McNaught v Chief Executive, Department of Natural Resources
[1998] QLC 62
•29 May 1998
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BRISBANE
29 May 1998
Re: Appeal against Annual Valuation -
Valuation of Land Act 1944 -
Valuation Roll No: 12842/82000
Local Government: GCCC-Gold Coast
(AV97-240).
Donald R and Elizabeth J McNaught
v.
Chief Executive, Department of Natural Resources(Hearing at Coolangatta)
D E C I S I O N
Background:
This matter relates to a parcel of land at 7 Saywell Street, Sorrento, Gold Coast, and described as Lot 366 on RP 132851, Parish of Nerang. The land is situated approximately 2.1 kms from the Benowa Gardens Shopping Centre and 2.3 kms from the Benowa State High School. The subject is about 1.8 kms from the Pindara Hospital, and is seen as having a good central location. The land has an area of 941 square metres, and has good access to Saywell Street, which is a formed dual-laned bitumen-sealed road with concrete kerbing and channelling. The land has direct access to the Nerang River, and via that to the Broadwater and open ocean. Town water, sewerage, underground power and telephone services are available. The land is zoned as "Residential - Dwelling House" under the City of Gold Coast Planning Scheme of 11 February 1994, and current at the date of valuation of 1 October 1996. The key issues are changes in the valuation, the disabilities of the land, and the comparison of sales.
The land is irregularly shaped with a canal frontage of 10.68 metres, and is slightly above road level, falling gently towards the river to the north-west. The land is seen as flood-free is normal circumstances by the respondent, a matter contested by the appellants. It was developed as part of a canal development with approximately 2.5 metres of filling behind a concrete revetment wall. Generally the surrounding area is level.
The Chief Executive, Department of Natural Resources, issued a valuation at $185,000 on 10 March 1997. Following an objection the Chief Executive confirmed that figure on 4 August 1997. The appellants have now appealed that figure claiming the value should more properly be $155,000. At the hearing the appellants sought leave to amend their estimate of the valuation to $145,000.
Mr D McNaught appeared and gave evidence for the appellants. Mr G Albion appeared for the respondent, calling evidence from Mr DT Treston, the Departmental Registered Valuer responsible for determining the valuation.
The Evidence:
The appellants argue that sales of comparable properties in the area do not support the significant increase that has occurred in the valuation. They argue that the unimproved value of the subject has increased as follows:
1992 $128,000
1996 $167,500 (increase 30.8%)
1997 $185,000 (increase 10.4%)
They compared this to results of Real Estate Institute of Queensland (REIQ) research for the Sorrento area which demonstrates that for the period 1992 to 1996, the values of improved properties had declined by 14%. They argue that this general trend of a decline in the value of improved properties was also supported by the opinion of three independent real estate agents in the area, and by press statements which show the Sorrento area as the worst performing suburb on the Gold Coast.
The appellants also argue that a decline in the market was supported by sales of a parcel at 46 Blair Athol Crescent, Sorrento, which was initially sold for $240,000, later resold on 4 December 1991, for $160,000, and could only attract an offer of $138,000 when advertised for sale in 1996. The appellants argue that, while Blair Athol Crescent and Saywell Street are comparable areas, the former is seen by the local real estate industry as the more desirable address.
Mr McNaught also sought support from a comparison of movements in the unimproved values of another property of his company (Coastcam Pty Ltd) at 69 Gibraltar Drive, Isle of Capri. The unimproved value of that property had in fact remained steady over the last two years, which he claims truly reflects the lack of any movement in the market. Mr Treston contends that, because of the lack of sales evidence at the date of valuation, the Isle of Capri was treated as a separate sub-market area. Subsequently, the Isle of Capri has shown an increase in values.
To further support their argument the appellants note that they purchased the subject as a developed site in March 1991 for $315,000. Subsequent appraisals by real estate agents have estimated the likely market asking price at:
September 1995 - $320,000
January 1996 - $330,000
February 1996 - $330,000
They also advise that they had undertaken further improvements to the subject in October-November 1995 at an additional cost of $25,000.
In seeking to arrive at the value of improvements to the land, they have estimated as follows:
Dwelling (at $385 per m2) = $136,500
Inground swimming pool = $ 10,000
Other improvements,fencing etc. = $ 28,500
Total Improvements = $175,000
Unimproved value of land $155,000
Following a further review of surrounding sales, the appellants now believe the land has a value most likely in the range of $135,000 to $155,000, and have adopted a conservative figure of $145,000. In support of their estimate of the value they supplied the following sales:
•Sale 1 - (5 Saywell Street - Lot 367 on RP 132851)
This is the adjoining lot to the east which has an area of 966 square metres and sold in 1992 for $310,000, and resold in June 1994 for $320,000.
•Sale 2 - (11 Saywell Street - Lot 364 on RP 132851)
This is two lots removed to the west and has an area of 764 square metres. It sold in September 1988 for $285,000, and resold in March 1996, for $306,000.
•Sale 3 - (16 Saywell Street - Lot 7 on RP 123037)
This is an 830 square metre parcel opposite the subject, which sold in August 1995 for $555,000, and resold in March 1997, for $525,000.
•Sale 4 - (32 Saywell Street - Lot 15 on RP 123037)
This is a 779 square metre parcel to the west of the subject and on the south side of Saywell Street. It sold in March 1994 for $278,000, and following major renovations was resold in March 1997 for $320,000.
•Sale 5 - (17 Marseille Court - Lots 2 and 3 on RP 201081)
This is an 8051 square metre vacant land property located on the Nerang River at the southern end of Sorrento. The sale sold in November 1995 for $340,000. The land has subsequently been subdivided into eight new parcels and resold for $2.1 million.
In further support of their estimate, Mr McNaught notes that the canal estates in the Sorrento area have been noted as being potentially susceptible to possible flooding as a consequence of increased runoff during flood rains because of increased development in the catchment. He provided evidence that, while the subject land only had waters entering its south-east corner during the 1974 flood, the water also entered Saywell Street to the east of the subject. If, as predicted, there was a further build-up of flood waters, then the subject could be inundated. Council records were noted to include flood modelling based upon historical data, and were seen as an information guide only, and showed that more severe floods could result in even higher flooding than the predicted levels.
Mr McNaught is aware that the Council has prepared a flood plan to restrict further development in the flood plain, but claims that such plan will have little impact upon future flooding in the Sorrento area, other than help to alleviate further worsening of the problem. That conclusion would appear to be substantiated by the apparent requirement of Council for any new housing slabs to be constructed to at least 150mm above the 1 in 100 year flood level.
Based upon Gold Coast City Council (the Council) nominated flood level near the subject of 3.79 metres on Australian Height Datum (AHD), Mr McNaught estimates that the level of the kerbing outside the subject is at 3.5 metres (AHD), and any possible flood which exceeded the 1974 level, as anticipated, could inundate the concrete slab floor of the existing dwelling by "several centimetres". Because of that possibility he has sought insurance cover for the building and contents, and his insurers have advised that they see the Sorrento area as a flood risk.
Finally Mr McNaught argues that, because of the tapering side boundaries of the subject, the quayline to the canal is restricted in respect of the capacity to moor vessels. While title frontage to the canal is approximately 10.5 metres, Mr McNaught argues that the "mean tide" mooring distance is reduced to only 9.5 metres. This is a disadvantage to canal frontage properties, and while he has a pontoon, because of the nearness of the adjoining pontoon offshore from Lot 367, there is considerable restrictions upon boat handling arrangements. By comparison to other Sorrento canal fronting parcels, the subject has a disadvantage in respect of its limited "quayline".
Mr Treston argues that the unimproved value is supported by the following sales of vacant lands, all zoned as Residential Dwelling Houses:•Sale 6 - (92 Edinburgh Road, Benowa - Lot 88 on RP 217025)
This property has an area of 1,126 square metres and is located approximately 1.9 kms from the Benowa Gardens Shopping Centre and 2.1 kms from the Benowa State High School. It has superior location and shape than the subject, and is larger in area. It has similar services and access, but suffers from a 2.5 metre wide drainage easement of area 118 square metres along the eastern boundary. The sale has a slightly restricted north-easterly access to the canal waters, and is seen as flood free. Overall the sale is considered superior. The sale is seen as having a slightly inferior water aspect, due mainly to the shape of the sale.
The sale sold in September 1995 for $250,000, which after allowing for improvements was analysed at $227,850, and applied at $227,500.
•Sale 7 - (47 Cabana Boulevard, Benowa - Lot 97 on RP 177720).
This sale has an area of 902 square metres and is located approximately 1.3 kms from the Benowa Gardens Shopping Centre and 1.5 kms from the Benowa State High School. The sale is flood free and fronts Lake Capabella and is part of a lake development. The sale has similar land access and facilities to the subject, but has an inferior north-easterly access to water because of the landlocked nature of the lake. Overall the sale is inferior to the subject.
The sale sold in September 1996 for $186,000, which after allowing for improvements was analysed at $166,500, and applied at $157,500. The sale had previously sold in December 1994 for $170,000.
• Sale 8 - (Tosti Street, Sorrento - Lot 309 on RP 132851)
This sale has an area of 989 square metres and is located approximately 2.2 kms from the Benowa Gardens Shopping Centre and 2.4 kms from the Benowa State High School. The sale has good road access and similar services to the subject, and has direct westerly access to a canal and thence the Nerang River. The sale is flood free, but has a drainage easement along its northern boundary covering an area of 75.9 square metres.
The sale involved a dwelling which had been purchased in March 1996 for $250,000, and resold in May 1997 for $290,000. The dwelling was subsequently partially demolished at a cost of $5,000 to make way for a new two storey dwelling. The sale is seen as overall superior to the subject.
The resale sold to a local resident in May 1997 for $290,000, which after allowing for the partial demolition costs of $5,000, was adopted at $295,000. After allowing for improvements the sale was analysed at $245,800, and applied at $200,000. Mr Treston argues that the increase from $250,000 to $290,000 from March 1996 to May 1997 demonstrates the rising nature of the market in that area.
In summarising his argument Mr McNaught sought comparison in respect of the weighting applied for the aspect to water, and the effect of quayline for boat moorings, between the subject, and the adjoining properties. Mr Treston confirmed that the former relativities between those parcels, determined previously as a result of additional sales information had considered the varying waterfront factors, and that relativity had not been disturbed by the current valuation.
Decision:
Changes in the valuation -
I turn first to the changes in the valuation which, in the appellants' opinion, do not reflect the overall trend of the market for sales of improved properties in the Sorrento area. I note that the REIQ research indicates a declining trend in improved values of sales over the period in question. I note also the appellants' claim that the lack of any change in the unimproved value of 69 Gibraltar Drive would tend to support any lack of rise in the unimproved value of the subject.
While I am aware that such apparent inconsistencies would be of concern to the appellants, they do not in fact demonstrate conclusively that an error has been made in the valuation process. Such rises may, at best, be an indicator to the owners that they should investigate the valuation further, but there may be other reasons why a valuation may appear to rise out of line with the overall statistical percentages.
This matter has been considered many times by the courts, and I note from precedents that a large increase in itself has been taken to not demonstrate some error in the valuation. I note, for example, in the decision of the Land Appeal Court in NR and PG Tow v. The Valuer-General (1978) 5 QLCR 378 at page 381:"It follows that a large increase over and above the previous valuation is in itself not a relevant issue provided bona fide sales of comparable parcels support the new valuation. "
That matter was also considered in CH and BD Henricks v. The Valuer-General (1983) 9 QLCR 59 wherein the Full Court of Queensland, Macrossan J (CJ) said at p.63:
"The appellants also relied upon a schedule, exhibit 4 in the Land Appeal Court, which showed percentage increases in the value applied by the Valuer-General to a number of selected parcels of land from the date of the preceding valuation up to the March 1979 valuation date. The percentage increase shown in the selected cases was in each instance considerably less than the increase applied to the subject land as between the two valuation dates. The weakness in such a selective comparison is obvious as there could be any number of reasons why blocks in the same valuation area should increase at different rates over a period of five years."
As the Full Court said, there could be many reasons why parcels of land can increase at different percentage rates over a period of time. The real test is not the percentage increase in the unimproved values, but a comparison of the subject with sales of comparable sites in the vicinity of the subject at the time of the valuation.
In respect of the unimproved value of 69 Gibraltar Drive, I note also that Mr Treston argues that the unimproved values on the Isle of Capri remained constant at the valuation of 1 October 1996, not because the market had necessarily remained constant, but because there was inconclusive evidence of sales to justify any increase. He advises that in the next valuation, sales have now confirmed a rise, but that is not a matter for consideration at this case. The only evidence I have about 69 Gibraltar Drive is that the respondent treated the Isle of Capri as a separate sub-market area in the 1 October 1996 valuation, because of the paucity of sales of canal lots in that area. That would appear to have been a conservative approach to the valuations on the Isle of Capri at that time.
In the matter of the appellants' approach of deducting the value of improvements from the estimated value of the improved subject land, I note that the appellants have sought to apply a method of valuation often referred to as the "summation or cost" approach. I note that this approach is commonly used for valuing house properties, where any comparison of other direct sales is not relevant. (See "Land Valuation and Compensation in Australia" by RO Rost and HG Collins, 3rd Edition, Reprint 1996, page 106). That text also confirms that the preferred method is to compare the subject with sales of vacant land, but if sales do not exist, the "summation" method involves:"... an addition of the values of the constituent parts of a property to arrive at its total value. "
Precedent for use of the "summation method", is found in Seatainer Terminals Limited v. The Valuer-General (NSW) (1974) 29 LGRA 6. The "summation" method was also examined by Sugarman J in Marcus Clark and Co Limited v. Commissioner for Railways (1949) 29 LVR 98. His Honour considered the method when it was used as a check for the purpose of comparing a valuation arrived at by another method. Sugarman J noted at page 137:
"The defects of the method do not need elaboration. As a method of comparison it appears to be less reliable than comparison of rates of capitalisation, notwithstanding the difficulties, already discussed, involved in the last mentioned procedure. "
(See also "The Law Affecting Valuation of Land in Australia", 2nd Edition, Alan Hyam, page 111).
In seeking to apply the "summation" method to the subject, Mr McNaught relies upon estimates of a likely asking price by three real estate agents in the area. While the experience of those people may have some relevance in determining the likely starting point for the improved property, the estimates are no more than that, and do not conclusively prove the actual value of the property. However the problem for the appellants in this approach lies not in the estimated improved value of the subject, but in what amounts to deduct for the added value of the improvements. He has sought to deduct values for the improvements which, by his opinion, allow for the effects of inflation and depreciation.
In arriving at his figures he may have difficulty in accepting that much of the decline in value of the total property may be attributed to the decline in "added value" of the dwelling. He therefore concludes that much of the fall in the value must lie in the value of the land.
In this respect, however, I note that difficulties have been previously found in similar circumstances where appellants have sought to conclude that most of the decline in value should relate to the land and not to the improvements. In this regard I note in O'Brien Nominees Pty Ltd v. The Valuer-General (1979) 6 QLCR 280 at page 284:"The basic properties have sold at prices considerably below the value of the improvements assessed on the traditional method of replacement cost less accrued depreciation.
In such circumstances it is unrealistic to conclude that land, the commodity basic to the enterprise, has a minus or nominal value. It is logical to assume that in times of adversity and depression, when purchasers pay less for properties as a going concern, that the lesser price attaches not only to the land component but also to the improvements. The question facing valuers in analysing improved sales in these circumstances is what value is fairly to be attributed to the improvements?
It appears to us that the only tenable approach is to abandon the traditional method of replacement cost as at sale date less depreciation and to adopt an 'added value' concept. "
The difficulty for Mr McNaught in this matter is to determine the "added value" of the improvements. The appropriate method would be to compare the value of the land with other sales of vacant land, and then to deduct that figure from the total value of the improved property. Because of these uncertainties, where sales of vacant lands exist, they are preferred in determining unimproved value.
Comparison of Sales -
The basic difference between the parties in comparing the sales evidence is that the appellants have relied upon sales of improved lands, while the respondent has relied upon sales of vacant or nearly vacant lands. In the current state of the Australian housing market, the two approaches may lead to a very different conclusion unless full consideration is given to the added value which the improvements bring to the land as discussed earlier.
In seeking to compare the two methods, I look first at the determination of unimproved value using vacant sales. I note that this method has long been regarded by the courts as the preferred approach, and has been noted in many precedents. I note for instance in WM and TJ Fischer v. The Valuer-General (1983) 9 QLCR 44 where the Land Appeal Court said at p.46:
"It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels. "
The principle was also clearly defined by the Land Appeal Court in PH Clough v. The Valuer-General (1981-82) 8 QLCR 70 at p.76:
"It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements.
Because there is less room for difference of opinion as to value of the various items of improvement and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement. "
In considering Sale 5 (17 Marseille Court) for $340,000, I note also that the sale was in fact a sale between family members, and as such should be treated with some caution. The fact that it was subsequently subdivided and resold for $2.1 million suggests that the sale bears little resemblance to market value, and should be rejected.
I note that Mr Treston has sought comparison with three sales as follows:
Sale 6 - (analysed at $227,850) - superior
Sale 7 - (analysed at $166,500) - inferior
Sale 8 - (analysed at $245,800) - superior
I accept that canal lots with access to open waters are generally regarded as superior to landlocked "lake developments".
However in considering Sale 8 I note that it occurred in May 1997, which is after the date of issue of the valuation of 10 March 1997. I note also that Mr Treston argues that, while the sale occurred after the date of issue, it does, in his opinion, provide some evidence of a later upward move in the values.
While it is relevant for this Court to consider trends, factors and conditions, in determining the unimproved values at the relevant date, however, this needs to be considered in the context of the decision of the Land Appeal Court in Beedell Farms and Grazing Pty Ltd v. The Valuer-General (1979)(LAC) 6 QLCR 322 at page 329:"At the same time we stress that the object of the exercise that we have to carry out is to arrive at an unimproved value as at a relevant date. Trends, factors and conditions affecting the market as at that date must be taken into account but only to the extent that they were present or were reasonably foreseeable as at that time. Viewing matters as we are over 3 years after the relevant date, care must be taken to ensure that hindsight does not unduly colour or unduly influence our opinion of market conditions and their reasonable foreseeability as at the relevant date."
I note also that a change in the unimproved value in a subsequent year was also found not to disprove the reliability of the previous valuation (see RG McMurray v. The Valuer-General (1986-87)(LAC) 11 QLCR 308).
In the current matter I place little weight upon Sale 8 in view of the directions found in KP and RD Weisenberger v. The Valuer-General (1978) 5 QLCR 125 at page 127:"I agree with the submission of Mr Butler, Counsel for the Valuer-General, that my jurisdiction in so far as circumstances relating to the subject valuation are concerned does not extend in point of time to uses beyond 28 October 1976 the date of issue of the valuation. "
That was also supported by the Land Appeal Court in RG McMurray v. The Valuer-General (1983) 9 QLCR 35 at page 36.
I am therefore left with the comparisons between Sales 6 and 7, and find that there is nothing to discredit Mr Treston's estimate of the value at $185,000.
Disabilities of the Land -
I move then to the nature of the land and the possible impacts of future flooding, and the agreed restrictions upon the mooring of vessels because of the limited "quayline" in the canal. There is no argument that the tapering side boundaries of the subject in effect limit the mooring area for vessels to a distance of some 8 to 9 metres below low water level. Mr Treston agrees that canal frontage to water is a key factor in determining the values of canal frontage parcels. The capacity to moor a vessel is important, together with the relevant aspect to water.
It is agreed that the subject has an inferior mooring capacity than either parcel adjoining the subject. Whether that was fully considered in the initial relativity between the parcels some time ago was not clear. Mr Treston argues that he has merely maintained the previous relativity and increased the parcels in the area by a consistent amount.
In the matter of the impact of future flooding, I find that the Council Flood Studies do recognise the potential for increased flooding in the downstream reaches of the Nerang River, but there is no clear documentation as to whether the subject would be more adversely impacted than the surrounding areas. There is no conclusive evidence to demonstrate that, under the normal understanding of whether the land is seen as "generally flood free", Mr Treston has not taken a reasonable approach. Whether the predictions of a higher than the 1 in 100 year flood occurrence would specifically impact the subject was not demonstrated.
Summary:
In seeking to determine the unimproved value of the subject I am aware that section 33 of the Valuation of Land Act states:
"Any and every valuation, or alteration of the valuation, of any land made, or purporting to be made, under this Act by the chief executive shall be deemed to be correct until proved otherwise upon objection or appeal or until altered or further altered. "
I am also aware that the onus of proof rests upon the appellants under section 45(4) which states:
" 45.(4) Such notice shall state the grounds of appeal and the appeal shall be limited to the grounds so stated and the burden of proving any and every such ground shall be upon the owner. "
However whether the current relativity with the adjoining parcels had adequately allowed for the restriction of the quayline of the subject is uncertain, particularly in comparison with Lot 367 to the east. While I am conscious that the appellants have not sought direct comparison of the unimproved values, I am led to make some allowance in respect of the restrictions of the canal frontage and the mooring areas. Where there is some uncertainty in the matters, I lean to the decision of the High Court of Australia in Commissioner of Succession Duties (SA) v. Executor-Trustee and Agency Co of South Australia Limited and Others (HC) 74 CLR 358 (1946-47), where Dixon J said at page 373:
"I have had the advantage of reading the judgment prepared by Williams J and agree in it. I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. 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 the case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate. "
On balance I will allow a reduction of $5,000 on the basis of the restriction to the canal frontage.
Conclusion:
Having considered the whole of the evidence I am persuaded that the appellants have partially proved their case. The valuation of the Chief Executive is set aside, and the unimproved value of Lot 366 on RP 132851 is determined at One hundred and eighty thousand dollars ($180,000).
(NG Divett)
Member of the Land Court
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