Gee v Valuer General
[2011] NSWLEC 1160
•30 June 2011
Land and Environment Court
New South Wales
Medium Neutral Citation: Gee v Valuer General [2011] NSWLEC 1160 Hearing dates: 6 April 2011 Decision date: 30 June 2011 Jurisdiction: Class 3 Before: Pearson C Decision: Appeal dismissed
Catchwords: Valuation of land - Appeal from Valuer General's land value assessment Legislation Cited: Valuation of Land Act 1916 Cases Cited: Holcim (Australia) Pty Ltd v Valuer General [2009] NSWLEC 225
Tomago Aluminium Company Pty Ltd v Valuer General [2010] NSWLEC 4Category: Principal judgment Parties: Andrew Gee (Applicant)
Valuer General (Respondent)Representation: Counsel
Crown Solicitors Office (Respondent)
Mr M Hall (Respondent)
Solicitors
Mr A Gee (Applicant in person)
File Number(s): 30651 of 2010
Judgment
This is an appeal under s37(1) of the Valuation of Land Act 1916 (the Act) against the land value assessed by the Valuer General in respect of the property owned by the applicant at 61 Coolawin Road Northbridge, being Lot 12 DP 13776 (the subject property).
The land value of the subject property at 1 July 2009 (the base date) was assessed by the respondent at $3,890,000. The applicant objected to the assessment and estimated the land value at $2,600,000. The respondent disallowed the objection.
The applicant provided a written statement in support of his proposed valuation of $3,150,000, which he based on the land value assessed by the respondent as at 2006 ($3,300,000) and 2007 ($3,740,000), together with a fall in value of between 10-15 percent since he purchased the property based on the fall in values in Northbridge generally; the sale of 73 Coolawin Road in April 2010; and the renovations done to the house since purchase. In submissions, the applicant submitted that based on the expert valuation evidence provided on his behalf, the land value as at the base date was $3,300,000.
Statutory framework
The appeal is brought under s37(1) of the Act, which provides:
(1) Any person entitled under Part 3 to object to a valuation may appeal to the Land and Environment Court if the person is dissatisfied with the Valuer-General's determination of any such objection to the valuation concerned (whether or not the person was the objector).
Section 40 of the Act provides the Court's powers on appeal, and establishes that the applicant has the onus of proving his case on appeal:
40 Powers of Land and Environment Court on appeal
(1) On an appeal, the Land and Environment Court may do any one or more of the following:
(a) confirm or revoke the decision to which the appeal relates,
(b) make a decision in place of the decision to which the appeal relates,
(c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision.
(2) On an appeal, the appellant has the onus of proving the appellant's case.
"Land value" is relevantly defined in s6A of the Act:
6A Land value
(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made.
(2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that:
(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and
(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used,
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.
...
The term "land improvements" is defined in s4 of the Act:
Land improvements means:
(a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths,
(b) the picking up and removal of stone,
(c) the improvement of soil fertility or the structure of soil,
(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation,
(d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land (otherwise than for the purpose of irrigation or conservation) that is associated with:
(i) the erection of any building or structure, or
(ii) the carrying out of any work, or
(iii) the operations of any mine or extractive industry,
(e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and
(f) underground drains.
The subject property
The subject property is located at the eastern end of Northbridge approximately five km from North Sydney. The land is on the low side of Coolawin Road and has a gentle fall to the rear of the existing single level dwelling, and then falls in terraces to the high water mark (HWM) at Long Bay in Middle Harbour. The subject property has an area of 1707 sq m and a frontage of 16.76m at the HWM. There is a boatshed and small jetty and pontoon at the waterfront on approximately 56 sq m of land held under a lease. The orientation of the subject property is to the east and the elevated portion has views to the north east and south east of Long Bay, Quakers Hat Bay, Beauty Point and Seaforth.
The subject property is zoned residential 2(a) under the Willoughby Local Environmental Plan 1995. On 28 January 2010 Willoughby Council granted development consent for the demolition of the existing dwelling and the construction of a new dwelling and swimming pool (DA 2008/879). On 25 May 2010 Willoughby Council granted development consent for "alterations and additions" (DA2010/246).
Evidence
At the commencement of the hearing the subject property and one comparable sale site (57 Coolawin Road) were the subject of an on-site inspection, and there was an external inspection of four other sale sites in Northbridge, being 7 and 19 Coolawin Road and 5 and 9 Minimbah Road. Expert evidence was given on behalf of the applicant by Mr Mark Ellis and on behalf of the respondent by Mr Tom Webster.
Mr Ellis and Mr Webster agreed that the highest and best use of the subject property is single residential. They agreed that the appropriate method of valuation was by analysis of comparable sales of waterfront properties, deducting the depreciated value of improvements to determine the residual land value. The sale price for the applicant's purchase of the subject property was $5,035,000, contract date 27 June 2007. Mr Webster was of the opinion that the land value of the subject property at the base date was $3,890,000. Mr Ellis was of the opinion that the land value at the base date was $3,300,000.
The valuers agreed that 7 Coolawin Road, 19 Coolawin Road and 57 Coolawin Road are comparable sales, and agreed generally with the description of each of these sales:
(a) 7 Coolawin Road
Contract date 11 June 2008, sale price $6,450,000; land area 1,284 sqm. The valuers agreed that the property is smaller (72 percent of the subject property), and is a battleaxe with a shared, steep concrete driveway. It is less elevated than the subject property and has inferior facilities at the HWM, being boatshed only.
Residual land value at base date: Ellis: $3,500,000; Webster $4,700,000
(b) 19 Coolawin Road
Contract date 25 May 2009, sale price $5,000,000; land area 1182 sqm. The valuers agreed that the property is smaller (66 percent of the subject site) and less elevated than the subject site, is a steep block, and has no level building area. The facilities at HWM are inferior, being boatshed and slipway only.
Residual land value: Ellis: $2,790,000; Webster: $3,500,000
(c) 57 Coolawin Road
Contract date 10 September 2008, sale price $9,050,000; land area 1721 sqm. The valuers agreed that size, topography, views, access, and aspect were comparable to the subject site. They agreed that that site has superior facilities at HWM, having mooring poles, and that the residence is superior to that on the subject site.
Residual land value: Ellis: $3,350,000; Webster: $3,800,000
Mr Webster was of the opinion that sales of 5 Minimbah Road and 9 Minimbah Road are also comparable sales. The sale date of 5 Minimbah Road was 10 November 2009, contract price $4,700,000. The land area is 898 sqm. The valuers agreed that the site is smaller, steeper, and has inferior views, and that it is overshadowed by the adjoining house. The sale date of 9 Minimbah Road was 1 July 2008, contract price $6,095,000. The land area is 828 sq m. The valuers agreed that the site is smaller, steeper, and has inferior views to the subject site. They agreed that the northerly aspect of both these sites is superior to the subject site. Mr Webster provided an analysed land value at the base date for 5 Minimbah Road of $3,950,000, and for 9 Minimbah Road of $4,095,000.
Mr Webster considered that the sales at 5 and 9 Minimbah Road are comparable sales on the basis that even though they are inferior, they are waterfront properties in Northbridge within 500m of the subject site with views, and are generally in the same precinct. There are a limited number of sales, and so these sales should be relied upon in the basket of sales. While acknowledging that these properties are inferior, Mr Webster considered that they represent the floor for assessing the value of the subject site. Mr Ellis was of the opinion that these properties are far less comparable than the agreed comparable sales, and that a greater number of adjustments would need to be made, including for aspect, deep water frontage, water improvements, the narrowness of the street and difficult access, and extra building costs because of the steeper topography. Making more adjustments would leave a greater margin for error.
Both Mr Ellis and Mr Webster arrived at their assessment of residual land value for each of the sales by determining the value of improvements based on a calculation of the floor area of living area, balconies and garaging, to reach an assessed house value, less depreciation, and then deducting the value of ancillary improvements including waterfront facilities. However, they disagreed as to the figures for building costs, the value of ancillary improvements, and in relation to some of the sales, the appropriate depreciation rate.
The rate adopted by both valuers for depreciation was in relation to 19 Coolawin Road the same (50 percent), and in relation to the other sales, similar, with Mr Ellis adopting a higher figure than that adopted by Mr Webster (57 Coolawin Road 15/20 percent; 7 Coolawin Road 30/35 percent; 61 Coolawin Road 40/60 percent).
In oral evidence both valuers outlined their workings as set out in their respective statements of evidence by reference to the approach they had adopted for 19 Coolawin Street. In calculating the value of the improvements, Mr Webster adopted a building figure of $4,000 per sq m for a full brick house plus 50 percent to allow for the extra engineering costs because of the topography of the site, $4,000 per sq m for the garage, $2,500 per sq m for the balconies and $3,000 per sq m for the back terrace, giving a total building cost of $2,500,000, adjusted for depreciation at 50 percent. Mr Webster valued the ancillary improvements at $250,000, giving an adjusted value of improvements of $1,500,000. Mr Ellis assessed the building cost at $3,891,400 less depreciation of 50 percent, and the market value of ancillary improvements at $110,000, giving a residual land value assessment of $2,944,300. Mr Ellis stated that he had started with the construction costs in Rawlinsons Australian Construction Handbook, adapted for differences of topography and potential site costs, and had used the figure of $7,500 per sq m for the living space, $3,000 per sq m for the garage and $2,500 per sq m for the balcony.
Both valuers agreed that 57 Coolawin Road is the most directly comparable sale in terms of area, topography, access, views and outlook, and that the dwelling at 57 Coolawin Road was of an extremely high standard. Mr Webster used a building cost of $7,000 per sq m, reflecting the $4,000 per sq m he had allowed for 19 Coolawin Road if it had been built on good building land. Mr Webster agreed that the rear of 57 Coolawin Road slopes, however his opinion was that the bulk of the building was on good building land. Mr Webster estimated that of the $450,000 he had determined for ancillary landscaping, approximately $300,000 would be the cost of the retaining walls at the rear. Mr Ellis used a building cost of $9,000 per sq m, which he stated was built up from Rawlinsons, making additional allowances for the steep topography at the rear with a cantilevered balcony. Both valuers agreed that while above the HWM both 57 Coolawin Road and the subject site were directly comparable, 57 Coolawin Road had better improvements at the HWM, having mooring poles. Mr Webster put the additional value of the mooring poles at up to $75,000, being 10 percent of his figure for the additional value of the HWM improvements.
Both valuers commented on the subject property, Mr Webster acknowledging the difficulty in using a sale two years before the base date. Mr Webster's approach was to adjust the sale price for time by deducting 10 percent of the residual land value, which he had calculated taking into account that the property was undercapitalised. Mr Ellis acknowledged that in his adjustments for time he had applied a different discount to the land value of 57 Coolawin Road and the subject property for the period 2008 to 2009.
Both Mr Ellis and Mr Webster considered, in adjusting the sales for time, the impact of the global financial crisis on real estate values in Sydney. Mr Ellis was of the opinion that market values declined by up to 10 percent between 2007 and 2009. In the context of the sale of the subject site, Mr Webster had allowed a 10 percent fall between 2007 to 2009. In oral evidence Mr Webster agreed that he had valued the subject site for a bank in October 2008 and had adopted a value similar to the purchase price in June 2007; he would have looked more optimistically at the value for the bank's purposes, whereas there is no incentive to have a statutory valuation high. Mr Ellis and Mr Webster agreed that caution is needed in using Residex data which relates to median house prices, as the subject site is at the top end of the market. Both agreed that the market was volatile from 2007 to 2008. Mr Ellis' evidence, which was not disputed, was that interest rates peaked late in 2008, and that there was a 4 percent decrease in mortgage interest rates in the first half of 2009.
Consideration
It was common ground that the sales for 57, 7 and 19 Coolawin Road are comparable sales. The principal areas of dispute were what adjustments were required to be made to those sales to render them directly comparable, and whether 5 and 9 Minimbah Road are also comparable sales.
The subject site and the other five sales are waterfront properties in Northbridge, in close proximity to each other, and with similar access to public transport and other facilities. The expert valuers were in general agreement as to the area, shape, topography, views, access, and waterfront facilities, of each of these properties, and their evidence was supported by the view. Having regard to those factors, I am of the opinion that 57 Coolawin Road is a directly relevant comparable sale, and that the sales of 7 and 19 Coolawin Road are indirectly relevant comparable sales.
Having regard to area, topography, views and access, I agree with Mr Ellis that a significant number of adjustments would be required to the sales for 5 and 9 Minimbah Road, and that those sales are of very limited relevance. These two properties are on a narrow, one way, part of Minimbah Road with a vertical rock face on the opposite side of the road; while both have a northerly orientation, the views are not as extended as those of the properties in Coolawin Road; both are significantly smaller in area (50 percent and 47 percent respectively) than the subject property; and both are steeper blocks with no large building shelf.
In Holcim (Australia) Pty Ltd v Valuer General [2009] NSWLEC 225 Biscoe J outlined the process of adjusting for differences in comparable sales:
31 The basis for the valuers' valuation assessments is the sales comparison method. Accepted valuation practice permits adjustments for differences, such as in location, area and time to enable valuers to have comparable values which, following adjustment, account for the various differences with the subject property. Such adjustments are generally based on a reasoning process drawing on the skill and experience of the valuer and are undertaken to derive an opinion of value through a deductive process. Because properties are rarely identical, adjustments for differences are obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property. Too many adjustments potentially render the comparable sale unsafe to rely upon. Caution is therefore required where large adjustments are to be made. Reflecting the significant roles of skill, experience and personal assessment in the adjustment process, the scope for differences in the quantum and direction of adjustment between valuers can be considerable.
In Tomago Aluminium Company Pty Ltd v Valuer General [2010] NSWLEC 4, Pepper J held:
45 To this it may be added that it is necessary to make explicit adjustments for differences so that the adjustment process is sufficiently logical. An implicit process comprising a single adjustment, rather than separately itemised and reasoned adjustments, risks rejection for want of transparency.
I accept the agreed valuation evidence that the appropriate adjustments to make to each of the comparable sales are those relating to land area; land attributes including elevation, building difficulty and frontage to HWM; views; and facilities at HWM. However, neither valuer was able to quantify precisely the adjustments they had made, relying instead on their skill and experience as valuers.
I accept the agreed valuation evidence that in considering the comparable sales, 7 and 19 Coolawin Road are inferior to 57 Coolawin Road and the subject property, based on their location at the southern end of Coolawin Road and different orientation; smaller area (72 percent and 66 percent of the subject property respectively); and topographical difficulties. Of the two properties, both valuers agreed that 7 Coolawin Road is inferior to 19 Coolawin Road, on the basis that it is a battleaxe lot with difficult access, and inferior facilities at HWM.
In their respective calculations of the residual land value, the differences between the valuers as to the value of improvements related in large part to the differences in assessed building costs of the dwellings and the ancillary improvements including pool, landscaping, and improvements at HWM.
There was a significant difference between Mr Webster and Mr Ellis as to the appropriate amount to allow for building costs. The evidence of Mr Webster, which was not disputed, was that Rawlinsons states that for a prestige standard partial air conditioned full brick property in Sydney, the rate per square metre is $2,730 to $2,940. The building costs adopted by Mr Ellis in determining the value of improvements for each of the comparable sales are significantly higher than Rawlinsons, and higher than those used by Mr Webster. In considering whether to accept the costs (and consequent value of improvements) adopted by Mr Ellis or Mr Webster, I prefer Mr Webster's approach, which he described as a more conservative approach, based on his experience of valuing work on behalf of banks for progress payments, in which he had not seen a building that had a higher rate per square metre than $4,500 - $5,000. I am not persuaded that Mr Ellis provided a sufficiently reasoned basis for adopting a cost per sqm significantly higher than that in determining the assessed building costs.
I am not persuaded that the adjustments made by Mr Ellis to each of the sales based on market conditions are sufficiently reasoned to be adopted. While acknowledging the limitations of using data based on median house prices, the Residex data provided by Mr Ellis shows an increase in median house price from July 2007 to August 2008 and then a decline, and does not support his evidence of a drop of 10 percent over the two year period from July 2007 to July 2009. In relation to 19 Coolawin Road, Mr Ellis allowed an increase of approximately 5 percent from $2,850,000 at 1 July 2008 to $3,000,000 at the sale date of 25 May 2009, and then a drop to $2,790,000 at 1 July 2009. Mr Ellis' evidence was that he had had regard to Residex and official interest rate data for 2008 and 2009, and explained the 6.7percent fall between 25 May and 1 July 2009 as being based on his experience of the market at the time and interest rates. I agree with Mr Webster's assessment that it would be difficult for a valuer to be so precise about market conditions over a 35 day period. I am not persuaded that Mr Ellis' adjustments for market conditions to derive an assessed residual value of $2,790,000 for 19 Coolawin Road is supportable, and I prefer the assessed residual value as determined by Mr Webster.
7 Coolawin Road was agreed by the valuers to be an inferior property to 19 Coolawin Road, primarily based on the difficulty of access. Neither valuer explained in detail the adjustments they had each made to reach a residual land value, $4,700,000 by Mr Webster and $3,500,000 by Mr Ellis, and the disparity between these values and those adopted for 19 Coolawin Road was not explained. While 7 Coolawin Road has more difficult access than 19 Coolawin Road, the land area is slightly larger, and improvements at HWM are similar, both having a boatshed while 19 Coolawin Road also has a slipway. Both valuers adopted a similar depreciation rate for the dwelling. In the context where there was agreement as to the factors for which adjustments should be made, but no quantification of those separate adjustments, and where there was agreement as to the inferiority of 7 and 19 Coolawin Road in comparison with 57 Coolawin Road and the subject property, on the evidence before me I am not persuaded that the residual land value of 7 Coolawin Road as determined by either Mr Ellis or Mr Webster is sufficiently reasoned to provide a basis for comparison with the subject site.
The applicant submits that the evidence of Mr Ellis that the residual value for 57 Coolawin Road is $3,350,000 should be accepted; and that based on the agreed superiority of 57 Coolawin Road to the subject property, the residual value of the subject property should be in the order of $3,000,000 to $3,300,000. For the reasons given above, I am not persuaded that the value of the improvements at 57 Coolawin Road as determined by Mr Ellis should be adopted. Mr Webster's estimated cost of the terracing work at the rear of the property, which was not disputed, would fall within paragraph (d) of the definition of "land improvements" in s4(1) of the Act and would accordingly be taken into account in determining the land value. Accepting that fewer adjustments are needed for the sale of 57 Coolawin Road than those for 7 and 19 Coolawin Road, and accepting the agreed inferiority of both those sales to 57 Coolawin Road and the subject property, I am not persuaded that there is a sufficiently reasoned basis for the residual land value adopted by Mr Ellis for 57 Coolawin Road.
The applicant submits that the fall in property values between 2008 and 2009 in the order of 10 percent would mean that the underlying value of the subject property as assessed by the respondent could not have remained the same in 2009 as it was in 2008. I agree with the respondent that the appropriate approach to adopt to determining the land value is that adopted by the valuers, namely a determination of the residual value. The evidence before me does not support a residual land value for the subject property being lower than that for 19 Coolawin Road (as determined by Mr Webster) or significantly lower than that for 57 Coolawin Road. I am not persuaded that the applicant has discharged the onus imposed by s40(2) of the Act. The application must therefore be dismissed.
Orders
The orders of the Court are:
1. The appeal is dismissed.
2. The exhibits are returned except for exhibits 1 and A.
Linda Pearson
Commissioner of the Court
Decision last updated: 30 June 2011
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