Kilpatrick v Head, Transport for Victoria

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
VALUATION COMPENSATION AND PLANNING LIST

S CI 2017 04299

JOHN MURRAY KILPATRICK	Plaintiff
v
HEAD, TRANSPORT FOR VICTORIA	Defendant

---

JUDGE:	GARDE J
WHERE HELD:	Melbourne
DATES OF HEARING:	11-14, 18-21 November 2019
DATE OF JUDGMENT:	21 February 2020
CASE MAY BE CITED AS:	Kilpatrick v Head, Transport for Victoria
MEDIUM NEUTRAL CITATION:	[2020] VSC 53

---

PLANNING AND ENVIRONMENT – Financial loss following reservation of land for a public purpose under a planning scheme for Outer Metropolitan Ring Road – Valuation – Hypothetical plans of subdivision – Estimated development costs – Comparable sales – Turner analysis – Nearby quarry – Quarry buffer area – Award of compensation – Planning and Environment Act 1987 (Vic) ss 98(1), 99, 101, 105, 109(1A); Land Acquisition and Compensation Act 1986 (Vic) ss 80, 89(1).

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Morris QC with Mr P Chiappi	Hall & Wilcox
For the Defendant	Mr J Gobbo QC with Ms L Hannon	Russell Kennedy

HIS HONOUR:

BACKGROUND
Introduction

The plaintiff, John Murray Kilpatrick (‘claimant’), has owned and farmed land at 1000 Ballan Road, Wyndham Vale (‘subject land’) since 1972. He claims compensation under s 98(1)(a) of the Planning and Environment Act 1987 (Vic) (‘PE Act’) from Head, Transport for Victoria (formerly Roads Corporation) (‘authority’) for financial loss following the reservation of part of the subject land for a public purpose under Public Acquisition Overlay 5 (‘PAO5’) to the Wyndham Planning Scheme (‘planning scheme’). The claimant also claims expenses under s 101 of the PE Act, and interest under s 60(1) of the Supreme Court Act 1986 (Vic).

The reservation took effect on 6 August 2010 as a result of Amendment VC68 to the planning scheme. The purpose of the acquisition is to acquire land for the Outer Metropolitan Ring/E6 Transport Corridor (‘OMR’). In the absence of the reservation, the subject land would have been within the Urban Growth Boundary (‘UGB’) and available for residential subdivision.

On 2 November 2016, the claimant applied to Wyndham City Council (‘Council’) for a permit to use and develop the land for a single dwelling. On 5 June 2017 (‘relevant date’), Council refused the permit application on grounds which included the ground that the subject land is or may be required for a public purpose.

On 24 July 2017, the claimant served a claim for compensation on the authority. The authority did not respond to the claim.

On 24 October 2017, the claim became a disputed claim under s 37(8) of the Land Acquisition and Compensation Act 1986 (Vic) (‘LAC Act’), and was referred by the claimant to the Court for determination.

On 3 December 2018, the authority paid $20,000,000 to the claimant as an advance of compensation. The next day the authority paid a further $19,700,000 to the claimant, giving him a total advance of compensation of $39,700,000.

The subject land

The subject land has an area of 60.88ha and abuts Ballan Road and Spring Plains Road. It forms part of a larger landholding of 262.21ha owned by the claimant. The subject land has no natural topographic or visual features, no natural water waterways or watercourses and is level and flat.

The locality

Wyndham Vale and Tarneit are within the UGB on the edge of the western development corridor of Melbourne, approximately 30km from the Melbourne CBD. At the relevant date, numerous estates were under active residential subdivision by developers.

Wyndham Vale is separated from Tarneit (to the north-east) and Werribee (to the south-east) by the Werribee River. To the north-west of the subject land is the Wyndham Vale quarry (‘quarry’), an active basalt quarry operated by the Barro Group. The Wyndham Vale town centre is accessed along Ballan Road and Armstrong Road. The nearest shopping centre to the subject land is the Manor Lakes Shopping Centre, approximately 3.6km away. The new Wyndham Vale railway station is about 3.5km from the subject land.

Immediately to the east of the subject land is the Kilpatrick 1 estate.

To the east of the Kilpatrick 1 estate is the Jubilee estate, consisting of proposed residential, retail and office uses. Development of the Jubilee estate was well underway at the relevant date, although retail and school facilities were yet to be built.

The quarry

The quarry was originally developed in the mid-1980s as a hard rock basalt quarry. The quarry entrance is on Spring Plains Road, which is sealed from Ballan Road. An earthen bund is constructed at the perimeter of the quarry providing a visual barrier to direct observation of the working area from much but not all of Spring Plains Road.

The quarry includes a fixed crushing and screening plant, a pug mill and cement silos in a worked out area.

There are two operative works approvals for the quarry – works approval WA186 issued on 22 April 2014 and works approval WA6219 issued on 29 November 2015. Under works approval WA186, the quarry extraction limit is set back 20m from the quarry boundary along Spring Plains Road. Works approval WA186 describes past quarry output as reaching up to approximately 300,000 tonnes per year, with future tonnages market driven and therefore predicted to fluctuate significantly over the life of the quarry. Reserves exceed 30 million tonnes of basalt.

Works approval WA6219 relates to adjoining land to the north of the existing quarry, which is the direction of future quarry expansion. This basalt resource exceeds 10 million tonnes.

The quarry has an indeterminate life exceeding 15 years. It is not possible to say how long it will continue. This will be dependent on reserves and market conditions.

Quarry hours of operation are 6am to 11pm Monday to Saturday, with drilling restricted to 6am to 6pm Monday to Friday and 6am to 1pm on Saturday. Blasting is restricted to 10am to 4pm Monday to Friday. No work is permitted on Sundays or public holidays.

The quarry is subject to air blast and ground vibration controls with blasts required to be less than 115dBA for 95% of the time over a 12 month period, and 120dBA all of the time. Ongoing rehabilitation of the quarry is required.

A 500m buffer area from the quarry extraction limit would have applied to residential development under a precinct structure plan.

Land within a quarry buffer area is likely to remain in a Farming Zone, or be designated for future Industrial 1 or 3 or a Commercial 2 use. Residential and other sensitive uses, such as child care centres and schools, are not permitted. When the quarry closes, the buffer area may become available for residential development.

Quarry traffic

Spring Plains Road is a two-way, local Council road with a 20m road reserve. Counts of traffic on Spring Plains Road in July 2019 show a five day average daily volume of 994 vehicles within a quarry working day. Most trucks leaving the quarry turn south along Ballan Road at the intersection of Ballan Road and Spring Plains Road. When measured over the period 10 to 16 July 2019, Ballan Road north of Spring Plains Road had a five day average daily volume of 4,220 vehicles, while Ballan Road south of Spring Plains Road had a five day average daily volume of 5,356 vehicles.

A four day camera survey in daylight hours along Spring Plains Road found that 372 vehicles per day (41%) are B-doubles and above (Class 10-12), while an additional 360 vehicles per day (40%) were heavy trucks (Class 6-9). The B-double vehicles are generally of the truck and trailer configuration typical of the extractive industry. The trucks are big, powerful, and loud vehicles. There are no acoustic barriers to shield the noise impact of about 1,000 truck movements each working day.

Agreed matters

The parties provided a joint statement of agreed facts. The agreed facts included:

(a)in the absence of the reservation, the subject land would have been within the UGB at the relevant date. The UGB would have run along Spring Plains Road;
(b)most of the subject land would have been zoned Urban Growth Zone sch 9 (‘UGZ’) except for the land within the quarry buffer area;
(c)the subject land would have been within the Westbrook Precinct Structure Plan (‘PSP’) approved in July 2014 and the West Wyndham Development Contributions Plan;
(d)the highest and best use of the subject land within the UGZ was subdivision for residential development;
(e)the subject land as affected by PAO5 is outside the UGZ, in the Green Wedge Zone and subject to an Environment Significance Overlay;
(f)the measure of the claimant’s financial loss is the difference between the market value of the ‘before’ and the ‘after’ land; and
(g)the north-east corner of the subject land is the subject of an easement of 0.48ha for electricity purposes. The easement would be relocated when the subject land was developed.

The parties also agreed that:

(a)the quarry buffer area is 9.28ha;
(b)applying a rate of $362,500/ha, the quarry buffer area has a value of $3,364,000;
(c)the ‘after’ value of the subject land is $3,537,800 (rounded to $3,540,000); and
(d)the claimant’s allowable expenses total $104,716.10.

Particulars of claim and offer

The claimant’s particulars dated 8 December 2017 alleged a ‘before’ value of $63,570,000.

The authority filed:

(a)particulars of offer dated 5 October 2018, alleging a ‘before’ value of $43,800,000;
(b)amended particulars of offer dated 7 November 2019, alleging a ‘before’ value of $47,900,000; and
(c)amended particulars of offer dated 19 November 2019, alleging a ‘before’ value of $49,805,000.

Relevant statutory provisions

Part 5 of the PE Act provides for compensation to be paid to land owners where the use and development of land is adversely affected by the reservation of land for a public purpose.

Parts 10 and 11 and s 37 of the LAC Act apply to the determination of compensation under Part 5 of the PE Act as if the claim were a claim under s 37 of the LAC Act.[1] If a planning scheme designates a public authority as an acquiring authority for the purposes of the PE Act for land reserved for public purposes, the acquiring authority is liable to pay any compensation arising under Part 5 from that reservation.[2] The right to compensation and the liability of a planning authority to pay compensation will arise after the responsible authority has refused to grant a permit for the use or development of land on the ground that it is or may be required for a public purpose.[3]
[1]PE Act s 105.
[2]Ibid s 109(1A).
[3]Ibid s 99(a)(i).

Under s 98(1)(a) of the PE Act, the owner of land may claim compensation from the planning authority for financial loss suffered as the natural, direct and reasonable consequence of the land being reserved for a public purpose under a planning scheme.

In Melbourne City Link Authority v Teford Pty Ltd, the Court of Appeal held that the three adjectives ‘natural, direct and reasonable’, in combination, connoted a very close and limited connection between the event giving rise to compensation and the financial loss suffered,[4] adopting this test from the earlier decision of Batt J in Halwood Corporation Ltd v Roads Corporation.[5] These decisions have been followed or applied in many subsequent cases.[6]
[4](2001) 113 LGERA 102, 112–113 [24] (Batt, Tadgell and Chernov JJA).
[5](1995) 89 LGERA 280, 303, affirmed [1998] 2 VR 439 (Brooking, Tadgell and Ormiston JJA).
[6]See Provan’s Timber Pty Ltd v Secretary to the Department of Economic Development, Jobs, Transport and Resources [2019] VSC 390, 61–62 [220]–[222] (Emerton J); Secretary to the Department of Economic Development, Jobs, Transport and Resources v Caradi Pty Ltd [2018] VSC 696, 78 [322] (Quigley J); Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd (2017) 224 LGERA 195, 209 [63]–[67] (Warren CJ, Osborn and Ferguson JJA); Barilla and Anor v Roads Corporation (2017) 54 VR 198, 205 [35] (Emerton J); Secretary to the Department of Economic Development, Jobs, Transport and Resources v Stella (2016) 215 LGERA 314, 322–325 [33]–[41] (Bell J); Roads Corporation v Love (2010) 31 VR 451, 476 [113]–[115] (Osborn J).

Market value

Market value is determined in accordance with the decision of the High Court in Spencer v The Commonwealth.[7]
[7](1907) 5 CLR 418, 440–443 (Isaacs J).

In Kenny & Good Pty Ltd v MGICA (1992) Ltd, McHugh J summarised this decision in the following passage:

Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property. In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth:
‘We must further suppose both to be perfectly acquainted with the land, and cognisant 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.’

The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.[8]

[8](1999) 199 CLR 413, 436 [49]–[50], citing Spencer v the Commonwealth (1907) 5 CLR 418, 441, quoted in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259, 276–277 [51] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ) and Secretary to the Department of Economic Development, Jobs, Transport and Resources v Avid Property Group Nominees Pty Ltd (2017) 53 VR 490, 501 [46] (Osborn and McLeish JJA, Cameron AJA).

The value of land is to be determined in accordance with s 5A of the Valuation of Land Act 1960 (Vic):

(1)Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.
(2)In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.
(3)Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account—
(a)the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;
(b)the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;
(c)the shape size topography soil quality situation and aspect of the land;
(d)the situation of the land in respect to natural resources and to transport and other facilities and amenities;
(e)the extent condition and suitability of any improvements on the land; and
(f)the actual and potential capacity of the land to yield a monetary return.

Valuation methodology

The preferred approach to the analysis of sales was described by Wells J in Crompton v Commissioner of Highways:

…ideally, the valuer should, in the first instance, look at the sales of land over a wide geographical and temporal range, and from these select those that appear potentially useful as a basis for comparison. Those selected should then be carefully analysed by reference to an extensive list of characteristics of land sales the compilation and assessment of which fall clearly within the province of the experts. Whether or not one or more of those sales is, and how it or they ought, to be compared with the subject land becomes then a matter of degree, and a final decision is reached, often by those same experts drawing a series of nice distinctions. Obviously, no two sales of land will be found the same, or even similar in all respects. Those that bear a close similarity to the assumed sale of the subject land will be more reliable than those whose similarity is less proximate and in respect of which adjustments or allowances must be made before they can be safely introduced into the valuation process. At a particular point it will be found that, in respect of the remaining available sales, the adjustments and allowances that would need to be made are of such a magnitude that it ceases to be safe or sound to treat them as sufficiently similar to the assumed sale of the subject land, and they must thenceforward be rejected.[9]

[9](1973) 5 SASR 301, 317.

In Holcim (Australia) Pty Ltd v Valuer-General, Biscoe J said:

The basis for the valuers’ valuation assessment 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.[10]

[10][2009] NSWLEC 225, [31].

In compensation cases, doubts and obscurities where they exist are ordinarily resolved in favour of the more liberal estimate of compensation. In Rigby v Secretary to the Department of Sustainability and Environment, Emerton J said:

…the proper approach in compulsory acquisition matters is generally to lean in favour of the dispossessed proprietor, all other things being equal. …In Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd, Dixon J identified a different purpose in valuing property in revenue cases from compensation cases: in the compensation cases the purpose was to ensure that the person to be compensated was given a full money equivalent of his or her loss, while in the revenue cases it was to ascertain what money value was plainly contained in the asset so as to afford a proper measure of liability to tax. His Honour said:
‘While this difference cannot change the test of value, it is not without effect upon a court’s attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate.’

In McBaron v Roads and Traffic Authority of New South Wales, Talbot J said:
…it is appropriate to seek to do justice by adopting a generous approach in favour of the resumee to ensure that just compensation is paid... Therefore any discretion should be exercised in favour of the claimant where practicable in order to achieve a just result.[11]

[11][2012] VSC 427, 9–10 [28]–[29], citing Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd (1947) 74 CLR 358, 373–374 and McBaron v Roads and Traffic Authority of New South Wales (1995) 87 LGERA 238, 244–225.

In ISPT Pty Ltd v Melbourne City Council and Anor, the Court of Appeal upheld a decision of the Victorian Civil and Administrative Tribunal and rejected a criticism that the Tribunal had pieced together a valuation of its own rather than adjust on aspects of the valuation evidence.[12] In doing so, the Court of Appeal held that a judge sitting on a land valuation matter was entitled to accept part of the evidence of one and part of the evidence of another expert valuer and make appropriate adjustments in arriving at the true valuation.[13]
[12]20 VR 447, 456–457 [29]–[30] (Warren CJ, Kellam JA and Osborn AJA).
[13]Ibid, 454 [20].

Issue for determination

The disputed issue for determination in this proceeding is the ‘before’ value of the subject land at the relevant date. The parties have reached agreement as to the ‘after’ value and as to all other matters necessary for compensation to be determined.

The valuers called by the parties agree that the primary valuation method is the comparable sales method, with the Turner analysis available as a check method.[14]
[14]See Turner v Minister of Public Instruction (1956) 95 CLR 245.

The determination of the ‘before’ value entails:

(a)the selection of an indicative plan of subdivision and costings;
(b)the use of comparable sales to deduce market value; and
(c)the use of the Turner analysis as a check method.

Expert evidence

Both parties relied on the evidence of civil engineers experienced in subdivisional works, planners and traffic engineers.

The claimant relied on the affidavits and exhibits of:

(a)Damian Michael Ritchie, civil engineer and operations manager of Watsons Urban Development Consultants and Managers (‘Watsons’);
(b)Andrew Biacsi, town planner and director of Contour Consultants Australia Pty Ltd; and
(c)Henry Hume Turnbull, traffic engineer and principal consultant of Traffix Group.

The authority relied on the affidavits and exhibits of:

(a)Mark Whalen, civil engineer and Senior Technical Director of GHD Pty Ltd (‘GHD’);
(b)Mark Benedict Woodland, town planner and director of Echelon Planning; and
(c)John Kiriakidis, traffic engineer and director of GTA Consultants.

The experts met in conference on a number of occasions and prepared joint reports.

The Court, accompanied by senior counsel, undertook a view of the subject land and comparable sales sites on 12 November 2019 to assist in understanding the evidence.

PLANS OF SUBDIVISION
Hypothetical plans of subdivision

The claimant and the authority each prepared ‘before’ hypothetical plans for the residential subdivision of the subject land (‘subject estate’). The purpose of the hypothetical plan is to assist the valuers and the Court to understand the subdivisional potential of the subject land and to inform the Turner analysis. The parties were not able to agree on a single hypothetical plan of subdivision. I will now address the main differences between the respective plans.

Watsons ‘before’ plan of subdivision

Watsons prepared a residential subdivision plan for the subject land and a schedule of estimated development costs. In its iteration dated 10 November 2019, the plan maximised the number of residential lots achieved by the subdivision. Excluding the quarry buffer area (Stage 18), this plan shows:

(a)a total net developable area of 50.03ha, consisting of 34.63ha of residential lots and 15.4ha of roads;
(b)a centrally located park of 1.01ha;
(c)855 residential lots of 405m² in average size; and
(d)a lot yield of 17.1 lots/ha.

Excluding the quarry buffer area, the total development costs were $70,704,746 nett of GST (855 lots), or $82,696/lot (nett of GST).

After a number of refinements were made to the plan, the parties ultimately agreed on a net developable land area of 51.6ha including the park with the quarry buffer area also agreed at 9.28ha.

GHD ‘before’ plan of subdivision

GHD also prepared a residential subdivision plan for the subject land excluding the quarry buffer area and a schedule of estimated development costs. The iteration of this plan dated 26 August 2019 showed:

(a) a total site area of 60.88ha;

(b) land for non-residential use of 10.464ha;

(b)public open space of 1.911ha, including a centrally located park of 1.544ha;
(c)a retarding basin of 2.43ha;
(d)land for arterial and sub-arterial widening of 0.248ha;
(e)a net developable area of 45.827ha;
(f)763 residential lots of 385m² in average size; and
(g)a lot yield of 16.7 lots/ha.

The total development cost of the works required for this GHD plan amounted to $63,070,000 or $82,661 per lot.

Differences between the Watsons and GHD ‘before’ plans

The parties agreed on the main differences between the respective ‘before’ plans and costings:

(a)The need for an eastern boundary road. The Watsons plan shows lots to the eastern boundary of the subject estate. The GHD plan has a road on the eastern boundary providing separation from the possible location of a new north-south arterial road.
(b)The design of Spring Plains Road.
(i)The traffic engineers considered that there were three options for the design of Spring Plains Road. The option favoured by Mr Turnbull required 1m to be taken from the subject land to widen the road reserve. Mr Ritchie gave evidence that services can be accommodated within the eastern nature strip and western verge of Spring Plains Road connected by a conduit under the road.
(ii)Mr Whalen said a 2.55m widening of the road reserve was required to accommodate services and kerb and channel for the parking lane. He also allowed a 0.4m widening of the nature strip, which he rounded up to 3m.

(c)Retarding basin. Mr Whalen said that Melbourne Water would require a retarding basin on the north side of Ballan Road. Mr Ritchie said that Melbourne Water would prefer a retarding basin on land to the south of Ballan Road.
(d)The area of the park. The Watsons plan allowed for a centrally located park of 1.01ha. The GHD plan provided a park of 1.544ha.
(e)Contingencies. Mr Whalen allowed a 10% contingency for the cost of subdivision and works. Mr Ritchie allowed a 5% contingency.

Eastern boundary road

Mr Turnbull said that a north-south arterial road may have been required within the subject estate if the subject estate were not close to the UGB. However, the alternative UGB was located along Spring Plains Road. Ison Road was planned to be a six lane major arterial road generally north to south. Traffic demand for a north-south road through the subject estate would not necessitate an arterial road connection. A boulevard connector with a 31.5m cross-section was all that was required for north-south traffic.

Mr Woodland said that the application of the arterial road network planning principles set out in the Growth Corridor Plan would necessitate establishing an additional north-south arterial road link west of Ison Road. Lots on the eastern boundary of the subject estate would potentially adjoin the new road, and would need to be separated from it by a service road or internal loop road.

Mr Kiriakidis was of the view that the PSP road network development guidelines would require a primary arterial road of up to six lanes between the subject estate and the PSP area.

The issue was discussed at the joint experts’ conference conducted on 4 November 2019. The minutes of discussion signed by all experts note that there was a consensus that there would be an additional north-south arterial road west of Ison Road, located approximately 300m east of the boundary of the subject estate. A north-south connector road would be required on the subject estate approximately at a mid-point between Spring Plains Road and the north-south arterial road.

In evidence, Mr Turnbull said that adoption of a 1.6km road grid network would place the arterial road about 300m east of the subject land. Even if the arterial road were constructed with a sound wall or mound right to the eastern edge of the subject land, the Watsons plan could simply be amended so that the lots were serviced from the west. Local roads would not be connected to the arterial road. It was possible for properties to back onto the arterial road reserve or for a frontage road to be constructed as part of the arterial road or setbacks provided as part of the arterial road.

In evidence, Mr Kiriakidis said that an arterial road along the eastern boundary of the subject estate was more probable than the outcome recorded in the conference minutes. He considered that the eastern boundary of the subject estate would be the location of the north-south arterial road together with an internal parallel street that sat beside the arterial road reservation, or a service road that had intermittent connections with the arterial road.

Conclusion

I accept Mr Turnbull’s evidence that the need for an eastern boundary road within the subject estate has not been shown. At the joint conference, all experts agreed that the application of a 1.6km road grid network would result in an arterial road located approximately 300m east of the subject land, and a north-south connector road within the subject estate. Location of the arterial road 300m east of the subject estate would permit better integration of the road network between the Kilpatrick 1 estate and the subject estate. Even if the arterial road was constructed adjoining the subject estate to the east, sound barriers or mounds, or a service road within the arterial road reservation would be satisfactory solutions. I conclude that it is appropriate to allow lots to be developed to the eastern boundary of the subject estate rather than provide for an eastern boundary road which might never be needed.

Design of Spring Plains Road

A second difference between the Watsons plan and the GHD plan related to the design of Spring Plains Road.

Mr Turnbull explained that the road reservation for Spring Plains Road consisted of a 6m verge on the western side, an 8m carriageway and a 6m verge on the eastern side abutting the subject estate. The carriageway of Spring Plains Road was constructed to carry quarry trucks and was in excellent condition. Because of the numbers of quarry trucks, at least a 7m carriageway was required. There were different options for the design of the pavement, bicycle and pedestrian pathways and nature strip. Mr Turnbull preferred a 2.5m shared pathway located between the subject estate and the nature strip. He said that this made best use of the existing carriageway.

Mr Kiriakidis preferred an option where a 1.7m dedicated bicycle lane was constructed between a parallel car parking lane on the eastern side and the main carriageway, even if during periods of peak quarry traffic activity bicycles were directed to use the pedestrian pathway. This design used the bicycle lane as an effective buffer between parked cars and quarry traffic, and required additional land to be taken from the subject estate to provide a bicycle lane and a wider nature strip.

At the joint conference on 4 November 2019, the experts agreed that it was possible for residential lots to gain direct access to Spring Plains Road if the eastern side of the road was upgraded to urban standard and the nature strip widened to accommodate landscaping, indented car parking, a cycling path, footpath and services. Traffic signals might ultimately be needed at the intersection of Spring Plains Road and Ballan Road.

The experts also considered how services were to be provided along Spring Plains Road. Mr Ritchie said that there was sufficient room for services within the road reservation if the western side of the carriageway were utilised for some services. He said that it was unusual to put all of the services on one side of a road reservation, as this would require offsetting the road carriageway so that it was not in the centre of the reservation. He said that potable water, recycled water and gas services required direct connection to each lot and would be placed on the eastern side. Telecommunications and electricity required a single connection to the common boundary of each two lots and could be placed on the western side of the carriageway.

Mr Ritchie said that the connection of services from the western side was achieved by a single directional bore with a conduit, and conduits for services to adjoining residential lots off the single bore. He had allowed for this in his costings. It was not necessary to form the nature strip or have a kerb and channel on the western side of Spring Plains Road.

Mr Whalen allowed a 3m encroachment of Spring Plains Road onto the subject estate. GHD’s costings allowed for the provision of services and the resurfacing of the existing carriageway. Mr Whalen accepted that Mr Ritchie’s location of services on both sides of Spring Plains Road was feasible but observed that the Watsons plan required drilling underneath the pavement of Spring Plains Road that might be difficult if basalt or boulders were encountered. It was possible that the Council might require a kerb and channel to be placed on the western side of the road to define the electricity and communication services.

Conclusion

I accept Mr Turnbull’s evidence and that of Mr Ritchie. Both the Watsons plan and the GHD plan provide acceptable design solutions for Spring Plains Road. The Watsons plan makes efficient use of the existing road pavement in Spring Plains Road and minimises the encroachment of Spring Plains Road onto the subject estate. The civil engineers agreed that Mr Ritchie’s design was feasible subject to the cost of additional drilling under the road pavement of Spring Plains Road to provide conduits for telecommunications and electricity services, and the risk that the Council might require kerb and channel construction on the western side. Mr Ritchie said he had allowed for the additional drilling and conduits in his costings.

I accept that the Watsons plan would be preferred by a hypothetical developer as involving less encroachment on the subject estate, better use of the existing pavement of Spring Plains Road, and a simple design for bicycle and pedestrian pathways and the nature strip. However, the costs and risks of additional drilling under the existing pavement in a basalt-rich area would have to be incurred.

Retarding basin

The Watsons plan provided for culverts under Ballan Road, a sedimentation pond, channel works and a retarding basin to be constructed in the area of existing water assets located south of Ballan Road within the Rural Conservation Zone. The GHD plan provided for a retarding basin/wetland within the subject estate and allowed for 70% of the construction costs to be reimbursed. Watsons considered that the cost of land provided for the retarding basin/wetland was fully reimbursable.

In evidence, Mr Ritchie said that the Watsons plan had been developed to achieve the highest and best use. The most appropriate place for a retarding basin was to the south of Ballan Road in the Rural Conservation Zone. The lesser cost of this location would be attractive to Melbourne Water as the drainage authority. He had allowed $300,000 for works to upgrade the drainage culverts under Ballan Road, construct channel works and provide sedimentation ponds.

Mr Ritchie said that it was Melbourne Water’s preference to put drainage assets in locations which had the least cost impact as Melbourne Water funded the cost of land and works. Reimbursement for the land area and the construction cost of a retarding basin/wetland would be available under the Quandong Park Development Services Scheme. He said that the retarding basin would be located in a depression on the south side of Ballan Road, where there were a number of depressions. The retarding basin would provide a treatment area for flows from a number of streams.

Mr Whalen considered that Melbourne Water might elect to put the retarding basin on the northern side of Ballan Road. He said that the location of a retarding basin south of Ballan Road was feasible, but the size of the retarding basin would have to be increased. There was a confluence of streams in the area of the proposed retarding basin south of Ballan Road. This meant either that the retarding basin would have to be large enough to take additional flows, or the streams would have to be diverted around the retarding basin. Either way, additional works would be required. Melbourne Water would require additional construction costs beyond drainage scheme allowances to be paid by the developer.

Conclusion

I accept Mr Ritchie’s evidence that the retarding basin would, most likely, be provided on the south side of Ballan Road, requiring an allowance of $300,000 for drainage outfall works in addition to the developer contribution required under the Quandong Park Development Services Scheme. Mr Whalen did not ultimately dispute the feasibility of what Mr Ritchie proposed, but observed that additional costs would be incurred because of the confluence of streams and the need for an enlarged retarding basin or diversion works around the proposed retarding basin. I accept that additional costs for a larger retarding basin or diversion works may well be necessary as deposed by Mr Whalen.

Area of the park

Mr Woodland reviewed the PSP Planning Guidelines as they concern open space. He concluded that a subdivision of the subject land would need to incorporate a local park. He said that the open space to be provided on the subject estate would most likely take the form of a single neighbourhood residential park of around 1ha in size and a single open space of 0.2ha in the employment area (when developed). The balance of passive open space required by the subject estate could be apportioned elsewhere within the PSP requiring cash in lieu payments. He concluded that the ‘before’ plan should make provision for a 1ha park generally in the locations shown on the Watsons plan and the GHD plan.

Conclusion

I accept that a 1ha park as shown on the Watsons plan is sufficient on the basis that cash in lieu payments will be necessary to meet unsatisfied passive open space requirements.

Contingencies

While the Watsons costings do not show the contingency allowance separately, Mr Ritchie explained that it was his firm’s standard practice to build contingencies into the rates used in the costings. He said that Watsons constantly reviewed construction costs, including the actual costs incurred on the Jubilee and Kilpatrick 1 estates in 2017. On this basis, he had made a 5% contingency allowance.

Mr Whalen said that GHD allowed 10% for contingencies. He said that when tenders for actual works were received from contractors, the range of costs varied by more than 10%. He acknowledged that Mr Ritchie was a very experienced subdivisional engineer who had been responsible for dealing with contractors during the construction of the adjoining Jubilee and Kilpatrick 1 estates.

Conclusion

Mr Ritchie has considerable experience in dealing with works contractors in the Wyndham Vale area, including the infrastructure works carried out in 2017 for two adjoining estates. I accept his evidence that a 5% allowance for contingencies is sufficient while noting Mr Whalen’s concern that a 10% allowance should be allowed.

Conclusion as to hypothetical plan of subdivision

In Boland v Yates Property Corporation Pty Ltd, Callinan J said:

It is now settled, and for good reason, that a disaffected owner should be compensated for the value of his or her land on the basis of its highest and best use.[15]

[15](1999) 74 ALJR 209, 265 [271].

The Court must determine which plan of subdivision represents the highest and best use of the subject land.

I accept that both plans are feasible and acceptable hypothetical plans of subdivision to support the ‘before’ valuation of the subject land. The Watsons plan shows a higher lot yield, largely because of the location of the retarding basin south of Ballan Road, the absence of the eastern boundary road, and the lesser encroachment required to widen Spring Plains Road.

I accept the Watsons plan as reflecting the highest and best subdivisional development achievable on the subject land giving a total of 855 residential lots excluding the quarry buffer area.

I also accept that the hypothetical developer would be alert to the risk that the cost of works may exceed the estimated development costs prepared by Mr Ritchie having regard to:

(a)the doubt as to the location of the north-south arterial road which would have been dependent on the PSP that would have applied in the absence of the reservation;
(b)the design and services issues concerning Spring Plains Road which would ultimately be determined by planning permit conditions;
(c)the location of the retarding basin on land south of Ballan Road, and the possible additional costs if a larger retarding basin or diversion works were required by Melbourne Water;
(d)the need for cash in lieu payments in respect of any deficit of passive open space provided on the subject estate; and
(e)the risk that contingencies may exceed the 5% allowance made in the Watsons plan and costings.

While optimising lot yield, the Watsons plan has disadvantages. It provides only a modest passive recreation park. There is no neighbourhood centre, community facility or active open space. Access to these facilities would have to be obtained at other locations. There is no beautification feature or urban square. As Mr Haines said, there is less amenity compared to other estates in the Wyndham Vale and Tarneit area. The subject estate would be at a competitive disadvantage, resulting in lower lot prices against a residential estate offering additional features and amenities.

COMPARABLE SALES ANALYSIS
The valuers

The claimant relied on the evidence of Brian Dudakov of Urbis Valuations Pty Ltd. Mr Dudakov initially valued the residential component of the subject land at $1,200,000/ha, later reducing his valuation to $1,150,000/ha.

The authority relied on the evidence of Nicholas Andrew Haines of Matheson Stephen Valuations. Mr Haines initially reached a valuation of $800,000/ha for the residential component of the subject land and increased it to $900,000/ha after the valuers’ conference.

The authority also relied on the evidence of Marcus Geoffrey Willison of Ernst & Young. Mr Willison initially valued the residential component of the subject land at $825,000/ha, later increasing his valuation to $900,000/ha.

Mr Dudakov prepared his valuation on the basis of the Watsons plan and costings.

Mr Haines and Mr Willison prepared their valuations on the basis of the GHD plans and costings.

The authority’s valuers were requested to reconsider their valuations on the basis of the final Watsons plans and costings. Mr Haines then derived a rate of $972,002/ha using a 17.5% profit and risk allowance, and a rate of $928,605/ha using a 20% profit and risk allowance. Mr Willison adopted a rate of $950,000/ha.

All valuers considered that there was a very strong market for broadacre estates for subdivision around the relevant date. There was strong demand for lots, and lot prices were rising rapidly. This positively affected broadacre sales.

Comparable sales

The comparable sales method involves consideration of the extent to which the comparable sales are proximate in time, location and other circumstances. It may involve an adjustment of broadacre rates derived from comparable sales to allow for the time of sale, locational factors, the size of the land holding, lot prices, development costs and other considerations. Most broadacre sales are on extended terms (often three or five years) and it is necessary to discount the purchase price to a cash equivalent value.

In considering broadacre sales of land fit for residential development, the number of hectares of developable land is determined, and the sales analysed to determine the value to be ascribed to each hectare of developable land.

The principal comparable sales relied on by the valuers were broadacre sales of land for residential subdivision close in location and time to the subject land and the relevant date. There were two broadacre sales in Wyndham Vale close in location to the subject land, and five Tarneit broadacre sales. Tarneit was agreed to be a better area in terms of location and value. Mr Dudakov said that it was a more developed area with a higher price point. The seven sales were:

(a)Lots 1-5, Greens and Black Forest Road, Wyndham Vale – July 2017 (‘Country Garden’);
(b)974 Black Forest Road, Wyndham Vale – October 2016 (‘Stella’);
(c)Lot B, 1245 Sayers Road, Tarneit – February 2017 (‘Lot B’);
(d)New Sky, 1070 Sayers Road, Tarneit – August 2016 (‘Grand Central’);
(e)Growland, 1030 Dohertys Road, Tarneit – March 2017 (‘Marigold’);
(f)Lot A, Sayers Road, Tarneit – November 2015 and February 2017 (‘Lot A’); and
(g)1030 Tarneit Road, Tarneit – December 2015 (‘1020 Tarneit Road’).

The two Wyndham Vale sales are by far the most important in establishing the ‘before’ value of the subject land. I will briefly mention the Tarneit sales which are at a higher price level. I will omit reference to other sales in areas remote from the subject land, and sales of little or no relevance.

Repeat sales for the property at 989 Melton Highway, Plumpton and for properties on Donnybrook Road, Mickleham were analysed as a means of discerning price movements of broadacre properties. However, the analysis proved difficult and problematic due to changes in the circumstances and conditions related to these properties.

Country Garden

This sale was made up of three contracts of sale by Daleston Pty Ltd to Country Garden Mambourin Pty Ltd:

(a)Lots 1 and 2, 104.5ha, purchase price of $122,222,222.22 paid by a deposit of 10% with settlement on 15 February 2018;
(b)Lot 5, 83.93ha, purchase price of $55,555,555.56 paid by a 10% deposit with settlement on 17 February 2020; and
(c)Lots 3 and 4, 174.53ha, purchase price $222,222,222.22 paid by a deposit of $2,222,222.22 with the balance of $200,000,000 due on 15 February 2022.

The settlement dates were deferred:

(a)Lots 1 and 2 – two months;
(b)Lot 5 – two years seven months; and
(c)Lots 3 and 4 – four years seven months.

The contracts were guaranteed by the same company and linked. A default under one contract was a default under all three contracts. Two of the three contracts are yet to be completed. Mr Dudakov calculated that the three sales compared to a cash equivalent sale of $330 million, and understood that there was an underbidder willing to pay a cash equivalent amount of $300 million. Little is known of the conditions of the underbid.

Mr Dudakov initially analysed the cash equivalent rate of the sale at $1.04 million/ha, adjusting the rate to $970,000/ha when he became aware of the GST benefit arising from the sale of the land as a going concern. This amounted to $37,360,000 of a total price of $400 million.

Mr Willison analysed the cash equivalent as $1.04 million to $1.075 million/ha, ultimately adopting $1.04 million/ha as the cash equivalent rate.

Mr Haines treated the contracts separately, analysing the cash equivalent of the first two contracts at $978,000/ha and the cash equivalent of the third contract at $1 million/ha.

Mr Willison observed that a valuer at the relevant date would not have been aware of the Country Garden sale. The claimant submitted that this was not important or relevant. A valuer can take into consideration a sale subsequent to the relevant date, not because the existence of the later sale was known or influenced the market at the relevant date, but because the later sale may assist by inference in understanding the state of the market at the relevant date after taking due account of any changes to the market that may have taken place between the relevant date and the date of the later sale.[16]
[16]See Secretary to the Department of Economic Development, Jobs, Transport and Resources v Avid Property Group Nominees (2017) 53 VR 490, 503–504 [57]–[58] (Osborn and McLeish JJA, Cameron AJA); Brisbane City Council v Mio Art Pty Ltd [2012] 2 Qd R 1 26, [79] (Fraser JA).

The authority referred to the decision of Quigley J in Secretary to the Department of Economic Development, Jobs, Transport and Resources v Caradi Pty Ltd, submitting that it is necessary to exercise caution and care when adopting sales after the relevant date in a comparable sales analysis.[17]
[17][2018] VSC 696, [201]–[206].

Comparison of the subject estate with the Country Garden estate

The valuers held different views as to whether the subject estate was superior or inferior to the Country Garden estate. Mr Dudakov considered that the subject estate was superior and should be valued at a higher broadacre rate per hectare. Mr Willison described the Country Garden estate as a master plan estate. Both Mr Haines and Mr Willison considered that the subject estate was inferior to the Country Garden estate and should be valued accordingly.

I accept that the Country Garden sale is a very relevant comparable broadacre sale as it is:

(a)a broadacre sale of relatively flat land suitable for residential subdivision;
(b)the closest comparable sale in time to the relevant date; and
(c)physically the closest broadacre sale to the subject land and has a Wyndham Vale address.

There are however significant dissimilarities between the Country Garden land and the subject land that must be taken into account. The considerations identified by the valuers do not all point to one conclusion. I now turn to them in more details.

Quarry impact

At the relevant date, the subject land suffered from the presence of the quarry, and the quarry traffic generated along Spring Plains Road, and Ballan Road. As previously noted, quarry operations are permitted over extended hours six days a week. Blasting is permitted over six daylight hours.

The traffic counts obtained by Mr Kiriakidis show almost 1000 vehicles per day passing along Spring Plains Road on a five-day average volume reflecting the quarry working week. Approximately 40% of these vehicles are B-doubles and above, while a similar number are heavy trucks. This equates to a B-double or heavy truck passing along Spring Plains Road on average every minute during the working week. Most of this traffic also passes along the Ballan Road frontage of the subject land.

The Watsons plan of subdivision shows a total of 31 residential lots directly fronting Spring Plains Road (excluding the quarry buffer area). The same plan shows 39 lots fronting Ballan Road. They are separated from through traffic on Ballan Road by a parallel subdivisional road running along the estate.

Mr Dudakov said that quarry traffic along Spring Plains Road and Ballan Road was an element to be taken into account, and adjusted his lot prices for lots along these two roads. He did not consider that the quarry would have a significant bearing on the balance of the subject estate which was well removed from the operating quarry. Overall, he did not consider that the quarry would have a significant deleterious effect.

Mr Willison adopted a rate that reflected the fact that the subject land would be affected by noise and dust for a minimum of 15 years whereas this was not the case for the comparable sales estates.

Mr Haines considered the quarry had two main effects. The first was the loss of amenity due to 1000 trucks a day driving along Spring Plains Road. The second was the 500m quarry buffer for sensitive use. The quarry buffer area had deferred potential for industrial or commercial use rather than residential use. He had not made a particular deduction to the rate per hectare for the existence of the quarry, but it had been an element in determining a rate per hectare for the residential development portion of the subject land.

The authority pointed to blasting as a regular feature of quarry operations, coupled with the continual presence of truck movements along Spring Plains Road to and from the quarry entrance. It submitted that the direct presence of an operating quarry was a distinguishing feature of the subject land when considering broadacre sales evidence. Although Mr Dudakov said that there was a works authority for a quarry 200 to 300m to the north-west of the Country Garden estate, no quarry existed at the relevant date, and the works authority was inactive. Mr Dudakov did not consider that it would have influenced the purchase price of the Country Garden estate.

I agree with the authority’s valuers that the presence of the quarry giving rise to noise, dust, blasting and heavy truck traffic for at least 15 years would be seen by the hypothetical purchaser as a significant disadvantage for which due allowance should be made in determining a broadacre price for the subject land. Quarry impacts have a material negative effect on the reputation, desirability and amenity of the subject estate rendering it significantly less attractive to purchasers than other competitive residential estates.

Adjustment for size

The Country Garden land has an area of 363ha with 307ha of developable land. This compares to the subject land with a developable area of 51.6ha.

Mr Dudakov gave evidence that the rate per hectare for a large broadacre parcel will be lower than for a small parcel. There was a strong market for properties of 40 to 60ha from established developers and Asian buyers. In contrast, only a small portion of the market could afford such a large parcel as the Country Garden land.

Mr Haines referred to the increased risk in buying a large piece of land which will take a longer time to develop. He accepted that the price adjustment in moving from a parcel of 60ha to 180ha would be in the range of 15% to 20%, all other things being equal.

Mr Willison noted that there were some developers who would buy a master plan community site of 150 to 300ha rather than aggregate a pool of properties over a three to five year period. There were a lot more developers active for smaller parcels.

The authority challenged the extent of the discount for size that should be allowed in a strongly positive market. It submitted that the hypothetical purchaser would give less of a discount for size where land values were rising and economies of scale might be available.

The staged settlement agreed for the sale of the Country Garden estate exemplifies the importance of size and time. A developer will have to hold a large parcel of land for a longer period of time. A large parcel has greater holding costs and risk arising from the longer development period.

I accept that the larger size of the Country Garden land would attract a lower rate per hectare than a smaller parcel with the same attributes.

Absence of a permit for subdivision of the subject land

When sold, Stage 1 of the Country Garden estate had been approved and a permit issued for the development of 673 residential allotments and five integrated development sites. At the relevant date, no subdivision permit had been sought or granted for the subject land.

The Country Garden estate had an advantage over the subject estate in terms of time and certainty. While it was very likely that the subject land would attract a permit for residential subdivision, the requirements of the relevant authorities, and the community facilities that would be needed were unknown at the relevant date. This factor would be taken into consideration by a hypothetical purchaser who would make allowance for the time necessary to obtain a permit, and for the risk that onerous or unexpected conditions might be imposed by an authority.

A market sale?

The authority questioned whether the Country Garden sale was a market sale. It was said that the purchaser was the third-largest land developer in mainland China with access to very considerable funds. Mr Dudakov accepted that the purchaser may have been seeking to announce its presence in the market with a splash. However he considered that while the purchaser paid a full price, it did not pay ridiculously over the market.

Mr Haines considered that the Country Garden sale reflected positivity in the market and set a new benchmark. In his view, the market was in a particularly positive phase in the first three quarters of 2017.

Mr Willison did not consider the sale to be reflective of true market conditions.

I accept that the Country Garden sale was a market transaction reflecting the optimism which prevailed in the market around the relevant date. It would be wrong to disregard the sale because the purchaser was a large overseas corporation. The market for broadacre land for subdivision in Victoria includes overseas buyers and corporations. There is no good reason why the Country Garden sale should be excluded from consideration as a comparable sale. Whilst reflecting the peak of the market, the sale is broadly consistent with other broadacre sales and is not exceptional.

Development costs

The Country Garden information memorandum contains a development cost estimate. The cost estimate was provided by Cardno Victoria Pty Ltd (‘Cardno’), project engineers, and shows a development cost of $105,555/lot inclusive of streetscapes, drainage reserves and linear park landscaping.[18] Mr Dudakov pointed to the fact that the development cost per lot for the Country Garden estate was higher than that for the subject estate ($82,696/ha) amounting to a cost benefit of about $365,700/ha.
[18]No engineering evidence was led to prove the cost estimate. The information memorandum stated in a footnote that a more comprehensive set of costings was available in the data room.

Mr Haines said that the Cardno costings allowed for completely different things from the Watsons costings. The Cardno schedule provided for $14 to 15 million worth of landscaping as part of the development cost. No similar cost existed for the subject estate. He did not give the Cardno costings any particular weight as they had to be viewed in the context of a broad marketing plan in the information memorandum.

Mr Willison said that the cost of landscaping, waterways, buffers, linear parks and other major features of the Country Garden estate was $17 million. Comparing a masterplan community to the subject estate was like ‘apples and oranges’.

While a significant proposition of the costs set out in the Cardno schedule are costs incurred for the provision of parks, facilities and linear green reserves, I accept that likely development costs would be taken into account by a purchaser. A hypothetical purchaser of the subject land at the relevant date would find lower development costs attractive, but note that much less was to be provided. The hypothetical purchaser would also bear in mind that there was a risk that the actual development costs might exceed the estimate.[19]
[19]See [83].

Locational considerations

The authority submitted that the Country Garden land was in a superior location to the subject land. It was closer to the Manor Lakes Shopping Centre and the Wyndham Vale railway station and was proximate to other developing estates. These facilities were 3.6 and 3.5km away from the subject land respectively, but less than 2km from the Country Garden estate. The authority submitted that the PSP provided for development on three sides of the Country Garden estate whereas the subject estate would benefit from planned development only on the eastern side. It was on the edge of the UGB adjoining a quarry.

The claimant highlighted that the east-west roads to the Country Garden estate were unmade at the relevant date. Greens Road was unmade beyond the bridge over the regional rail link. Black Forest Road was the southern boundary of the Country Garden estate, and did not exist as a road in any form. By contrast, the subject estate had direct access from Ballan Road, and Spring Plains Road was constructed to the quarry entrance. He said that the subject estate would have ready access to the developing Kilpatrick 1 estate to the east.

Mr Willison disagreed. He considered that the hypothetical developer of the subject estate would not depend on services coming through someone else’s estate. If an adjoining estate was not in the same ownership, the owner would probably lock the competitive estate off. There could be a wait of one to two years for a ‘bolt on’ subdivision. There may be a need to assume an additional impost for out of sequence costs to start construction earlier.

The authority described Ballan Road as an existing single carriageway that carries a heavy load of quarry traffic and becomes congested and circuitous as it winds its way east. It did not become a divided multi-lane arterial or expressway towards the city, but tighter and more congested. It was one of the few options to travel east.

The claimant submitted that the PSP aspired to provide a similar level of amenity in terms of community facilities, parks, road layouts and landscaping to that available within the Country Garden estate. The PSP had a town centre, an employment area, active open space, a government primary school, and a non-government primary to secondary school, a linear park running along a creek line, and a substantial conservation area along the Werribee River.

In the absence of the OMR reservation, and with the subject land forming part of the PSP, the claimant submitted that the PSP would be adjusted to provide comparable facilities within the precinct. He submitted that there was no reason to believe that accessibility to parks, schools or other facilities in the hypothetical precinct would be materially better or worse than set out in the precinct structure plan applying to the Country Garden estate.

The claimant accepted in terms of facilities that the Country Garden estate was closer to the existing schools to the east of Armstrong Road, noting that the information memorandum referred to only one existing school. The Country Garden estate also had the benefit of a small supermarket and five or six shops at the Wyndham Vale Square shopping centre in close proximity.

While a railway station and a commercial centre were planned for future construction on the nearby Stella land, the claimant submitted that this was unlikely to be of any interest to a residential purchaser. There would be healthy scepticism about a railway station that was not on any construction program.

Mr Haines highlighted that the Country Garden estate was in close proximity to the Stella land and the proposed town centre and railway station. The marketing of residential estates made much of what was planned nearby. The fact that facilities did not yet exist did not mean that a purchaser would discount them entirely when looking at an otherwise comparable site without these elements. They would be given weight in the decision making process of a potential purchaser. Although a future rail station might be some years away from fruition, it was the first thing advertised.

Mr Haines said that schools were very popular with purchasers. The Country Garden estate would have four schools along the water feature, in the northern third of the site. It was a key selling point that a lot purchaser was within five minutes of all the infrastructure. By comparison, no school was proposed for the subject estate. The nearest school was a Catholic primary to year 12 school proposed for the centre of the Jubilee estate.

I accept Mr Haines’ evidence that the Country Garden estate is better connected to existing facilities and the station, and has a community facility offering superior to that of the subject estate. Planned facilities confer marketing advantages, promoted lot sales, and strengthened lot prices. They would be given some weight by a prospective lot purchaser.

Estate facilities

The authority drew attention to the active recreational areas, sporting facilities, schools, retail centres, reserves, and wetland to be provided within the east-west spine of the Country Garden estate and adjoining Stella estate. Mr Dudakov accepted that the estate had the benefit of these facilities.

The subject estate would offer only a central park which compared unfavourably with what would be on offer at the Country Garden estate. The subject estate offered a passive open space of only 1ha without active open space, community facilities or shops. There were no waterways, beautification works or attractions.

Mr Haines said that the market was particularly sensitive to variations between the estates. Essentially, for a purchaser buying a standard lot of 400m², the only method of differentiating higher from lower desirability was to have regard to the facilities nearby. The belt of schools and parkland in the northern section of the Country Garden estate set that estate apart from an equivalent subdivision without these facilities and features. Mr Willison described the Country Garden estate as a masterplan community with two road frontages.

As compared with the Watsons plan, the Country Garden Stage 1 plan offers access to substantial active and passive recreational space, waterways, community facilities and attractions, as well as future schools and facilities within a five to ten minute walk. The offering would be more attractive to a lot purchaser than that of the subject estate.

The development front

The claimant submitted that in the absence of the reservation, the subject estate sat next to the Kilpatrick 1 estate, which was under development. There was an expectation that services would be available. By contrast, he submitted that the Country Garden estate and the Stella estate were more removed from existing development at the time of their respective sales, and were not ‘bolt-on projects’. They were separated from development on the east of Armstrong Road by the regional rail corridor and the future station land.

The authority submitted that the Country Garden estate would be supported by a network of arterial and connecting roads in all directions, and was closer and better linked for trips into Werribee or along Princes Highway or the Westgate Freeway. The subject estate was dependent on Ballan Road, a two-lane, two-way road about five km from the Manor Lakes Shopping Centre and the railway station.

At the relevant date, the precinct around the Country Garden estate was developing at a fast pace with major estates under development or about to be developed.[20] Mr Haines said that the development corridor moved by absorbing undeveloped land generally in an outward trajectory. As development progressed, it brought with it services.
[20]Stella - ‘Mambourin’, 974 Black Forest Road, Tarneit; Peet – ‘Cornerstone’, 383 Black Forest Road, Werribee; Lend Lease – ‘Harpley’, Black Forest Road, Werribee; Dennis Family – Lakeside of Manor Lakes, Greens Road, Mambourin.

Lot sales

Mr Dudakov compared lot sales achieved in the Jubilee estate over the period from May to November 2018 with the Stage 1 lot sales within the Country Garden estate. He contended that the lot prices achieved within the Jubilee estate would be reflected in a higher broadacre rate for the subject land.

Mr Haines said that developers deliberately sell their lots at a lower price in the first stages to achieve as many early sales as possible and to assist with the release of finance. After offering discounts in the early stages of estates, developers ramp up lot prices, so that lenders can see a positive move in pricing. Lot prices were initially fairly cheap, and increased as critical mass developed. He considered that the first group of lot sales for a new estate needed to be treated with considerable caution.

At the valuers’ conference, details of residential lot sales between March and July 2017 were available. The average price for sales of residential lots of 375-425m² was $247,478 for the Harpley estate (over 46 sales), $238,444 for the Cornerstone estate (over 18 sales), and $225,667 for the Jubilee estate (over 15 sales). The Jubilee estate lot sales were lower than those for the other two estates. Mr Dudakov described the Harpley estate as a premier estate in the area with a quality development well under way.

The authority submitted that there were dangers in seeking to fix a strong relationship between lot pricing and underlying land values. If lot prices were to be used as a basis for comparison, estates must be compared at a like point in development. It was commercially sensible for developers to accept lower lot prices in the early stages of an estate. Estates are likely to attract higher lot prices as the estate establishes and develops. As the facilities offered within the Country Garden estate are completed, lot prices will rise. Mr Dudakov agreed that when momentum builds up, pricing improves.

I accept the authority’s submission that it has not been demonstrated that lot prices for the subject estate would be higher than those of comparable estates. The reverse is likely to be the case. I accept that the Jubilee estate and the Kilpatrick 1 estate are the best and most comparable estates for the purpose of determining lot prices for the subject estate.

Adjustment for timing

The relevant date is 5 June 2017. The information memorandum for the Country Garden estate noted a closing date of 14 June 2017 for tenders. The Country Garden sale took place on 5 July 2017. This is a month later than the relevant date on a rising market. Mr Haines considered that broadacre values were rising approximately 1.7% per month at that time and that the market was in a ‘particularly positive phase’ through the first three quarters of 2017.

A small adjustment in broadacre values should be made because of the difference in dates.

Conclusion

The valuers analysed the cash equivalent rate of the broadacre price of the Country Garden estate at around $1.04 million/ha and if the GST benefit to the vendor is taken into account, at $970,000/ha.

The factors pointing towards a lower rate per hectare for the subject land compared to the Country Garden estate are:

(a)the quarry impact;
(b)the lesser facilities to be offered in the subject estate;
(c)the better location of the Country Garden estate to the future railway station and community facilities; and
(d)the absence of a permit for residential subdivision for the subject estate.

The factors pointing towards a higher rate per hectare for the subject land compared to the Country Garden land are:

(a)the need to adjust the Country Garden broadacre value for size; and
(b)the lower development cost per lot of the subject estate.

After extensive evidence as to the attributes of the two properties, I find that the subject estate should attract a lower broadacre price per hectare than the Country Garden estate. I accept the authority’s valuers’ evidence to this effect.

I reject Mr Dudakov’s evidence that the subject estate would attract a higher value of $1,150,000/ha. The most significant negative factor is the quarry traffic and impact. I am satisfied that the Country Garden estate was superior to the subject estate at the relevant date and would command a higher broadacre price per hectare, although not much higher.

Taking all things into consideration, I consider the Country Gardens sale is consistent with a value of $950,000/ha for the residential component of the subject land.

Stella

The Stella property is an irregularly shaped parcel of land of about 109.64ha, with approximately 75ha suitable for residential subdivision. The property is included within the Black Forest North Precinct Structure Plan, and is within the UGZ. It adjoins the Country Garden estate, and is intended for subdivision into 1,250 residential lots.

The scheme of development for the Stella land also includes a 8.3ha town centre of mainly commercial and high density uses, 25,000m² of retail space and 15ha of commercial, employment and mixed use space. The shopping centre portion includes a supermarket and 20 or 30 specialty shops, and will be built when the population demands it. The town centre is identified as the location of a future railway station, a community centre, a private school, parklands and a reserve.

Mr Dudakov observed that railway stations in Victoria were earmarked for development many years before they were actually built. Without access to a railway station, commercial or high-density residential development was unviable. A railway station within walking distance was a selling factor for standard residential development, but the advantage was diminished if the railway station was to be built ten years in the future. Mr Dudakov considered that when adjusted for time, the Stella estate would be valued at upwards of $1.1 million/ha at the relevant date.

After allowance was made for other uses and facilities, Mr Haines calculated a net developable area of the Stella estate of 83.24ha. He derived a value of $893,438/ha for the net developable land for residential subdivision.

Mr Haines undertook an analysis of the western corridor market for broadacre parcels over the period of 12 months from May 2016, calculating that the market was moving at about 1.7% per month (not compounding). Over the same period, lot prices in the Wyndham Vale area were moving at about 3% per month (also not compounding). Application of this rate of increase to the derived value of $893,438/ha would result in a value for the Stella estate of $1.015 million/ha at the relevant date. Mr Haines deducted 20% from this value to obtain his first broadacre value for the subject land.

Mr Haines assumed that the commercial land in the Stella estate would be developed within five years. He apportioned the sale price between the residential land and the commercial land on this assumption. The Black Forest Road North Precinct Structure Plan shows the commercial land as developing in a staged way in the medium to long term.

Mr Haines observed that the fact that commercial facilities and the railway station were not present and would not be provided in the Stella estate within a short time frame did not mean that a purchaser would discount their existence entirely. It was for this reason that these features were at the forefront of the marketing for the Stella estate.

Ultimately, Mr Haines revised his valuation of the subject land to $900,000/ha. This approximated a 10% discount from the $1.015 million/ha rate calculated for the Stella land adjusted to the relevant date.

Conclusion

Analysis of the Stella sale is complicated by the need to adjust for time in the strongly rising market which prevailed after October 2016 and by the need to determine and deduct the value of the commercial land from the sale price. Apart from the need to adjust for size, the comparative advantages and disadvantages that apply to the Country Garden sale largely apply to this sale.

Given the quarry impact and the other factors I have mentioned, the subject estate would attract a lower broadacre rate per hectare than the residential component of the Stella land at the relevant date. Despite the difficulties in analysis of this sale, the adjusted rate of $1.015 million/ha determined by Mr Haines supports the adoption of a rate of $950,000/ha for the subject land.

Lot B

Lot B is the first of the Tarneit sales. It was purchased by Central Equity in February 2017, and has a net developable area of 77.09ha. It adjoined land previously purchased by Central Equity.

Mr Haines determined a broadacre sale price of $1.02 million/ha while Mr Dudakov derived a sale price of $975,000/ha. The sale took place about four months before the relevant date. Mr Dudakov considered that the land would not be developable for five years, and was a long way from development when it was purchased. Mr Haines agreed that the lead-in time for Lot B was longer than for the subject estate.

Mr Haines described Lot B as a mostly regular shaped allotment located to the south of Sayers Road and east of Sewells Road, containing only a small portion of non-developable land with vegetation clearing obligations of $44,000/ha attached.

The sale of Lot B attracted a higher level of value consistent with a Tarneit sale despite the long lead-in time for development.

Grand Central

Grand Central is a rectangular property of 63.56ha located on the northern side of Sayers Road, Tarneit. The property sold in February 2017 with the benefit of a permit for subdivision into about 800 residential lots. The valuers advised that the sale price was $55 or $56 million.

Mr Haines calculated a rate of $995,538/ha for developable land. Mr Dudakov calculated a rate of $1.1 million/ha for developable land. Given the increase in lot prices after August 2016, Mr Dudakov considered this estate would attract about $1.5 million/ha at the relevant date. Again, the sale of Grand Central attracted a higher level of value consistent with a Tarneit sale.

Marigold

Marigold sold in March 2017 for a broadacre sales price of $1.43 million/ha or $1.47 million/ha as calculated by Mr Haines and Mr Dudakov respectively. Mr Willison derived a figure of $1,500,000/ha. It had a gross area of 61.73ha, with a net developable area of about 48ha for residential subdivision.

Mr Dudakov considered Marigold as a little removed from the development front with a longer lead-in time than the subject estate, but with lower development costs by about $10,000 a lot.

Mr Haines described the property as a regularly shaped allotment located to the east of Tarneit Road and to the north of Dohertys Road affected by a power line easement in the north-west corner of the site.

Mr Willison said that the land was superior to the subject land, attracting higher lot pricing of $292,850 per lot and lower development costs of $71,481 per lot.

This sale was three months before the relevant date on a rising market. It is hard to draw conclusions from this sale relevant to Wyndham Vale due to the location of Marigold in Tarneit to the north of the railway station. Notably, properties in Tarneit to the south of the railway station are considered to be more valuable.

Lot A

Lot A was bought by Central Equity as land for residential subdivision in a rising market. The property has a gross area of 183ha, and a net developable area of 174ha. The property is located in Tarneit and is east of the Werribee River. When analysed, the sale showed a broadacre value of $975,000/ha for developable land.

Mr Dudakov did not consider that the sale of Lot A was relevant because it took place at a time when lot prices were significantly lower.

I agree that it is difficult to draw relevant conclusions from this sale having regard to its date and location in Tarneit.

1030 Tarneit Road

1030 Tarneit Road was sold in December 2015 as a going concern estate of 121.44ha in total area. Mr Dudakov analysed the rate at $750,000/ha. Given the increase in lot prices, Mr Dudakov considered that this land would be worth $1.3 to $1.4 million/ha by the relevant date. While development costs would increase, they would not increase at the same rate as lot prices.

The other valuers did not analyse this sale which is at a much earlier date, and is a Tarneit sale. For these reasons, I agree that it is difficult to draw useful conclusions from this sale.

Conclusion

In determining a ‘before’ value and after considering the circumstances of the subject land in comparison to the comparable properties, I accept the evidence of the authorities’ valuers. I adopt a rate of $950,000/ha for the agreed 51.6ha of developable land within the residential land component of the subject land. This was Mr Willison’s revised figure after considering the Watsons plan, which I accept. To this is added the agreed quarry buffer area land value of $3,364,000, giving a total ‘before’ value of $52,384,000 for the subject land.

TURNER ANALYSIS
Methodology

I now turn to the Turner analysis as the check method. Each of the valuers undertook a Turner analysis of the subject land on the basis of the Watsons plan and costings.[21]
[21]See Turner v Minister for Public Instruction (1956) 95 CLR 245.

The first step is to determine the inputs to be used for the analysis. Desirably, this is undertaken on the basis of market information. If no market information is available as to a particular input, it is necessary for the valuers to make individual estimates. The frequent need for individual estimates, the sensitivity of some inputs, the significant margin for error as to inputs, and the substantial number of inputs required inevitably leave the methodology open to criticism for unreliability and subjectivity. These concerns have led to judicial criticism and concern as to the utility of the methodology.[22]
[22]See Waalt Homes Pty Ltd v Road Construction Authority (1987) 64 LGRA 346, 354 (Gobbo J); Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322, 326 (Cripps J); 15 Lorimer Street Pty Ltd v Secretary of the Department of Infrastructure (1997) 97 LGERA 239, 252 (Byrne J); Coastal Estates Pty Ltd v Bass Shire Council (1993) 79 LGERA 188, 196–7 (Gobbo J); Murdesk Investments Pty Ltd v Roads Corporation [2006] VSC 363, [187]–[190] (Osborn J).

Main inputs

The main inputs required to undertake the Turner analysis are:

(a)lot prices;
(b)lead-in time;
(c)the length of stages;
(d)the lot sell-down rate;
(d)purchase and holding costs;
(e)development costs;
(f)the rate of interest; and
(g)the profit and risk margin.

Lot prices

The lot prices to be used were a major source of difference between the valuers.

The claimant submitted that the appropriate average lot price to adopt must be the price that was being reflected in the market at the relevant date, and that there was no better example than the Jubilee estate. Air photographs of the Jubilee estate showed that it was developing rapidly over the period from February to October 2017.

The valuers agreed that the Jubilee estate and the Kilpatrick 1 estate were the most comparable estates for lot pricing. I accept that these estates are the nearest and easily the most comparable estates from which to derive average lot prices. These estates provide ample lot sales information to inform the valuation of the subject estate.

Valuers’ assessments

The valuers analysed information as to the sales of residential lots of 375-425m² between March and July 2017. Lot prices at the Jubilee estate averaged $225,667/lot with 15 lots sold of an average size of 396.20m².

Mr Dudakov adopted an average lot price of $240,000 for a 400m² lot. He then adjusted for traffic impacts on Ballan Road and Spring Plains Road by discounting the price of lots facing either road by 5%. He also adjusted for corner blocks and lots affected by amenity impacts. He increased lot prices by 10% where the lots faced the proposed park.

Mr Willison initially adopted an average lot price of $225,000/lot, as he had when he previously valued the Kilpatrick 1 land. However, he increased his average lot price to $235,000/lot to allow for the higher average lot size in the Watsons plan. He considered that the discount in lot price to be applied for the volume of big trucks going along Spring Plains Road should be materially high.

Mr Haines started with a lot price of $230,000 for a 385m² lot. He then discounted the value of lots in the stages impacted by Ballan Road or by quarry proximity. Ultimately, he discounted more than half the lots in the subject estate. When asked to consider the Watsons plan, Mr Haines adjusted his lot price having regard to the increased density and resulting reduction in amenity. He commented that a subdivision was not a magic pudding where you can add additional lots without adjustment to price.

The subject estate

While the Jubilee estate and the Kilpatrick 1 estate give the best guide to the valuers in determining the likely lot prices under the Watsons plan, the Jubilee estate is plainly superior to the subject estate at the relevant date in important respects:

(a)the Jubilee estate was at an advanced stage by the period from March to July 2017;
(b)the Jubilee estate made provision for 1.57ha of active open space and 3.27ha of passive active space. By comparison, the subject estate offered public open space of only 1.01ha;
(c)the Jubilee estate had a wetland/retarding basin of 3.00ha. The subject estate did not have a feature of this type;
(d)the Jubilee estate provided for a school site of 3.225ha and a local convenience centre of 1.79ha. The subject estate did not provide for either facility;
(e)relatively few residential lots of the Jubilee estate faced Ballan Road, and those that did were set back from Ballan Road by a tree reserve;
(f)the Jubilee estate was affected by quarry traffic along Ballan Road, but not to the same extent as the subject estate which was heavily affected along both Spring Plains Road and Ballan Road;
(g)the Jubilee estate did not have a quarry buffer area and was not affected by blasting, crushing, dust or other quarry impacts; and
(h)the Jubilee estate was closer to Manor Lakes and other facilities and to the built up area of Werribee.

In view of these factors, the average lot prices achieved for the Jubilee estate for lots of similar size would be higher than the lot prices that could have been achieved under the Watsons plan for the subject estate on the relevant date.

As a result, I will adopt a lower average lot price for the subject estate than the average lot price achieved for lots of similar size on the Jubilee estate over the period from March to July 2017.

The lot sales evidence

Analysis by the valuers of the 15 lot sales in the Jubilee estate for lots of 375-425m² between March and July 2017 shows an average lot price of $225,667/lot. The sales evidence shows a discernible difference between the average lot prices for the 11 sales achieved before the relevant date (which were mainly Stage 1 sales) of $220,272/lot and the four sales after this date which averaged $240,500/lot (which were Stage 2 sales). Mr Dudakov adopted the higher value in his analysis.

During the period March to July 2017, there were also three sales of lots of 375-400m² within the Kilpatrick 1 estate. This estate is nearer to, and adjoins the subject estate. They achieved a very significantly lower average lot price of $204,000. There was a dearth of evidence as to why the lot sale prices achieved within the Kilpatrick 1 estate around the relevant date were so much lower than for the Jubilee estate, or whether the subject estate was more comparable to the Kilpatrick 1 estate than the Jubilee estate.

In my view, it is appropriate to adopt an average lot sale price for the subject estate of $220,272/lot. This is the average of the lot sales of 375-425m² lots in the Jubilee estate for the three months before and up to the relevant date, and much higher than the lot prices actually achieved in the Kilpatrick 1 estate over the same period. While it could be argued that this price makes insufficient allowance for the superiority of the Jubilee estate over the subject estate, it is materially less than the lot prices achieved for Stage 2 of the Jubilee estate after the relevant date.

While some lots within the subject estate will attract higher prices than the average lot price, and others lower prices (particularly lots near to the quarry and lots affected by quarry traffic), adoption of an overall average figure for lot prices best matches the subject estate with the lot sales information available from the Jubilee estate. An average lot price approach avoids subjectivity in adjusting lot prices upwards or downwards to allow for particular lot features, particularly given the absence of market information to support the magnitude of any one adjustment.

The lot sales information supports a lot price of $220,272/lot for the subject estate, having regard to the general superiority of the Jubilee estate over the subject estate at the relevant date. I reject the $240,000 lot sale price adopted by Mr Dudakov as too high.

Lead-in time

Mr Dudakov initially adopted a three month lead-in time, based on the assumption that a planning permit for the subject land was available at the relevant date. This was not the case. At the relevant date, subdivisional plans for the subject estate were yet to be prepared by the claimant or considered by the relevant authorities. Upon becoming aware of the need for a subdivisional permit, Mr Dudakov allowed a six month lead-in time.

The authority challenged the allowance for the lead-in time made by Mr Dudakov, contending that most subdividers needed 12 to 18 months. It would have been necessary to bring services across the developing Kilpatrick 1 estate, which is assumed to be in different ownership, and a competitor to the subject estate.

Mr Haines adopted a 12 month period for the commencement of construction, while Mr Willison allowed for the commencement of construction after eight months.

I accept Mr Haines’ evidence that a period of 12 months from the relevant date is a reasonable and realistic time frame for the commencement of construction. Work on a plan of subdivision for the subject estate was yet to commence. To progress to construction, the Council as responsible authority would need to grant a permit for the subdivision after consultation with referral authorities. All necessary consents would need to be obtained. Detailed construction drawings would have to be prepared. The project would need to go to tender for the subdivisional works to be performed, funding arranged and difficulties about the availability of contractors overcome. At the relevant date, there was great demand for subdivisional contractors. Commencement of construction no longer than one year after the relevant date would have been a significant achievement, given the buoyant market and demand by existing estates for personnel and equipment.

Sell-down rates

Each valuer considered the likely sell-down rate for the subject estate. Mr Dudakov considered that the hypothetical purchaser would proceed on the basis of upwards of 50 pre-sales and that those funds would be available to the purchaser within one month of completion of construction. As the first stage of the Watsons plan has only 52 lots, this effectively amounted to the sale of the whole of Stage 1 by pre-sales.

Mr Haines initially accepted a sell-down rate of 10 lots per month with a total timespan of 93 months. Later he modified his view, adopting a sell-down rate of 15 lots per month throughout the life of the project. He allowed four to five months per stage in construction timing, depending on the number of lots in each stage. Mr Willison adopted 15 sales per month.

The valuers disagreed as to whether allowance should be made for pre-sales. Mr Dudakov agreed that the Watsons plan did not provide for a display village on the subject land. He responded that display villages were becoming less common. Mr Willison disagreed, producing a map of 15 different residential estates in the western growth corridor which had or had planned display villages. They included the Jubilee estate.

I accept Mr Willison’s evidence and find that a hypothetical purchaser of the subject estate would wish to provide a display village on the Ballan Road frontage. While promoting lot sales, a display village would impact on project cash flow. In order to build a display village, a developer must enter into agreements with home construction companies that provide for a deferred settlement of funds on the underlying lot sales. Mr Dudakov agreed that it was commonplace for subdividers to give favourable terms to a builder on a contract so that funds were only received when the home and lots were sold to a purchaser.

I accept Mr Willison’s evidence and that of Mr Haines. In the circumstances, it is appropriate to adopt a sales rate of 15 lots per month, and not assume pre-sales given the underlying cash flow impact. I accept Mr Willison’s evidence, and will adopt a sell-down rate of 15 lots per month.

Purchase and holding costs

There was very little said by the valuers about purchase and holding costs. I will adopt a figure of 5.5% for stamp duty, 2.2% for legal expenses on land purchased and 8.04% for rates and taxes calculated on project related site value as did Mr Haines.

Development costs

Watsons determined the total development costs as $70,704,746 nett of GST for a total net developable area of 51.04ha. In his Turner analysis, Mr Haines adopted the slightly higher cost of $79,084,221 (inclusive of GST) for the development costs of the final version of the Watsons plan. Ultimately, the difference between the two development cost estimates is of little consequence.

Rate of interest

Mr Dudakov used a 6% interest rate while Mr Willison and Mr Haines used a 6.5% interest rate. Mr Haines said that the interest holding cost was 5% without allowance for risk. There is a paucity of evidence on interest rates.

I adopt a 6.5% interest rate reflecting a lender’s assessment of risk for the subject estate as a more dense estate located on the fringe of residential development offering only a park by way of amenities and situated next to a quarry.

Profit and risk margin

Mr Dudakov adopted a profit and risk margin of 20%, and Mr Willison moved from a profit and risk margin of 20% to 22.41%.

Mr Haines initially accepted a profit and risk margin of 17.5%. Later upon reflection, he adopted a profit and risk margin of 20%. Mr Haines considered that the Watsons plan had significant development density, less amenity, and faced the risk of competing estates which were more desirable.

I will adopt a 20% profit and risk margin as better reflecting the nature of the project and the inherent risks associated with it.

Sale of the quarry buffer land

The Watsons plan of subdivision and costings extends to the quarry buffer land which is shown as Stage 18, the last stage of the residential subdivision. In reality, this could not occur until the quarry had closed. As the quarry has an indeterminate life exceeding 15 years, Stage 18 of the residential subdivision could not be achieved for a long time.

It is preferable to treat the quarry buffer land as a single lot available for sale and development for employment generating uses. The valuers have agreed its value to be $3,364,000 at the relevant date. Mr Haines assumed that the quarry buffer area was sold to assist the cash flow of the project.

Turner analysis

Each of the valuers prepared a Turner analysis on the basis of the opinions held as to the quantum of the inputs necessary to undertake the analysis. The analyses undertaken by Mr Haines are based on lot sale prices closer to the lot price of $220,272/lot which I have adopted.

Although based on a developable land area of 51.04ha rather than the area of 51.6ha ultimately agreed, Mr Haines completed a Turner analysis using an average lot realisation price of $218,154.34. He proceeded on the basis of a 17 stage project with 855 lots with an average lot size of 405m², and a density of 16.75 lots/ha. He allowed for the commencement of construction in month 12 of the project with a sell-down rate of 15 lots/month.

On this basis, Mr Haines calculated a project related site value of $50,840,000 and an internal rate of return of 14.47%. After deducting the quarry buffer, Mr Haines determined a broadacre value for the residential land component of $928,605/ha.

Mr Haines’ analysis was in substance:

Gross Realisation
855 Lots at an average lot realisation price per lot of $218,154.34 $186,521,961
Buffer Land Lot: 9.84 ha @ $500,000/ha $4,920,000
$191,441,961

Less Selling Costs (net realisation) incl GST
Sale Commissions @ 1.5%, Marketing and Legals $7,262,275
GST $12,782,178 $20,044,453

Net Realisation $171,397,508

Development Costs
20.0% Entrepreneurial Profit and Risk   $28,672,949
Funds available for Development  $142,724,559
Less Development Costs
Construction costs inclusive of GST as supplied                 $79,084,221 $63,640,338
Purchase and Holding Costs
Stamp Duty   $2,796,090
Legals on Land Purchase  $111,844
Rates and Taxes   $4,085,469     $6,993,403
$56,646,935

Less Funding Costs
6.5% p.a. assuming 100% debt funding $13,668,780

GST Reclaimed (Add Back) $7,859,849

Indicated Project Related Site Value   $50,838,004
__________________________________________________________________________________
Adopt               $50,840,000
Resultant Internal Rate of Return (IRR)  14.47%
$/Ha (Gross) across 60.88 Hectares                 $835,085

Deducting raw ‘inglobo’ value of Buffer Land at $3,444,000
(9.84ha @ $350,000/ha): $47,396,000
$/ha of Residential Land Component (51.04 Ha) $928,605

Mr Haines also undertook a similar analysis using the same inputs but allowing a 17.5% profit and risk margin. This produced a residential land component value of $972,002/ha, which is $43,397/ha greater than that determined using a 20% profit and risk margin. Essentially, a 2.5% reduction in the profit and risk margin resulted in a 4.67% increase in residential land component value, again illustrating the variability inherent in the Turner analysis.

The Turner analysis is highly susceptible to variations in lot sale prices. Mr Dudakov estimated that a 10% increase in lot prices would flow through to a 20% increase in the rate per hectare for broadacre sales. Mr Haines considered that a 10% increase in lot prices tended to give a 16%-17% increase in broadacre values, although it could be 20%.

On the basis of Mr Dudakov’s evidence, an increase in lot prices from the average of $218,154.34/lot applied by Mr Haines in his Turner analysis to $220,272 ($2,117.66)/lot or a 0.97% increase in lot prices would result in a 1.94% increase in broadacre sale value or a total of $18,015/ha. This would lift Mr Haines’ residential component land value from $928,605 to $946,620/ha, assuming a 20% profit and risk margin.

While some minor adjustments might be made to Mr Haines’ analysis,[23] the Turner analyses that he has undertaken show broad support for the rate of $950,000/ha for the residential component land of the subject estate. The result of the Turner analysis as a check method is in general agreement with the rate per hectare obtained from the comparable sales analysis.
[23]The land areas ultimately agreed were 51.6ha of developable land and 9.28ha for the quarry buffer land.

Conclusion

I determine $950,000/ha as the ‘before’ value of the residential land component of the subject land at the relevant date.

The claimant’s financial loss compensation under s 98 of the PE Act is calculated:

(a)‘Before’ value
(1)Value of the residential land component of the subject land (51.6ha @ $950,000/ha) $49,020,000
(2)Value of the quarry buffer area (9.28ha @ $362,500/ha) (agreed)
$3,364,000
$52,384,000

(b)Less ‘After’ value of the subject land (agreed) $3,540,000
$48,844,000

(c)Plus expenses (agreed) $104,716
$48,948,716

I will hear the parties as to the final orders to be made, and as to interest and costs.

[2020] VSC 53

21 February 2020