Giuseppe De Masi Rosaria De Masi and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2012] AATA 270
•8 May 2012
[2012] AATA 270
Division GENERAL ADMINISTRATIVE DIVISION File Number
2011/2890
Re
Giuseppe De Masi
Rosaria De Masi
APPLICANTS
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Regina Perton, Member
Date 8 May 2012 Place Melbourne The Tribunal varies the decision under review to the extent that the value of the property in dispute as at 1 March 2011 is $675,000. The matter is remitted to the respondent for recalculation of Mr and Mrs De Masi’s age pension entitlement.
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Regina Perton, Member
Catchwords
SOCIAL SECURITY – age pension – assets test – property valuation disputed – disparate valuations – value of property adjusted – remittal to respondent as to whether applicants eligible for age pension
Legislation
Social Security Act 1991 sections 11, 44, 55, 1118, 1064
Social Security (Administration) Act 1999 section 80Cases
Re Woodhouse and Secretary, Department of Social Security (1987) 12 ALD 474
Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790
Goldthorpe and Secretary, Department of Employment and Workplace Relations [2007] AATA 1875REASONS FOR DECISION
Regina Perton, Member
8 May 2012
Mr Giuseppe De Masi, who is in his early eighties, and his wife, Mrs Rosaria De Masi, were recipients of age pension for some years. On 1 March 2011 Centrelink, which administers age pension on behalf of the respondent, cancelled their age pensions because the value of their assets exceeded the upper level of assets that allows for payment of a part pension for a married couple. Their major asset, apart from their own home which is not part of the assets test, is a shop in Hall Street, Newport (the Newport property). In March 2007 the Australian Valuation Office (AVO) valued the property at $320,000. On 1 March 2011, the AVO advised Centrelink that the property was valued at $1,000,000, resulting in the pension cancellations.
On 7 March 2011 Mr and Mrs De Masi sought review of the Centrelink decision by an authorised review officer (ARO) from Centrelink. On 12 April 2011 the AVO provided Centrelink with a revised valuation of $980,000. On 3 May 2011 the ARO affirmed the decision by the Centrelink delegate.
On 12 May 2011 Mr and Mrs De Masi lodged an application for review of the ARO’s decision with the Social Security Appeals Tribunal (SSAT). The SSAT affirmed the ARO’s decision on 16 June 2011. On 21 July 2011 Mr and Mrs De Masi lodged an application for review of the SSAT’s decision with this Tribunal.
The issues for the Tribunal are the value of the Newport property as at 1 March 2011 and whether the decision to cancel Mr and Mrs De Masi’s age pensions was appropriate.
RELEVANT LEGISLATION
Sections 55 and 1064 of the Social Security Act 1991 (the Act) sets out the way in which the rate of age pension is calculated. Module G of s 1064 specifically relates to the impact of a person's assets on their rate of age pension. Persons whose assets are over a certain threshold may still receive age pension but the rate is progressively reduced as the value of the assets increases until a cut-off point is reached. Mr and Mrs De Masi reached that cut-off point when the AVO valued the Newport property at $1,000,000 on 1 March 2011, resulting in the cancellation of their age pensions. As at 1 March 2011, the maximum assets that could be held by a pensioner couple, before their pension was reduced to nil, was $978,000. This figure is adjusted periodically. It was increased to $991,000 from 20 March 2011 and $1,024,500 from 20 March 2012.
Subsection 11(1) of the Act defines an asset as follows:
"asset" means property or money (including property or money outside Australia)…
Section 11(4) and section 11(10) of the Act provide that a property owned by an age pension recipient does not constitute part of the assets test if the recipient lives in that property. The Newport property forms part of the assets test for Mr and Mrs De Masi, along with bank deposits, their personal and household goods and a car.
Section 44 of the Act provides that age pension is not payable if the rate is nil.
Section 80 of the Social Security (Administration) Act 1999 states that :
(1) If the Secretary is satisfied that a social security payment is being, or has been, paid to a person:
(a) who is not, or was not, qualified for the payment; or
(b) to whom the payment is not, or was not, payable;
the Secretary is to determine that the payment is to be cancelled or suspended.
…
THE NEWPORT PROPERTY
Mr and Mrs De Masi operated a fruit shop from the Newport property from 1974 to 1988. At one time there were five fruit shops in the area but now there are none. Most residents now purchase their fruit and groceries from supermarkets and shops in larger shopping centres at Altona Gate and Williamstown. The Newport property is in a street off a main road, Melbourne Road. It is in an area with many nearby shops operating as bases for professional services, particularly on the main road. It is opposite Newport railway station but is in a divided with the station in the middle. Mr De Masi estimated the subway entrance to the station was about 100 metres away.
The shop is now let as a mixed business at a relatively low rental. Mr De Masi said that the shop had been empty for about two years before the present tenant came along. Mr De Masi said that he accepted a lower rental than he had originally hoped for on the basis that it was better than nothing. Mr De Masi said that in recent years the tenant was struggling and he had obtained Mr De Masi’s permission to install an Automatic Teller Machine (ATM). Mr De Masi said that the rental income from the ATM belongs to the tenant.
As indicated earlier, the AVO valued the Newport property at $320,000 in March 2007. On 9 February 2011 Mr De Masi lodged an Income and Assets Update at Centrelink’s request. In the update he estimated the value of the Newport property as $320,000. Centrelink decided to seek a fresh valuation. It received the AVO report on 1 March 2011 putting its value at $1,000,000.
Following Mr De Masi’s request for a review of the valuation, the AVO undertook a further valuation on 12 April 2011 giving a revised value of $980,000.
Mr De Masi obtained opinions of market price of the property from local estate agents. Scott Murdoch, Director of Barlow McEwan Tribe First National in Altona, stated in a letter dated 10 May 2011:
We have taken care to provide you with the most accurate estimate we can, based on our professional knowledge of the area, overall market trends and recent sales of comparable properties.
We feel that this property would sell in the vicinity of $550,000 if placed on the market at the present time.
Although every care has been taken in arriving at this figure we do stress this is an opinion, not a sworn valuation.
Mr Vince Caramia, Director of Biggin Scott Altona, in a letter dated 12 May 2011, gave an estimate of $500,000 to $550,000.
Charles Carty, Director of Hocking Stuart Commercial, in a letter dated 18 March 2011, provided an estimate of $520,000 to $560,000. He pointed out that:
Unfortunately there are no recent sales along this shopping strip which are comparable.
Retail investments on prominent shopping strips sell on rental yield of between 4–5%.
We would suggest this property would fetch between 4-4.5% return
A possible renovation or redevelopment would be valued on $1500 to $1650 per sqm.
Following a case appraisal by the Tribunal on 31 October 2011, Mr De Masi obtained a sworn valuation. Mr David Matler of BMT Valuers, based in Newport, provided a sworn valuation dated 15 December 2011 valuing the Newport property at $675,000.
There is no statutory provision in the Act setting out the method to be used for valuing property. In past cases, the Tribunal has adopted the net market value approach based on comparable sales and the best use to which the assets could be put (Re Woodhouse and Secretary, Department of Social Security (1987) 12 ALD 474). In Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790, the Federal Court endorsed the Tribunal’s approach (at para 17):
Under the Social Security Act 1991 (Cth) there is no statutory provision specifying any method for the valuation of assets. The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the ‘best use’ to which the asset could be put…
The respondent cited a number of other cases that referred to the disputes on the value of properties and the principles underlying that process. The Tribunal is satisfied that it is appropriate to adopt the net market value approach which, to the Tribunal's knowledge, is the standard mode of valuation adopted by valuers in assessing the value of property for statutory purposes.
On 16 September 2011 the AVO provided written comments after the estate agents’ opinions of market price were given to the respondent. The Tribunal notes that this was before Mr Matler’s sworn valuation was provided. Mr Mel Trevethick, Senior Valuer of the AVO, stated, among other things:
The subject property is a large retail property on a large allotment of land measuring 344 square meters. It is centrally located opposite Newport railway station. Due to its size, location and current demand it is considered that the subject property has a range of potential redevelopment options, all subject to council approval (STCA), which may include a mix of commercial/retail and residential uses.
Mr Demasi stated that he managed the property himself without the assistance of real estate agents and negotiated the rental himself. Currently the passing rent is $20,517 per annum and this is considered well under market value rental. There is also the matter of the Automatic Teller Machine (ATM) located in the shop front. Mr Demasi said that the tenant organised this directly with the ANZ bank and that he had approved the installation of this. As stated in our report ATM rentals are usually paid to property owners and are approximately $8,000 - $10,000 per annum per site.
To capitalise the existing rental would be incorrect and not reflect the subject properties [sic] true market value…
In our valuation dated 6 April 2011 we have adopted the Direct Comparison method of valuation as it is considered more appropriate for this property with development potential (STCA).
The AVO valuation dated 6 April 2011 is based on sales evidence of properties with varying degrees of comparability to the subject property….Our valuation, based on sales, evidence, remains at $980,000.
We note the letters attached by the local estate agents and that their “unsubstantiated estimates” vary greatly from our valuation. These letters appear to have been supplied on the belief Mr Demasi would be considering selling 10 Hall Newport in the near future.
…
The AVO valuation has been carried out by researching sales of retail properties in Newport, Altona and Seddon and comparing these properties…
The AVO valuation and Mr Matler’s valuation differ considerably. Mr Matler’s is $675,000 and the AVO’s is $980,000. The reports were dated eight months apart; the AVO’s dated 12 April 2011 and Mr Matler’s 15 December 2011. However, as indicated above, Mr Trevethick restated his opinion in the commentary dated 16 September 2011. Mr Trevethick and Mr Matler affirmed their opinions during the hearing.
Mr Matler commented that in most cases, the valuers for each side convene before the hearing and try and come up with an agreed value. However, there had been no such discussion in this matter prior to the hearing.
In his valuation report, Mr Trevethick stated, among other things:
…
Site Area
The subject site comprises approximately 344 square metres
Zoning/Authority
Zoned Business 1 Zone with Heritage Overlay (HO170) under the Hobsons Bay Planning Scheme, as amended.
Description of Land
Location
Neighbourhood: Retail. The subject property is located in the Newport neighbourhood retail precinct. Tenancies generally comprise local needs shopping, cafes and a hotel. There are also a number of commercial uses nearby, including employment providers.
Surrounding Development: Amidst mixed property. To the rear of the subject property is an established residential area, with major industrial uses located off Hall Street to the north.
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Specialist improvements
Shop: Single storey.
Style: Single storey.
Construction: Brick.
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Year Built: 1930.
Area: 245 square metres.
…
Highest and Best Use: Being located within the Newport Central Activities District, opposite the railway station, the subject site offers a range of possible redevelopment options. There is evidently strong demand for commercial space in Newport, and the larger single level existing building would likely attract interest from commercial tenants in the event the property were to become vacant.
The subject property is a larger than usual site within this precinct with good street frontage and easy access via a right of way (ROW). A multi level commercial/retail/residential redevelopment of the site is considered to be the highest and best use, subject to council approval (STCA).
…
Mr Trevethick compared sale prices of four other properties sold in 2010, one on the other side of the railway station, at 28 Hall Street, Newport ($810,000 on 20 March 2010); another at 423 Melbourne Road, Newport ($623,000 on 22 July 2010); a third at 85-87 Charles Street, Seddon ($1,300,000 on 1 September 2010) and the fourth at 80 Pier Street, Altona ($1,225,000 on 26 August 2010). He described the properties at 28 Hall Street, Newport and 423 Melbourne Road, Newport, as inferior to the Newport property. He described the other two, which were sold for higher prices than his valuation of the Newport property, as superior.
Mr Trevethick said that there could be a multi-level redevelopment of the site; something he had taken into account in making his valuation. He provided photographs of the Newport properties cited in his report, as well as redevelopments in shopping strips in nearby suburbs.
Mr Matler told the Tribunal that he had been a property valuer for some forty years and had undertaken government and private valuations. His office is in Melbourne Road, Newport, around the corner from Hall Street. He has been based in Newport for around 25 years. In his valuation report, he stated:
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Locality: The subject property is within a small neighbourhood shopping centre which has been in decline as a retail area for some years due to the stronger local competition of better nearby centres like Altona Gate and Williamstown.
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His report continued:
Circa: 1905 “Federation” style plus 1960 rear extension (poor condition)
Shop: single storey rendered solid brick (front section) and cream solid brick (rear extension) plus open off-street parking for say three (3) car spaces accessed via a rear right-of –way.
….
Accommodation: The subject property comprises a single story brick lock-up shop of say 193m2 plus storeroom of say 67m2 occupied by the Newport General Store in a fairly basic condition with ceramic tile floors, painted solid plaster walls and ceiling, fluorescent lighting. There is no functional heating or airconditioning and at the rear is a staff kitchen plus toilet facilities.
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BASIS OF VALUATION
We have had regard to the very limited recent retail/commercial sales evidence in the same Newport strip shopping centre over the last few years…Based upon the key comparable sales evidence, we have adopted a Current market (2011) Sworn Valuation as at 15th December 2011….which is in-line with our sales analysis and equates to the following:
(a) Building 260m2 x $495/m2 say $129,000
(b) Land 364m2 x $1,500/m2 say $546,000
Total $675,000
Or alternatively (Check Method) Capitalization @ 5.77% of the estimated Current Market (2011) Rental Value say $39,000 per annum ($150/m2) plus outgoings and gst equates to a Freehold Value of $675,000.
Mr Matler cited the sales evidence of various properties in the neighbourhood including the two 2011 sales in Newport given by Mr Trevethick. He noted that the sale of 28 Hall Street, Newport involved a ground floor shop and an upstairs dwelling which was a fully renovated building with a fusion of period and contemporary charm that has separate retail and commercial components so as to achieve dual (2) tenancies. He stated that there had been an increase in the purchase price because of its condition and dual letting potential. Mr Matler also cited some sales in 2007 and 2008 in that Newport neighbourhood.
In his oral evidence, Mr Trevethick questioned the relevance of the 2007 and 2008 sales. He said he had used Seddon and Altona (nearby suburbs) values because there had been no sales in 2010 in the vicinity of the Newport property, apart from the two cited by both valuers. He said that the market was strong and rising between 2007 and 2011, although it subsequently softened in 2011. Mr Trevethick said that the property was big enough and suitable for development, despite the heritage overlay which meant the façade had to be retained.
Mr Matler said that he had only used the 2007 sales for a history and not in assessing the value at December 2010. He had given most weight to the two latest Newport sales. Mr Matler said that a valuer has to be careful in assessing the Newport market. He said that in the last 12 months it had been an extremely volatile. Banks were not as generous in providing finance for redevelopment as they had been and there had been a decline in values. A number of properties had been on the market but failed to sell. Mr Matler said that the Newport property only had views from the rear and was in a failing shopping centre. There was the odd café or business. The property was blinkered by an overpass and it was hard to get into that part of the road where the Newport property was located. Melbourne Road did not have the same access difficulties. Mr Matler noted that the municipal valuer had put a value as at 1 January 2010 of $430,000. He was of the opinion that $900,000 plus for the Newport property could not be achieved. He confirmed that he, like Mr Trevethick, had utilised the highest and best use method. He also indicated that the value in early 2011 was likely to have been similar to that in late 2011.
The Tribunal must decide which valuer’s opinion is preferable. The respondent brought to this Tribunal’s attention the comments of Deputy President Jarvis in Goldthorpe and Secretary, Department of Employment and Workplace Relations [2007] AATA 1875, at 37:
…the valuations made by Centrelink were based on the Australian Valuation Office valuations... Valuations by government officials should not lightly be departed from, having regard to their statutory obligations and the significance of the use that may be made of the valuations arrived at.
In previous matters before it, the Tribunal has followed a similar course to that suggested by Deputy President Jarvis in Goldthorpe. However, in this case, the Tribunal believes it is appropriate to depart from such a path. The Tribunal has before it two highly experienced valuers utilising appropriate methods of valuation. Both have had extensive experience in valuing properties for court and tribunal matters. The Tribunal prefers the valuation of Mr Matler in this instance. He is based in the Newport shopping precinct and appears aware of trends in the immediate area of his business. Both valuers indicated that the properties in Altona and Seddon are in a different type of shopping area. The valuers faced the difficulty of the lack of sales in the Newport shopping precinct with which to make comparisons.
While the Tribunal accepts Mr Trevethick’s comments that generally the estate agents’ opinion of sales price cannot be given the weight of a sworn valuation, in this instance there were three opinions from local agents stating that the property was worth between $500,000 and $560,000 in March to May 2011. The estate agents’ opinions are below the value given by Mr Matler, namely $675,000. The Tribunal believes it unlikely that all three agents would give a much lower value than what they think it should be. Their opinions are in writing given to the vendors or their daughter. If the agents were hoping to eventually sell the property for the vendor, it seems improbable that all three estimates of market value would be $400,000 less than the sales price they believed the Newport property would achieve. The Tribunal also notes both valuers believed that the rental should be higher than it is at present, with Mr Matler suggesting a rental that he thought the property should bring allowing for a calculation of a capitalization value in line with the sales comparison. The Tribunal also accepts the evidence that values did not rise during 2011 in that area and therefore, Mr Matler’s valuation can be considered for the March 2011 and December 2011 value.
The Tribunal notes that Mr and Mrs De Masi have other assets such as their bank deposits and household goods which need to be factored in to the calculation of their entitlements as at March 2011. It appears likely based on the documentation provided to the Tribunal by the respondent that they may have entitlement to a small part pension. The Tribunal will remit the matter to the respondent for such a calculation.
DECISION
The Tribunal varies the decision under review to the extent that the value of the property in dispute as at 1 March 2011 is $675,000. The matter is remitted to the respondent for recalculation of Mr and Mrs De Masi’s age pension entitlement.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for the decision herein of Regina Perton, Member.
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Associate
Dated 8 May 2012
Date of hearing 21 February 2012 Applicants Mr Giuseppe De Masi
Mrs Rosaria De MasiRepresentative for the Applicants Ms Loretta De Masi Advocate for the Respondent Ms Ailsa Bramley, Centrelink Program Litigation and Review Branch
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