was to the ValuerGeneral's determination of the unimproved value of the subject land.
The subject land is described more fully later in these reasons but is Lot 567 on Deposited Plan 71345, being the whole of the land comprised in Certificate of Title Volume 2779 Folio 361. The subject land is south of the Port of Ashburton in the Shire of Ashburton.
The ValuerGeneral's determination of the unimproved value (the definition of which is set out at [46] of these reasons) of the subject land as at 1 August 2015 (DOV) was $16,460,000 (including GST). Based on that determination, the Shire of Ashburton imposed a rate on the subject land.
Chevron on 30 November 2016 lodged with the ValuerGeneral an objection to the determination. In the objection, Chevron says that it does not agree with the methodology employed by the ValuerGeneral in arriving at its valuation, but says that even if it used the same methodology, the unimproved value of the subject land at the DOV is $11,550,000 (including GST).
On 14 August 2017 the ValuerGeneral disallowed the objection and increased its determination of the unimproved value of the subject land as at the DOV to $16,921,500 (including GST).
On 30 November 2017, Chevron served on the ValuerGeneral a notice under s 33(1) of the Valuation of Land Act 1978 (WA) (VL Act) requiring the ValuerGeneral to refer the valuation to the Tribunal for a review.
Pursuant to s 33(2) of the VL Act, the valuation was referred to the Tribunal on 1 December 2017.
Proceedings in the Tribunal
The matter was heard over four days, on 25 and 26 September 2018, 30 October 2018 and 5 November 2018.
The ValuerGeneral called Mr Stephen Fern, a specialist valuer with the Western Australian Land Information Authority (Landgate). Chevron called Mr David Moore and Mr Stephen Incerti, both property valuers with Opteon Property Group Pty Ltd (Opteon). References in these reasons to the opinions and views of Opteon are references to the opinions and views of Mr Moore and Mr Incerti.
The experts filed a joint statement dated 21 September 2018. Mr Fern and Opteon filed written statements and Mr Fern, Mr Moore and Mr Incerti gave concurrent oral testimony at the hearing.
Full description of the subject land and its locality
The following facts are not in dispute between the parties.
The registered proprietor of the subject land is the Western Australian Land Authority (LandCorp).
The subject land has an area of 4,417,591m2 and is located immediately to the south of the southern edge of the Port of Ashburton North and is some 30 kilometres south-west of the town of Onslow in Western Australia's Pilbara region.
The subject land is situated several hundred kilometres from discovered and future gas resources in the Western Carnarvon Basin.
The subject land was (and is, in its unimproved state) low lying. There is, and there was at the DOV, road access to the subject land, constructed by Chevron.
The subject land is generally poorly drained and subject to periodic flooding.
The subject land is leased by Chevron for the construction and operation of the Wheatstone Gas Treatment Plant (GTP) as part of Chevron's Wheatstone Project. Construction of the GTP commenced in 2012 and gas production commenced from train 1 on 9 October 2017. Train 2 is now or is about to become operational.
The lease of the subject land in favour of Chevron commenced on 1 December 2011 and the term of the lease is 30 years, with two options to renew, each of 10 years.
To the south of the subject land is BHP's Macedon Gas Treatment Plant. BHP's lease commenced on 3 May 2011 and the treatment plant was operational in September 2013.
Relevant planning framework
The planning framework is also common ground between the parties.
The subject land is situated within the Ashburton North Strategic Industrial Area (ANSIA). Clause 7.9 of the Shire of Ashburton Local Planning Scheme No. 7 provides for land within the ANSIA (which is within a special control area) to be zoned in accordance with the ANSIA Structure Plan. The ANSIA Structure Plan was endorsed by the Western Australian Planning Commission on 31 October 2011.
The subject land is zoned 'strategic industry' under the ANSIA Structure Plan and the subject land is also annotated as 'hydrocarbon industry'. The purpose of the ANSIA is stated to be as follows:
Facilitate the State's vision to create a hydrocarbon processing and related hydrocarbon industries estate along with other support industries in Stage 1C that do not impinge upon the establishment or operation of hydrocarbon industries.
The ANSIA Structure Plan provides that use, subdivision and development shall be generally in accordance with the ANSIA Structure Plan.
The Wheatstone Development Plan was adopted by the Shire of Ashburton on 20 June 2012. The Wheatstone Development Plan provides that the subject land is in Stage 1A and the subject land has an annotation 'Wheatstone LNG Plant'.
The Ashburton North Strategic Industrial Area Improvement Plan No. 41 was gazetted on 13 March 2015 and applied at the DOV. The background to the improvement plan (cl 2) relevantly provides:
2.1In 2008, the State Government, in response to substantial gas discoveries off the Western Australian coast from Onslow, determined that a new hydrocarbon processing precinct should be established to derive maximum benefit from the resource including both liquefied natural gas and domestic gas production.
2.2The ANSIA was established 12 kilometres south-west of Onslow for onshore gas processing and storage in addition to facilitating the establishment of downstream and support industries.
2.3… the ANSIA will consist of liquefied natural gas and hydrocarbon related processing industry and compatible industries.
2.4Consisting of approximately 8,000 hectares of land, the ANSIA is largely owned by the State of Western Australia or LandCorp. A number of lease arrangements exist over the land in order to facilitate the use and development of the land for gas processing and relating activities, and the Urala and Minderoo Pastoral Leases …
…
2.6The adjacent Port of Ashburton North is intrinsic to the development of the industrial area with access a critically important component of development. The planning is based on a multi-user access and infrastructure corridor (MUAC) providing connectivity between industries and the Port …
Improvement Scheme No. 1 Ashburton North Strategic Industrial Area was gazetted on 30 September 2016, after the DOV.
Valuation and objection
The parties agree that for rating purposes a value that includes GST should be utilised; Respondent's Closing Submissions dated 4 November 2018 (RC) at para 1, Applicant's Closing Submissions dated 5 November 2018 (AC) at para 2.
The ValuerGeneral originally determined the unimproved value of the subject land as at the DOV to be $16,460,000 (including GST). The ValuerGeneral explains that this amount was derived using an income capitalisation method, which method is explained later in these reasons. The ValuerGeneral based its unimproved value on an unimproved market rent of $0.60 per square metre per annum (excluding GST), in respect of a land area of 2,650,000m2 being the estimated area required to be utilised for the GTP, and a capitalisation rate of 9%. GST of 10% was added; Respondent's Statement of Issues, Facts and Contentions dated 16 March 2018 (RS) at para 17. The ValuerGeneral had regard to the existing lease in favour of Chevron, in particular the concessional rent that was being paid by Chevron during the construction phase.
On 30 November 2016 Chevron lodged with the ValuerGeneral an objection to the ValuerGeneral's determination of the unimproved value. Chevron submitted that it did not consider it appropriate to adopt an income capitalisation method of valuation but, even if it were to be adopted, the unimproved value should be $11,550,000 including GST, based on an unimproved market rental rate of $0.45 per square metre and a capitalisation rate of 11.5%.
On 14 August 2017, the ValuerGeneral disallowed the objection and revised the unimproved value to $16,921,500. The ValuerGeneral says that this calculation was based on:
(a)an unimproved market rental of $0.45 per square metre per annum (ignoring the existing lease and instead having regard to comparable rental evidence);
(b)an amended utilised land area of 3,076,646m2 was adopted, being Chevron's best estimate of utilised land area;
(c)a capitalisation rate of 9%; and
(d)the addition of GST of 10%.
(RS at para 19)
In Mr Fern's witness statement of 13 April 2018 at para 88, he says that at the DOV the unimproved value of the subject land was in fact $19,880,000 (including GST) assessed on the basis of comparable sales. This figure was derived from an earlier sale of certain land in Queensland, which Mr Fern values at $4.50 per square metre.
In Mr Fern's later witness statement of 19 July 2018 at para 46, he amended his valuation to $19,658,000, using a land value of $4.45 per square metre.
The decision under review
Pursuant to s 32(7) of the VL Act, after consideration of an objection, the ValuerGeneral may either disallow it or allow it wholly or in part.
In this case, the ValuerGeneral disallowed Chevron's objection but also increased the unimproved value of the subject land to $16,921,500.
We do not consider that it was open to the ValuerGeneral when disallowing the objection to increase the valuation. If an objection under the VL Act is disallowed by the ValuerGeneral, then in our view the result is that the valuation the subject of the objection, namely $16,460,000, stands. There is no power to the ValuerGeneral under the VL Act when disposing of an objection to substitute the valuation with a higher valuation.
Turning then to the review by the Tribunal, under s 33 of the VL Act, it is the valuation, not the objection, which is referred to the Tribunal for review. If we are correct in what we say in the preceding paragraph, then the valuation to be reviewed by the Tribunal is the valuation of $16,460,000, not the valuation of $16,921,500.
Under s 29(3) of the State Administrative Tribunal Act 2004 (WA) (SAT Act), the Tribunal has the power upon review to, amongst other things, set aside the 'decision' that is being reviewed and substitute its own 'decision'. That being so, it could be argued that the Tribunal, unlike the ValuerGeneral, has the power to substitute a higher valuation.
However, in Ord Irrigation Cooperative Ltd v Department of Water [2018] WASCA 83 at [123], the court said that the powers of the Tribunal to vary the decision under review must be exercised by reference to the limits on the decisionmaker's power.
Accordingly, the Tribunal concludes that in this case, even though the value on the valuation roll at the DOV is $16,921,500, the Tribunal must either:
(a)disallow the objection to the valuation of $16,460,000, and order that valuation to stand;
(b)allow it in whole, which means accepting Chevron's valuation; or
(c)allow it in part, which means deciding that the correct and preferable decision is a valuation which is higher than Chevron's own valuation, but lower than the ValuerGeneral's valuation of $16,460,000.
We will proceed on that basis.
Issues
The issues to be determined by the Tribunal are as follows:
(a)For the purpose of determining the unimproved value of the subject land, what is the correct methodology to apply the sales comparison approach or the income capitalisation approach?
(b)Applying the correct methodology, what was the unimproved value of the subject land as at the DOV?
Legislative framework
State Administrative Tribunal Act
The ValuerGeneral's decision upon objection is a 'reviewable decision' for the purpose of s 17(1) of the SAT Act.
Section 27(1) of the SAT Act provides that the review of a reviewable decision is by way of hearing de novo. By reason of s 29(1) of the SAT Act, the same functions and discretions of the original decisionmaker are conferred on the Tribunal. However, the Tribunal is not limited to a consideration of the material that was before the original decision-maker and may take into account additional material not before the original decision-maker.
Valuation of Land Act 1978
Section 18 of the VL Act provides as follows:
For the purposes of general valuation, the ValuerGeneral shall determine, or cause to be determined, with respect to rateable land, the gross rental value or the unimproved value, as the case requires, so far as that value is required by a rating or taxing authority for the purposes of assessing any rate or tax or is, in the opinion of the ValuerGeneral, reasonably likely to be so required before the next general valuation of the land is made.
In this case, it is the unimproved value of the subject land which is to be determined.
The term 'unimproved value' is relevantly defined in s 4(1) of the VL Act at paragraph (b)(vii)(I) of the definition as 'the capital amount which an estate of fee simple in the land not including improvements might reasonably be expected to realise upon sale'.
Sections 32 and 33 of the VL Act provide as follows:
32.Objections to valuation
(1)Any person liable to pay any rate or tax assessed in respect of land who is dissatisfied with a valuation of such land made under Part III, may serve upon the ValuerGeneral or any rating or taxing authority a written objection to the valuation
(a)in the case of land the subject of a general valuation, within 60 days after the date on which the making of the valuation was notified in the Government Gazette under section 21 or section 22; and
(b)in any case where the valuation is the basis of the assessment by a rating or taxing authority of any rate or tax, within 60 days after the issue of such an assessment.
(1a)In subsection (1), person liable to pay any rate or tax assessed in respect of land includes the authorised representative of such a person.
(2)An objection to a valuation of land shall
(a)describe the relevant land so as to identify it; and
(b)identify the valuation objected to; and
(c)set out fully and in detail the grounds of objection and the reasons in support of those grounds of objection.
(3)An objection to a valuation of land may be made on the ground that the valuation is not fair or is unjust, inequitable or incorrect, whether by itself or in comparison with other valuations in force under this Act.
(4)A person may not make more than one objection to the one valuation during any period of 12 months.
(5)Where an objection to a valuation is served on a rating or taxing authority, that authority shall as soon as practicable refer the objection to the ValuerGeneral and advise him of the date on which the objection was served on that authority.
(6)The ValuerGeneral may, for reasonable cause shown by a person entitled to make an objection, extend the time for service of the objection for such period as the ValuerGeneral considers reasonable in the circumstances and whether or not the time for service of the objection has already expired.
(7)The ValuerGeneral shall, with all reasonable despatch, consider any objection and may either disallow it or allow it, wholly or in part.
(8)The ValuerGeneral shall promptly serve upon the person by whom the objection was made written notice of his decision on the objection and a brief statement of his reasons for that decision.
(9)Where the ValuerGeneral decides to allow an objection, wholly or in part, he shall also advise the person by whom the objection was made of any consequent amendment of valuation; and where the ValuerGeneral decides to disallow an objection, wholly or in part, he shall also advise that person of the time within which and the manner in which a review of the valuation may be sought.
33.SAT review of valuation, after objection
(1)Any person who is dissatisfied with the decision of the ValuerGeneral on an objection by that person may, within 60 days (or such further period as the ValuerGeneral, before or after the expiry of that time, for reasonable cause shown by the person, allows) after service of notice of the decision of the ValuerGeneral, serve on the ValuerGeneral a notice requiring that the ValuerGeneral refer the valuation to the State Administrative Tribunal for a review.
(2)Upon receipt of such notice the ValuerGeneral shall promptly refer the valuation to the State Administrative Tribunal for a review.
(3)The ValuerGeneral is to effect the reference by forwarding the notice to the executive officer of the State Administrative Tribunal together with the objection and a copy certified by or on behalf of the Valuer General of
(a)the record of the valuation; and
(b)the reasons, if any, for the valuation.
Once the ValuerGeneral has referred Chevron's objection to the Tribunal under s 33(2) of the VL Act, the referral is treated as an application by the objector.
The principles to be applied and the Tribunal's role
In McKay v Commissioner of Main Roads [No 7] [2011] WASC 223 (McKay), Beech J, as His Honour then was, said:
In determining the value of the land taken, the court relies on the evidence of professionally qualified valuers. The court is not itself a valuation agency.
By its nature, valuation involves an inquiry about which reasonable minds may well differ widely.
Valuation is an art not a science; it involves the exercise of many subjective judgments and the steps in reasoning are not always able to be articulated fully. …
Some of the adjustments to values deduced from comparable sales in order to arrive at valuation may be 'nothing more than the best guess that can be made'.
It has often been said that the court must not allow itself to be case in the role of the 'third valuer'. Valuers have their own experience, training and skill and that role must not be usurped by the court.
On the other hand, it is clear that the court is not obliged simply to adopt one of the valuers' opinions. The court can make such adjustments to value as are required by the evidence. If the court finds any valuation evidence to be defective, incomplete or irreconcilable in some respect then it should use other evidentiary material to correct, complete or reconcile that evidence.
(McKay at [163][168] (citations omitted))
We respectfully agree with these comments.
In McKay at [144][162], His Honour set out the general principles to be applied in the process of valuation and, at [2213], His Honour then summarised those principles as follows:
(a)Value is determined by identifying the price of a notional bargain between hypothetical vendor and purchaser who are willing, but not anxious, prudent and well informed.
(b)There are a number of methods of assessing value. The comparable sales method is one. Ohers may be appropriate, depending on the evidence.
(c)Whatever method is used, that method is only a means to an end. The ultimate task is to identify the price at which the hypothetical parties would reach a bargain.
(d)Valuation is by its nature somewhat subjective, and at times involves significant conjecture, sometimes bordering on guesswork.
The approach to be taken to determine the value of land under, in this case, the VL Act is described in the following terms by Isaacs J in Spencer v Commonwealth (1907) 5 CLR 418 (Spencer) at 441:
To arrive at the value of the land at that date, we have, as I conceive, to suppose it is sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.
There is no dispute between the parties that the land must be valued at its highest and best use.
There is no statutory definition of 'highest and best use'. It has been described in Spencer at 441 as '… the most advantageous purpose for which [the land] was adapted'.
In this case, the parties agree that the highest and best use of the subject land is a gas treatment plant.
What is being valued is not the actual title vested in the owner at the DOV, but to an absolute or pure title free of any private conditions, limitations, restrictive covenants, or other inherent restrictions affecting the estate or the land; CSR Ltd v ValuerGeneral (1977) 17 SASR 446 at 450. Accordingly, the assessment of the subject land should be undertaken on the basis that there is no lease in place over the subject land. That does not mean, of course, that the subject land cannot be valued by assuming a ground rental value and applying an income capitalisation methododogy.
There is no dispute between the parties that the valuation may be undertaken by reference to sales of land comparable to the subject land, but Chevron does not agree that a valuation undertaken by way of an income capitalisation methodology is appropriate.
The income capitalisation methodology is explained by Mr Fern in Appendix 2 of his witness statement of 13 April 2018 by reference to the Australian Property Institute's Valuation Principles and Practice (1st Edition published by the Australian Institute of Valuers and Land Economists (Inc), 1997) in the following way:
Capitalisation of Net Income
As the name suggests, this approach involves assessing of the total net income receivable for the property and capitalising this in perpetuity (or for a specified term), to derive a capital value.
…
The capitalisation approach calculates the amount which would need to be invested (i.e. the market value) when the net income and the desired rate of return are known. Sales are analysed to determine the return or yield the purchaser will receive from the investment, and this is then applied to the known net income of the subject property, adjusted where appropriate to take account of variation in risk. The calculation can be done either as a 'year's purchase', that is by determining how many years of net income will be required to equal the purchase price of a property, or by the inverse of this, known as the 'capitalisation rate'.
The Tribunal accepts this description of the income capitalisation methodology.
Experts' evidence of comparable sales
ValuerGeneral's sales evidence
To arrive at the ValuerGeneral's valuation of $19,658,000, the ValuerGeneral has identified two sales of land on Curtis Island, Gladstone, Queensland which it believes are comparable sales. The land the subject of those two sales is described respectively as Lot 2 SP228454 and Lot 3 SP228454.
A third lot, Lot 6 SP181595, was also identified by the ValuerGeneral but is 'underdeveloped and significantly smaller than' the subject land. The ValuerGeneral has accordingly focused on Lots 2 and 3; Mr Fern's witness statement of 13 April 2018 at para 70.
Both Lots 2 and 3 were zoned 'Rural' at the contract dates for both sales, but were subsequently rezoned to enable land within the Curtis Island Industry Precinct to provide for the establishment of liquefied natural gas (LNG) facilities for processing operations (including liquefaction and storage) and national, state or registered significance that requires access to wharf facilities and to provide for establishment of infrastructure associated with LNG facilities including transport linkages to wharf facilities.
The contract for the sale and purchase of Lot 2 is dated 3 February 2009 and ownership was transferred on 29 October 2010 (some 21 months later).
The sale price for Lot 2 was $15,152,500 (including GST). Lot 2 has an area of 275.50 hectares and has ocean frontage. The sale equated to $5.50 per square metre (including GST).
The contract for the sale and purchase of Lot 3 is dated 18 August 2009 and ownership was transferred on 25 March 2011 (some 19 months later).
The sale price for Lot 3 was $13,398,000 (including GST). Lot 3 has an area of 243.60 hectares. The sale equated to $5.50 per square metre (including GST).
Under the heading 'Topography' at paras 71 to 74 inclusive of Mr Fern's witness statement of 13 April 2018, Mr Fern makes the following comments about the Curtis Island sites:
71.A topographic map of the Curtis Island sites in their unimproved states show Lots 2 and 3 to be undulating with several steep contours.
72.An article on the McCosker Contracting Pty Ltd website states the following:
McCosker formed a fully integrated joint venture with Fulton Hogan to be awarded the civil site works contract (bulk earthworks) on the Australian Pacific LNG project with Vechtel Oil and Gas. In excess of 3.5 million cubic metres of earthworks was performed, plus other associated works. This project had the challenging logistical constraints of marine transport of all resources and materials within the confines of the busy Gladstone Harbour.
73.The article also states that the works took 2 years to complete and the contract price was $526,000,000.
74.The above information indicates that site works on the Curtis Island LNG land were exceptionally difficult, time-consuming and costly.
Opteon's sales evidence
In Opteon's report dated 23 March 2018 entitled 'Rating Assessment', on page 21 it states:
In providing an assessment of unimproved value, we note the lack of directly comparable evidence. Accordingly, we have had regard to sales evidence of nearby and equivalent land parcels. In addition we have given due consideration to the market place noting the date of valuation of 1 August 2015.
Opteon has identified four sales in Western Australia which it considers to be relevant, and one proposed sale that did not proceed to settlement.
The sales as identified by Opteon, which in its opinion represent the best sales available for comparison with the subject land, are located in the Pilbara and Kimberley regions of Western Australia. The property the subject of the incomplete transaction is located in Onslow.
Opteon's sales evidence is contained in the same report and can be summarised as follows:
Lot 9500 Onslow Road, Onslow, Western Australia
This was a proposed sale only and did not result in a transfer of ownership.
It was under offer for $2,000,000 (excluding GST) in August 2015 and comprising a site area of 34.35 hectares and proposed to be rezoned 'Mixed Business'. The land is not serviced.
The transaction was analysed at $5.82 per square metre.
Lot 504 Pinga Street, Wedgefield (Port Hedland), Western Australia
The property sold for $4,675,000 (including GST) on 3 May 2012. It comprises a site area of 28.2856 hectares and it is zoned 'Development Zone Industrial'.
The land is close to existing services with access from major roads.
The land was purchased by LandCorp from the State of Western Australia.
The sale was analysed at $15.03 per square metre (excluding GST).
Lots 507-550 Dampier Road, Gap Ridge (Karratha), Western Australia
The properties sold for $8,305,000 (including GST) on 1 August 2010. The properties together comprise a site area of 285.4272 hectares and are zoned 'Development Zone Industrial'.
The land was purchased by LandCorp from the State of Western Australia.
The land has in part been subdivided into industrial lots by LandCorp.
The sale was analysed at $2.65 per square metre (excluding GST).
Lot 500 Broome Road, Roebuck, Western Australia
Opteon had valued this land on 3 June 2014 '... as part of the due diligence process associated with the transfer' at $4,000,000. The sale was 'between Government Departments'. The land comprises an area of 99.2903 hectares and is zoned 'Industry'.
Opteon analysed the sale based on their perception of market value at $4.03 per square metre.
Lot 702-703 Barytes Road, Wyndham, Western Australia
The property sold for $1,330,000 (excluding GST) on 12 September 2013. It comprises a site area of 19.56 hectares of which 9.3258 hectares is above the high water mark. The land is zoned 'General Industry'.
The sale was analysed at a site rate of $6.80 per square metre or $14.25 per square metre for land above the high water mark.
Based on this sales evidence, Opteon concludes that the unimproved value of the subject land at the DOV is $7,287,500 (including GST); Opteon's report dated 23 March 2018 at page 5.
ValuerGeneral's comments on Opteon's sales evidence
In Appendix 5 of Mr Fern's witness statement dated 13 April 2018, Mr Fern analyses Opteon's identified sales in depth and has given reasons why in his opinion these sales cannot be regarded as comparable. The reasons set out in Appendix 5 of his statement can be summarised as follows:
Lot 9500 Onslow Road, Onslow
Mr Fern considers that this property cannot be used as a comparable sale primarily due to the fact that a formal transaction did not occur. In addition, he considers it to have no comparability to the subject land for the following reasons:
(1)fundamentally, the legally permitted use of the land is neither that of a GTP nor highly intensive nor of a strategic industrial nature;
(2)its highest and best use is of a basic industrial nature and it is therefore of a different class of property to the subject land; and
(3)its land area is very small, 7.8% that of the subject land.
Lot 504 Pinga Street, Wedgefield (Port Hedland)
Mr Fern says that this transaction was an intraGovernment transfer based on instructions contained in a Memorandum of Understanding between those Government parties, which necessarily do not relate to the market value of the realty.
The Tribunal notes that this Memorandum of Understanding is between the Department of Regional Development and Lands and LandCorp and is dated February 2011. It appears as attachment SF28.1 of Mr Fern's witness statement of 13 April 2018.
Mr Fern therefore considers that the property cannot be used as a comparable sale primarily due to the fact that as it is not an arm's length transaction and the parties were instructed to transfer the land based on a 'project value', such that the land has not been tested in the open market. It therefore does not constitute fair market value based on its highest and best use.
Further, Mr Fern also considers it not to be comparable for the following further reasons:
(1)the legally permitted use of the land is neither that of a GTP nor highly intensive nor of a strategic industrial nature;
(2)its highest and best use is for subdivision into smaller industrial lots and it is therefore of a different class of property to the subject land; and
(3)its land area is very small, 6.4 % that of the subject land.
Lots 507 and 550, Dampier Road, Gap Ridge (Karratha)
Mr Fern says that this transaction was also an intraGovernment transfer based on similar instructions to the Port Hedland sale and that it does not necessarily relate to the market value. He says that it therefore cannot be used as a comparable sale.
Further, he also considers it not to be comparable to the subject land for the following reasons:
(1)fundamentally, the legally permitted use of the land is neither that of a GTP nor highly intensive nor of a strategic industrial nature;
(2)its highest and best use is for subdivision into multiple smaller industrial lots and it is therefore of a different class of property to the subject land.
Lot 500 Broome Road, Roebuck (Broome)
Again, Mr Fern points out that this transaction was also an intraGovernment transfer and does not necessarily relate to market value.
Further, he considers it to have no comparability to the subject land for the following reasons:
(1)the legally permitted use of the land is neither that of a GTP nor highly intensive nor of a strategic industrial nature;
(2)its highest and best use is for subdivision into multiple smaller industrial lots and it is therefore of a different class of property to the subject land.
Lots 702 and 703 Barytes Road, Wyndham
Once more, Mr Fern considers that the site comprising Lots 702 and 703 has no comparability to the subject land for the following reasons:
(1)the legally permitted use of the land is neither that of a GTP nor highly intensive nor of a strategic industrial nature;
(2)its highest and best use is for subdivision into multiple smaller industrial lots and it is therefore of a different class of property to the subject land; and
(3)its estimated useable land area of 7.5 hectares is extremely small; 1.7 % that of the subject land.
Opteon's comments on ValuerGeneral's sales evidence
Opteon in its responsive statement, undated but stated to be in response to Mr Fern's witness statement dated 13 April 2018, has provided its view on why the Curtis Island sales are not comparable.
Under Opteon's 'Summary of Findings', Opteon stated as follows:
•The ValuerGeneral has relied upon two transactions which are based in Queensland. Queensland is a location that is not considered comparable to the Pilbara;
•The two sales relied upon by the ValuerGeneral have been found to be non-market based transactions and therefore cannot be considered in determining the [unimproved value of the subject land];
•The Queensland transactions were in 2009, are dated and would require adjustment for market movements at the [DOV];
•The ValuerGeneral has disregarded the most comparable market being Pilbara sales;
•The valuation of UV is required to have regard to the definition of market value. The ValuerGeneral has varied the definition by the addition of the words “highest price obtainable”;
•Through the introduction of this wording, the ValuerGeneral has selectively had regard to the two sales in Queensland only and in our opinion this results in an inflated valuation;
•The ValuerGeneral's correlation of global LNG process and property values is invalid. There is no consistent correlation of commodity process with property prices. Further, analysis and reference to LNG process is outside the scope and expertise of an experienced valuer and therefore this analysis cannot be relied upon to reach a valid conclusion;
•The ValuerGeneral concludes that the UV range for the subject site is $4.00 to $5.00 psm. The two Queensland sales relied upon both reflect $5.50 psm. Despite the ValuerGeneral's commentary indicating that the subject is superior to the Queensland sales, the ValuerGeneral's adopted assessment of $4.50 psm for the subject land is below their concluded range and therefore contrary to their stated view;
•The ValuerGeneral has adopted the income capitalisation approach as a supporting methodology. We disagree with this being a valid approach either as a primary or supporting method.
In its critique of the ValuerGeneral's comparative process, Opteon has also taken issue with the ValuerGeneral on matters such as the relative merits of the prevailing weather conditions, port movements between Gladstone and Ashburton, surrounding port infrastructure, land area (discount for magnitude), site works and global LNG prices.
Tribunal's conclusion on ValuerGeneral's sales evidence
The Tribunal accepts that there are a number of characteristics that the Curtis Island sites share with the subject land. The Curtis Island sites and the subject land are within special control areas, they are subject to high infrastructure and development costs, they have a proximity to a relevant resource and they have direct access to the coast. However, in the Tribunal's opinion, the Curtis Island sales should be treated as secondary sales only for comparative purposes. In particular, the sales were negotiated in 2009, some 6 years prior to the DOV and there appears to be no adjustment made in the sales consideration for deferred settlements.
The Tribunal also expected that some account would have been taken to the comparative costs of landfill for the various sites to allow for development. We accept that Mr Fern 'was unable to obtain clarification as to what constituted "bulk earthworks" for the Curtis Island sites' (RCat para 73) but nonetheless it is necessary to reach some conclusion on that point in order to make a valid comparison. We do not accept the ValuerGeneral's submission (RC at para 76) that there is no need to take account of site works or earthwork costs in comparing the subject land with the Curtis Island sites.
The Tribunal notes that the ValuerGeneral initially adopted a valuation range of $4.50 to $5.00 per square metre (including GST) after estimating the cost of site works at $46,000,000 for the subject land. This figure was challenged by Chevron who advised total cost of the site works relevant to the subject land was $480,000,000. On review, the ValuerGeneral was of the opinion that the figure relevant to the subject land specifically should be $181,000,000. Notwithstanding this change in view, the ValuerGeneral did not amend its valuation range.
The Tribunal is of the view that despite the extreme difficulties of factoring into the comparative process the considerable costs of the site works, some downward adjustment to the valuation range would be logical and would have been expected.
The comparative range adopted by the ValuerGeneral following analysis of the two Curtis Island sales is $4.50 to $5.00 per square metre (including GST) and following further refinement, the ValuerGeneral adopted a value of $4.50 per square metre.
However, the ValuerGeneral has not given an explanation of the comparative decisions on such issues as the prevailing cyclonic conditions, an appropriate discount for magnitude and the effect of location relevant to the Gladstone urban area.
Tribunal's conclusion on Opteon's sales evidence
The Tribunal concludes that, whilst the evidence provided by Opteon is likely the best evidence available in respect of sales in Western Australia, the Tribunal finds that the necessary adjustments which need to be made in order to compare that sales evidence with the subject land are so far ranging and so subjective that it is not possible to draw a conclusion as to the valuation of the subject land based on Opteon's comparable sales evidence.
Also, we do consider that Opteon has not taken sufficient account of the specialised nature of the subject land. We agree with the ValuerGeneral (RC at para 33) that the specialised zoning of the subject land makes comparison with the sales of other general industrial land in the Pilbara unreliable.
We conclude that Opteon's sales evidence is at best secondary and does not assist in the comparative process.
We have the following comments in particular:
Lot 9500 Onslow Road, Onslow, Western Australia
The Onslow transaction did not result in a sale and therefore by definition does not meet Option's valuation approach of 'direct comparison to sales evidence'.
Accordingly, the Tribunal is of the view that the transaction should be disregarded.
Lot 504 Pinga Street, Wedgefield (Port Hedland), Western Australia
This sale is a dated sale and the parties were related. Evidence has been given by the ValuerGeneral that the sales consideration does not purport to be market value. There is little comparison with the subject land as to size, zoning, geotechnical aspects, highest and best use and location.
The Tribunal is of the view this sale does not have great merit for comparative purposes.
Lots 507-550 Dampier Road, Gap Ridge (Karratha), Western Australia
Similar comments apply to this sale as for the Port Headland sale.
Lot 500 Broome Road, Roebuck, Western Australia
This sale was between related parties and the analysis is based on Opteon's perception of market value that may or may not be correct. There is little comparison with the subject land however as to size, zoning, geotechnical aspects, highest and best use and location.
The Tribunal is of the view therefore that this sale has little merit for comparative purposes.
Lot 702-703 Barytes Road, Wyndham, Western Australia
Comparison with the subject land is not feasible given the great differential in size and the differing use potential.
The Tribunal is of the view therefore that this sale is of little assistance for comparative purposes.
Alternative valuation approach in the absence of acceptable sales evidence
The ValuerGeneral is of the view that if the Tribunal finds that the sales evidence submitted by both parties is non-comparable, then the income capitalisation approach is the appropriate method of valuation.
The ValuerGeneral says that this methodology has been accepted by the Tribunal in the past: Paul Holmes a Court and the Nicholson Grazing Co Pty Ltd and Others and Valuer General [2012] WASAT 114 at [32]. The ValuerGeneral accepts that in that case the issue was an assessment of an appropriate annual ground rent; RC at para 131.
Opteon, on the other hand, has rejected the income capitalisation approach as being invalid and unsuited to the type of property being valued, because the subject land is an unimproved, unserviced site in a remote locality where there is no sales evidence of comparable properties. The Tribunal notes in particular the strong views put forward by Opteon at para 12 of its further responsive statement dated 12 October 2018 which stated that '[t]he Income Capitalisation Approach for the subject land type and location is purely text book theory that is not supported by the market behaviour and evidence'.
However, in the same statement at Appendix 2, Opteon includes an extract of a document entitled 'IVS (International Valuation Standards) 2017 Valuation and Approaches'.
In that document, under the heading 'Income Approach', at 40.2, it is stated:
The income approach should be applied and afforded significant weight under the following circumstances:
(a)The income-producing ability of the asset is the critical element affecting value from a participant perspective, and/or
(b)Reasonable projection of the amount and timing of future income are available for the subject asset, but there are few if any, relevant market comparables.
(original emphasis)
As the Tribunal has found, the sales evidence put forward by both parties as 'marketable comparables' is secondary at best. As a consequence of that paucity of directly comparable sales, where the necessary adjustments are essentially the subjective opinions of the expert valuers, the Tribunal concludes that the income capitalisation approach is the preferred available market related approach to valuation. We consider that in this case there is existing evidence to assess the hypothetical ground rental value of the subject land and there is evidence, albeit in locations which are not directly comparable, of capitalisation rates for unimproved properties.
Comparable ground rental evidence
The ValuerGeneral has provided comprehensive ground rental evidence which the Tribunal has carefully considered and accepts. It is set out in Appendix 4 of Mr Fern's witness statement of 13 April 2018. Opteon provided no separate rental evidence but has commented on and utilised the ValuerGeneral's evidence to arrive at its opinion on the ground rental value of the subject land.
Based on that evidence, the ValuerGeneral has assessed the ground rental value of the subject land at $1,384,491 per annum excluding outgoings and GST.
Opteon has assessed the ground rental value of the subject land at $795,166 per annum excluding outgoings and GST.
The Tribunal prefers the ground rental value as assessed by the ValuerGeneral as being the ground rental value of the subject land as at the DOV.
Capitalisation rate
The expert valuers, to arrive at an appropriate capitalisation rate, have considered the sale of property at Lot 2 Boys Home Road, Palmer (near Collie), Western Australia, and Lot 258 Carlton Hill Road, Carlton Hill (near Kununurra), Western Australia and analysed those sales. Lot 2 Boys Home Road and Lot 258 Carlton Hill Road are considered by the ValuerGeneral to show capitalisation rates of 7.11% and 9.31% respectively; Mr Fern's witness statement of 13 April 2018 at paras 140 and 144. He adopted a capitalisation rate of 9.0% for the purpose of valuing the subject land. The ValuerGeneral has duly concluded that a capitalisation rate of 9.0% is appropriate.
Opteon has analysed the same sales to produce capitalisation rates of 11.98% and 9.25% respectively and adopts a capitalisation rate of 11.0% for the purpose of valuing the subject land; Opteon's further responsive statement dated 12 October 2018 at para 87.
The parties are largely in agreement about the effective capitalisation rate in respect of Lot 258 Carlton Hill Road, Carlton Hill (9.25% to 9.31%). However, the parties are significantly apart in respect of their assessed capitalisation rates of Lot 2 Boys Home Road, Palmer.
The Tribunal prefers the analysis of Opteon because there has been an appropriate adjustment for the considerable surplus of land encapsulated in the sale. The ValuerGeneral did not make any such adjustment.
The Tribunal is accordingly of the view that Opteon's adopted capitalisation rate for the subject land of 11% is an appropriate capitalisation rate.
Valuation using the income capitalisation approach
The capitalisation of $1,384,491 per annum in perpetuity at 11.0% indicates an unimproved land value of $12,586,282 (excluding GST).
The Tribunal accepts the ValuerGeneral's submissions (RC at para 138) that it is unnecessary for the Tribunal to make any deduction for a period during which it can be expected that a tenant is found for the subject land should be made from the value so assessed above.
Conclusion on unimproved value of subject land
Fair market rental
(as determined by ValuerGeneral) $1,384,491 per annum
Capitalisation rate
(as determined by Opteon): 11.0%
Capitalised value: $12,586,282
GST at 10% $1,258,628
$13,844,910
Orders
1.The valuation by the ValuerGeneral of Lot 567 on Deposited Plan 71345, being the whole of the land comprised in Certificate of Title Volume 2779 Folio 361 is set aside and the value of $13,844,910 is substituted for the value of that land on the date of valuation, 1 August 2015.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
JUDGE T Sharp, ACTING PRESIDENT
28 FEBRUARY 2019
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