Dowd v Department of Natural Resources, Mines and Energy
[2004] QLC 20
•2 April 2004
LAND COURT OF QUEENSLAND
CITATION: Dowd v Department of Natural Resources, Mines and Energy [2004] QLC 0020 PARTIES: Michael F and Ailsa M Dowd
(applicants)v. Chief Executive, Department of Natural Resources, Mines and Energy
(respondent)FILE NO:
AV2003/0641
DIVISION: Land Court of Queensland PROCEEDING: Appeal against annual valuation under the Valuation of Land Act 1944 DELIVERED ON: 2 April 2004 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER Dr NG Divett ORDER: The appeal is dismissed, and the unimproved value of Lot 199 on RP 109585 as determined by the Chief Executive in the sum of Eighty-Eight Thousand Dollars ($88,000) is affirmed. CATCHWORDS: Valuation – Unimproved value – Sales evidence – Sales analysis – Added value of improvements
Valuation – Unimproved value – Sales evidence – Use of subsequent sale
Valuation – Unimproved value – Sales evidence – Whether scarcity evidentAPPEARANCES: Mr MF Dowd for the appellants
Mr R Paterson for the respondent
Background:
This matter relates to land at 475 Ellison Road, Aspley and described as Lot 199 on RP 109585, Parish of Kedron. The subject land has an area of 597 m² and is located radially about 10.5 km. north-east of the Brisbane GPO in a predominantly residential area. Access to the subject land is good to Ellison Road, which is bitumen sealed with concrete kerbing and channelling. There is a concrete pedestrian pathway along Ellison Road, and the subject land is across the road from Marchant Park. Access to Ellison Road can be difficult during peak hours due to heavy commuter traffic flows. The subject land was zoned Low Density Residential under the Brisbane City Plan 2000 of 30 October 2000, effective at the date of valuation of 1 October 2002. The key issues are the nature of the land, relativity and comparison of sales.
On 24 February 2002 the Chief Executive issued a valuation of the subject land at $88,000. Following an objection, and without any objection conference between the parties, because an objection conference was held for the previous valuation at 1 October 2001, the Chief Executive confirmed that figure on 22 July 2003. The appellants have now appealed claiming the unimproved value should more properly be $63,000, which was the previous unimproved value at 1 October 2001.
Michael Francis Dowd, a retired bank officer with extensive experience in bank funding using valuation reports, appeared and gave evidence for the appellants. Mr R Paterson, Principal Legal Officer appeared for the respondent, calling evidence from Andrew Trevor Brown, the departmental registered valuer responsible for determining the valuation.
Changes in the Valuation –
Mr Dowd agrees with Mr Brown that there has been a strong growth in the overall property market for some two years prior to the relevant date, and from about the 1 October 2000 valuation. However he now argues that the previous valuation of $63,000 at 1 October 2001 had been too high at that time, as Mr Brown had also relied upon scarce sales of vacant lands at that time, which in turn resulted in an incorrect assessment in 2001.
Mr Dowd therefore does not accept that the figure of $63,000 from 1 October 2001 should be deemed correct as required by s.33 of the Valuation of Land Act 1944 (the Act). To support his argument Mr Dowd relies upon the more recent decision of the High Court in Maurici v Chief Commissioner of State Revenue and Anor [2003] 195 ALR 236, 13 February 2003.
Nature of the Land –
The subject land is a regular shaped inside parcel, and is near level, with a slight fall from Ellison Road to the rear boundary, and a slight fall from east to west. There are no significant views, but the property does have an outlook over Marchant Park. All normal urban utility services are available, but there is no direct train service, and the local community bus is restricted to five services both east and west daily. The nearest Australia Post mail box is about 75 metres to the west in Ellison Road, and across Eustace Street.
In his report Mr Brown had seen the subject land as within walking distance of surrounding schools, but concedes that due to heavy traffic flows it would be more realistic to conclude that children were likely to be taken and collected from school by private vehicles. However Mr Brown argues that level of service would be similar for the sales evidence provided in this matter, and is therefore not a significant issue. Shopping facilities are agreed to be within a short drive from the subject land.
Mr Brown argues that the presence of the recreational and playing facilities in Marchant Park opposite the subject land, are also an advantage to that property. However he concedes that there is some additional noise from people and dogs in the park, as well as some record of disruptions in the park from time to time. He has allowed for those matters in his valuation, but argues that noise from adjoining properties, including a growing representation of tenants and dogs, would be no more than generally found in residential areas. He also agrees that the use of the playing fields in Marchant Park would be restricted particularly at weekends.
Method of Valuation –
In seeking his estimate of the unimproved value of the subject land, Mr Dowd has obtained several opinions of the improved value of the subject property from local real estate agents. He advises that the property was seen to fall in the range of $180,000 to $190,000, and he advises that the dwelling itself is currently insured at a replacement cost of $190,000. While Mr Dowd agrees that some level of depreciation may be appropriate in certain circumstances, because of the well maintained condition of the dwelling, he argues that any depreciation of the subject dwelling would be quite low. Mr Dowd rejects that obsolescence would be a significant factor, and estimates the value of the existing dwelling of 150 m² at $180,000.
Mr Brown rejects such a top-down approach to determining the unimproved value of the land, but argues that, in his professional judgment, any depreciation rate for the 35 year old dwelling would be approximately 30%. Mr Brown advises that such a rate would reflect not only the maintenance condition of the dwelling, but also any obsolescence due to age. Mr Brown by comparison adopts a method of comparison of vacant or lightly improved lands, but has moderated those comparisons with sales of improved properties in the area. In his analysis of the subject dwelling Mr Dowd had adopted a replacement cost provided by the Master Builders Association at $1,200 per square metre in his estimate.
Mr Dowd seeks support for his approach to the valuation in guidance provided by the High Court of Australia in Maurici v Chief Commissioner of State Revenue and Anor [2003] 195 ALR 236, 13 February 2003. He argues that the few sales of vacant lands in the vicinity of the subject land, compared to the large number of improved parcels, indicates a level of scarcity as noted by the High Court. Mr Dowd argues that vacant lands include the potential for an owner to execute a wide range of architectural building developments, not available on the subject land as it is developed.
To demonstrate his point Mr Dowd notes that if the replacement cost of the dwelling ($180,000) was added to the current unimproved value of the subject land ($88,000), the resulting value of the property would represent $268,000. But his inquiries of a similar improved property adjoining to the rear of the subject land at 5 Devona Street did not support such a conclusion. He advises that adjoining property sold in late 2002 for $238,000, and contained a larger dwelling than the subject property. Mr Dowd also questions whether the sales used by Mr Brown might reflect inflated prices achieved through known 2-tier market scams, which have been identified by the media elsewhere in the community.
Mr Brown rejects any notion that his sales reflected artificially inflated values, and advises of the very broad and extensive range of sales evidence considered in the valuation process. Mr Brown advises that throughout the Toombul and Kedron divisions, which surround the subject land, there had been a total of approximately 550 sales of vacant lands and 4,827 sales of improved properties in the preceding 12 months. From that comprehensive range of evidence Mr Brown has selected representative sales which were most comparable to the subject land On that basis Mr Brown rejects any suggestion that scarcity was an issue in this matter. Mr Paterson notes that in Maurici the crown valuer had only relied upon four sales of vacant lands, and admitted that scarcity was evident in that affluent area of Hunters Hill in Sydney. Those circumstances are not evident in the area of the current matter.
Mr Brown also advises that the reason that he had provided the further two sales of improved properties, occurred as a result of the Maurici decision which was handed down in February 2003, after the original determination had been made in the current matter. The analysis of those improved sales supports his previous valuation. Mr Dowd was also unable to provide evidence of more comparable sales which might support his estimate of the unimproved value at $63,000.
Mr Dowd also questions whether the percentage of total sales in Kedron and Toombul divisions, as noted in para [13], reflects an unreasonable sample of the total parcels of 25,000 in Kedron and 18,000 to 19,000 at Toombul. Mr Brown rejects such a notion, arguing that the more relevant issue is whether the total of sales in the divisions reflect a healthy and reasonable market situation. He notes that the total sales in the area was greater than in the previous year. In his opinion that reflects a normal property market perspective, and there is no reason to doubt the representativeness of the sales evidence. Mr Brown agrees that as less parcels become available in a normal economic market, then prices tend to rise accordingly. But that does not reflect any abnormal level of scarcity as noted in Maurici.
Mr Brown advises that he had considered about 10 sales of improved properties in the area, selecting his 2 improved sales as representative of that market. Four of his sales are about 1 to 2 kilometres east of the subject land, and Sale 3 is about 0.6 kilometres to the west.
Comparison of Sales –
To support his valuation Mr Brown provides the following sales:
· Sale 1 – (92 Ellison Road, Geebung – Lot 21 on SP 147893). This is a 895 m² vacant parcel containing a swimming pool which was originally part of the adjoining dwelling. The sale is in a superior location with some views to Moreton Bay from an elevated position. The sale is superior overall due to size, location and a more elevated position. The sale sold on 7 October 2002 for $180,000, was analysed at $167,500, and applied at $165,000.
· Sale 2 – (59 Bayview Terrace, Geebung – Lot 10 on SP 14539). This is a 433 m² vacant parcel in a superior location, and within about 500 metres walking distance to Geebung Railway Station and local shops. The sale is smaller with a narrower frontage (10 metres). Overall the sale is slightly superior due to location and access, and with less traffic. The sale sold in May 2002 for $105,000, was analysed at $100,000, and applied at $97,000.
· Sale 3 – (20 Ronnex Place, Aspley – Lot 11 on SP 134602). This is a 712 m² vacant hatchet shaped parcel, which slopes moderately towards its western boundary on Ellison Road. However there is no access to Ellison Road for traffic reasons. The sale is elevated, but is subject to increased traffic noise from the intersection of Gympie and Webster Roads, about 200 metres to the south. Overall the sale is slightly superior due to a better location, access and its larger size. The sale sold in April 2002 for $107,500, was analysed at $102,000, and applied at $102,000.
· Sale 4 – 35 Weenga Street, Geebung – Lot 5 on RP 94216. This is an improved 607 m² parcel in a slightly better location, but directly behind the Geebung Tennis Club. The sale is subject to noise and traffic from the tennis club, with glare at night from lighting on most days of the week. The sale is seen as superior overall due to location and services, and sold in February 2002 for $196,000, was analysed at $118,500, and applied at $101,000.
· Sale 5 – (27 Sunbury Street, Geebung – Lot 167 on RP 103347). This is an improved 607 m² parcel in a quieter and superior location, being closer to Geebung Railway Station, schools and local shops. The sale overall is seen as superior to the subject land due to location, less traffic, nature of the land, and services available. The sale sold in February 2002 for $190,000, was analysed at $133,700, and applied at $124,000.
Mr Dowd queries whether Sale 1 was a relevant sale as it occurred six days after the relevant date of 1 October 2002. Mr Brown rejects that, arguing that the property market was steady and generally rising at that time, and the short period of six days would have made no difference to his analysis at the relevant date. Mr Brown had also interviewed the purchaser and understands that negotiations were proceeding prior to 7 October 2002. He sees his Sale 1 as a very good comparable sale. He notes also that Sale 1 is behind an industrial area, and does suffer from noise from industrial traffic passing the sale.
Mr Dowd also questions the impact of noise upon Sale 3 at Ronnex Place, as he notes a 1.8 metre fence along the Ellison Road alignment. Mr Brown argues that due to the sloping elevated nature of Sale 3, any noise from the agreed very busy Gympie and Webster Roads intersection, was likely to pass over that fence, which has therefore little impact as a noise barrier. Mr Dowd also agreed that Gympie Road carries 50,000 vehicles per day and is a busier traffic route than Ellison Road, and traffic noise would be greater at Sale 3.
In comparing his analysis of Sale 4 (35 Weenga Street), Mr Dowd estimates the replacement cost of the 108 m² dwelling at a higher rate than the $700 per square metre argued by Mr Brown. Mr Brown has provided that unit rate as a depreciated figure based upon industry standards provided in Rawlinsons Guide for that type of construction. Mr Brown notes that Rawlinsons provide a replacement cost for 2001 at $900 per square metre, which he then depreciates to $700 per square metre (23% depreciation). Mr Brown has measured that dwelling to have a floor area of only 100 square metres. On balance I accept Mr Brown’s professional opinion as the only registered valuer in this matter.
Decision:
The Legal Principles –
Before considering the evidence I turn to the legislation and note that the Valuation of Land Act 1944 states in respect of the unimproved value of land:
“3.(1) For the purposes of this Act –
‘unimproved value’ of land means –
(b)in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.”
I note further that s.4 directs in respect of the meaning of “improved value”:
“4. For the purposes of this Act -
‘improved value’ means, in relation to land, the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require.”
And the meaning of “value of improvements” is defined in s.5 which states:
“5.(1) The ‘value of improvements’ means, in relation to land, the added value which the improvements give to the land at the time as at which the value is required to be ascertained for the purposes of this Act, irrespective of the cost of the improvements, including in such added value the value of any hotel licence the value of which has been included in the improved value.
(2) However, the added value shall in no case exceed the amount that should reasonably be involved in effecting, at the time as at which the value is required to be ascertained for the purposes of this Act, improvements of a nature and efficiency equivalent to the existing improvements.”
In seeking guidance on the “added value” to be applied, I note that matter was addressed in O’Brien Nominee Pty Ltd v Valuer-General (1979) 6 QLCR 280, where the Land Appeal Court noted guidance of the High Court in the Australian Estates and Mortgagee Co Ltd v Commissioner of Land Tax, The Valuer 1 July 1931, where Rich J said at 247 that the value of the improvements was to be the amount reflecting the value of the “actual improvements” upon the land. In O’Brien the Land Appeal Court was considering the case of a major stud holding in the Augathella area of western Queensland. The Land Appeal Court said at 285:
“It is clear that the value which the improvements give to the land, subject to the above proviso, is to be ascertained irrespective of the cost, as at the relevant date, of making them.
It seems to us that the concept of ‘added value’ of improvements involves at least two methods of valuation, the appropriateness of which depends to a substantial degree on the economic conditions prevailing at the relevant time.
In times of normal, and above normal, prosperity the added value which improvements give to land generally exceeds their value deduced by the traditional method of replacement cost less depreciation. The ‘added value’ of the improvements in these circumstances is usually ascertained by the method of adding to their value ascertained by the traditional method, interest for half the period of time it would take to put the improvements on the land and for them to become fully productive – vide Kiddle’s case 27 C.L.R. 316.”
In the current matter it is agreed that the property market was at least normal or above normal at the relevant date.
It is also noted in the decision of the Privy Council in Tooheys Limited v. The Valuer-General (1925) AC 439, where Their Lordships said at 443:
“Now, what he has to consider is what the land would fetch as at the date of valuation if the improvements made had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvements; what would it fetch in the market? It will be observed that the value is not what has been sometimes designated by the expression ‘prairie value’. The land must be taken as it exists at the date of valuation.”
The problem with adopting the top/down approach proposed by Mr Dowd in the current matter was clearly addressed in PH Clough v Valuer-General (1981-82) 8 QLCR 70, where the Land Appeal Court said at 76:
“It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements.”
Because there is less room for difference of opinion as to value of the various items of improvement and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement.”
The divergence Mr Brown’s professional opinion on a depreciation rate (30%) and Mr Dowd’s unquantified estimate of a lower figure, demonstrates the type of errors that must be addressed in such an approach.
The Method of Valuation –
In adopting his method of comparing sales of vacant or lightly improved lands, Mr Brown has followed guidance of the courts at all levels. That was further emphasised in NR and PG Tow v Valuer-General (1978) 5 QLCR 378, at 381; R and MM Barnwell v Valuer-General (1990-91) 13 QLCR 13, at 17; and also in WM and TJ Fischer v Valuer-General (1983) 9 QLCR 44, at 46. However Mr Dowd now seeks support for the principle of “scarcity” of vacant land sales in Maurici. Now the matter of “scarcity” of sales must be seen within the context of the broader economic model for land. That was discussed in Zitny v Department of Natural Resources and Mines (AV2002-0382), 18 July 2003, unreported, and I will repeat those findings.
In considering the matter of scarcity, I note that as with normal economic theory dealing with goods and services, the price paid for residential land fluctuates according to its level of supply and demand in the community. The market price for land is achieved in accordance with the Spencer test, when an equilibrium is achieved between those two economic forces in a normal elastic market situation. When the supply side of the equation is restricted to virtually only one or a very restricted number of parcels available, then the market experiences a situation of inelasticity, and the price of those few remaining parcels rises significantly. That situation is a level of “scarcity” which is seen to transcend the normal market situation.
Now the impact of scarcity of supply in reality is always existent in a property market, as land itself is not a totally renewable resource. If there was no relative scarcity, then land would have a very low value. However when scarcity increases to a level where only a few, if any, options are available, then that level of scarcity becomes a major determinant of the restricted marketplace.
If I look at Mr Brown’s sales evidence I find that there was a wide range of both vacant land and improved property sales, and I agree with Mr Brown that the findings of Maurici can be distinguished in this matter.
Comparison of Sales –
I turn then to Mr Dowd’s concern that Mr Brown’s Sale 1 (92 Ellison road) occurred after the relevant date of 1 October 2002, and whether that sale has application in the current matter. However I note support for the use of a subsequent sale in Daandine Pastoral Company Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299. In that matter, Williams J in the High Court of Australia said at 304:
“Values must be calculated in the light of circumstances which existed on the material date, in this case, 30 June 1939, but subsequent events can be taken into account in order to determine the proper weight to be attached to such circumstances. Subsequent sales are just as admissible in evidence as prior sales provided that in all the circumstances they are comparable. If between the material date and the date of the subsequent sale, supervening events occur which alter the conditions previously existing, the subsequent sales would not be comparable and would be useless.”
Support for the use of subsequent sales is also to be found in McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1, at 16; and also in Federal Commissioner of Taxation v Harris (1980) 30 ALR 10, at 18. However in Harris, Fischer J notes at 25 that the subsequent event cannot create an expectation which was not in existence at the relevant date. The interpretation of that direction for this current matter is that Mr Brown’s Sale 1 can only be used if it supports the general state of the market as remaining consistent about 1 October 2002. In the short period of 6 days I accept Mr Brown’s advice that the market had made no significant change during that period, and I accept his Sale 1 as a useful comparison.
In summarising then the comparisons of Mr Brown, I find the following:
SaleArea Unimproved Value Comparison
Sale 1 895 m² $165,000 Superior
Sale 2 433 m² $97,000 Slightly superior
Sale 3 712 m² $102,000 Slightly superior
Sale 4 607 m² $101,000 Superior
Sale 5 607 m² $124,000 Superior
Subject land 597 m² $88,000 -
Mr Brown accepts that he has provided no lower parameter which might assist to assess the unimproved value of the subject land, as he advises that there were no sales of a lower level of value which occurred during that period. Because there were no lesser valued sales, Mr Brown has relied upon previous relativities, particularly with Sale 3 (20 Ronnex Place), which is very close by to the subject land. In adopting the previous relativity between those parcels, I am reminded that relativity was found to be important in WM and TJ Fischer v Valuer-General (supra), where the Land Appeal Court found at 46:
“Whilst maintenance of correct relativity is also of considerable importance for rating or revenue type valuations, we cannot prefer in the circumstances of this case, the use of the principle of relativity to the exclusion of the sales evidence.”
In the current matter Mr Brown has relied upon both relativity and sales in drawing his conclusions.
In respect of how to rely upon those conclusions I am also reminded that it is not the role of this Court to investigate the substantiation of Mr Brown’s evidence. That was clarified in JL and I Qualischefski & Ors v Valuer-General (1979) 6 QLCR 167, where the Land Appeal Court said at 172:
“The reasonableness of the allowances that have been made is always open to challenge on objection or appeal. However upon appeal a statutory onus of proof is cast upon the appellant and he has to accept, within the confines of the grounds set out in his Notice of Appeal to the Land Court, the burden of proving the Valuer-General incorrect. Neither this court nor the Land Court in the subject jurisdiction may assume the role of an investigating tribunal requiring the Valuer-General to substantiate his case. This is in contradiction to jurisdiction conferred under the Land Act.
In appeals of the nature of the subject, the onus which the appellant must assume is not an easy one to discharge without the assistance of a registered valuer who can lead evidence as to sales analyses and/or comparison with valuations made by the Valuer-General in respect of comparable properties.”
That was later upheld in BT Dillon v Valuer-General (1986-87) 11 QLCR 231, where the Land Appeal Court found at 233:
“The Legislature has not given this Court any investigatory powers under the Valuation of Land Act. If the Appellant’s case is not strong enough in its own right to establish the values contended for or to disprove the Valuer-General’s values, the Court is not empowered of its own volition to probe the fairness or correctness of the Valuer-General’s values and by this means arrive at its own estimate of value.”
I am also reminded that under s.33 of the Act the valuation of the Chief Executive is found to be correct unless proved to the contrary, or where there has been an error of fact or in law. In the current matter that has not occurred. Section 45(4) of the Act further directs that in respect of a notice of appeal the onus is upon the appellant to prove his grounds of appeal. That has not occurred in this matter.
Conclusion:
Having considered the whole of the evidence I am not persuaded that the appellants have proved their case. The appeal is dismissed, and the unimproved value of Lot 199 on RP 109585 as determined by the Chief Executive in the sum of Eighty-Eight Thousand Dollars ($88,000) is affirmed.
NG DIVETT
MEMBER OF THE LAND COURT
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