Owners Units Plan 2995 and the Commissioner for Act Revenue (Administrative Review) - [2012] ACAT 18

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

OWNERS UNITS PLAN 2995 & THE COMMISSIONER FOR ACT REVENUE (Administrative Review) [2012] ACAT 18
AT 11/18
Catchwords: ADMINISTRATIVE REVIEW – valuation of unimproved value of land – comparable values for residential units and commercial space – relevance of earthworks and carparking

List of legislation: Rates Act 2004

List of cases: Commissioner for ACT Revenue v S Pelle Pty Ltd [2011] ACAT 54

Tribunal: Mr B. Hatch Senior Member

Date of Orders: 5 April 2012
Date of Reasons for Decision: 5 April 2012

AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL )

AT 11/18

BETWEEN:
THE OWNERS UNITS PLAN 2995

Applicant

AND: THE COMMISSIONER FOR ACT REVENUE
Respondent

TRIBUNAL: Mr B. Hatch, Senior Member

DATE: 5 April 2012

ORDER

1. The decision under review is set aside and the following decision substituted:
The unimproved value as at 1 January 2010 for Block 1, Section 10, Gungahlin is $7,632,000, calculated as follows:

Residential component 101 units x $28,000 = $2,828,000

Commercial space $635/m^{2 x}7,566m^{2 =}$4,804,410

………………………………..
Mr B. Hatch

Senior Member

REASONS FOR DECISION

This is an application for a review of a decision made on 14 February 2011. That decision made by the Respondent was that the unimproved value (UV) of the property at Block 1, Section 10 Gungahlin was $8,900,000 as at 1 January 2010.
The original decision was made on 16 July 2010. The applicant objected and provided a letter from Mr. Richard Swinbourne, a qualified valuer, dated 10 September 2010, which stated that the determined value was too high and that the valuation should be replaced with a value of $7,525,000. The respondent commissioned a report from the Australian Valuation Office (AVO) which found that the UV was $8,900,000. The AVO valuer was Mr Geoffrey McInerney.
The two valuers gave evidence at the hearing of the application. Both valuers have extensive experience, but each was able to justify their opinion. They made a joint statement which had the following Points of Agreement:
·The subject property to be assessed for rating purposes is Block 1, Section 10 Gungahlin.
·The relevant date for the assessment of the unimproved value is
1 January 2010.
·The maximum gross floor area permissible is 16,395 square metres.
·The gross floor (maximum) to be used for commercial purposes is 7,566 square metres (Units 102 to 141 of the Unit Plan 2995).
·Units 1 to 101 of Units Plan 2995 shall be used for the purpose of single residential dwellings only.
·Both valuers have adopted the Direct Comparison of Market Evidence valuation methodology to assess the unimproved value.
The two valuers then had Points of Disagreement as follows:
·The Respondent has assessed the unimproved value at $8,900,000, however the Applicant’s valuer contends the unimproved value should be $7,520,000
·The Applicant’s valuer contends the residential unit rate for 101 dwelling sites should be $28,000 per unit. The Respondent’s valuer contends the residential unit rate should be $40,000 per unit.
·The Applicant valuer contends the commercial component of 7,566 square metres of gross floor area should be assessed at $620/m2GFA. The Respondent’s valuer contends the commercial component should be assessed at $650/m2GFA.
The value of the commercial component is in my finding effectively agreed by the parties. While neither party seemed to admit that during the hearing, the difference between these valuations is less than 5%. Extensive evidence was given by the experts virtually all of which was directed towards the valuation of residential units. Some of the evidence related to excavation and basements and while some of that evidence relates to the commercial component. I am unable to find that it affected the opinions of the experts as to the value of the commercial component.
While there is agreement in relation to the commercial component, the method by which each valuer arrives at that point seems to be somewhat different. Mr McInerney provided sales evidence in the report from the AVO of 21 December 2010.
Mr McInerney relies on four sites. He was critical of Mr Swinbourne for not providing commentary as to the comparison of the properties listed by him. I however accept the evidence of Mr Swinbourne in his report of 11 January 2011 that “the commercial component is difficult to deduce due to the many variables within the available sales evidence and having to “transport” that evidence across market sectors and across Canberra geographically.”
Mr McInerney does provide more commentary but, the four comparables he relies upon are, in my view, too widely distributed through Canberra. The Braddon property is not comparable as it is a much smaller block in an established suburb almost within what would be regarded as the CBD. Both valuers lack strong evidence to support their conclusion and yet each arrives at almost the same conclusion. I conclude that these experts relied upon their years of experience in the face of limited evidence to arrive at what is effectively the same result.
In these circumstances, I have decided that the valuation for the commercial component is $635/m2, that is, half way between the two expert opinions.
The main issue then becomes the value that should be ascribed to the residential aspect of the development. When a value is determined for each unit, a UV can be determined should for the whole residential component. Once that is ascertained, the overall UV can be calculated.
The starting point is the nature of the site at the time it was sold. Section 6 of the Rates Act 2004 states:
6 Meaning of unimproved value
(1)The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on the relevant date for the lease of the parcel, assuming that—
(a)the only improvements on or to the parcel were the improvements (if
         any) by way of clearing, filling, grading, draining, levelling or
         excavating—
(i)if the Territory or Commonwealth had, before the parcel
  became rateable as a separate parcel, granted a
  development lease of land that included the parcel—made by
     the lessee under that lease or by the Territory or
      Commonwealth, or the cost of which was met by that lessee
     or by the Territory or Commonwealth; or
(ii)in any other case—made by the Territory or Commonwealth
  or the cost of which was met by the Territory or
     Commonwealth; and
(b)the circumstances that existed on the prescribed date also existed on
                the relevant date; and
(c)on the relevant date, the lease had an unexpired term of 99 years;
                and
(d)a nominal rent was payable under the lease for the 99 year term.
NoteRelevant date is defined in the dictionary.
(2)The unimproved value of a parcel of land held in fee simple is the capital
       amount that might be expected to have been offered for the parcel at a
       genuine sale on the relevant date on the reasonable terms and conditions that
       a genuine seller would require, assuming that no improvements had been
       made on or to the parcel.
(3)In this section:
prescribed date, for a parcel of land, means—
(a)for a determination of the unimproved value of the parcel—the date
                the parcel became rateable; or
(b)for an annual redetermination of the unimproved value of the
                parcel—the date the redetermination applies; or
(c)for a redetermination of the unimproved value of the parcel under
                  section (Redetermination—error) or section 11A (Redetermination—
                  change of circumstances)—the date the redetermination begins to
                  apply to the parcel.
Some evidence was given as to the state of the land. An overlay map was produced showing contours. Those contours were not marked with numbers so it was not possible for me to determine if a rise or depression was present at that time. Mr McInerney gave evidence that he recalled from 2002 that the site was level. He often parked in the area for his work at that time. My finding is that Mr McInerney was doing his best with a limited memory from nearly 10 years ago. He was not interested in the land at that time on any professional basis. Mr Swinbourne gave evidence that it was his recollection that no leveling work had been done on the site, but his evidence was based on his experience when he was employed to manage ACT valuations between about 1971 and 1980 by a local real estate company. I do not consider evidence of past practice from a time before self government, some 20 to 30 years before this land was sold, to be of any significance. I find that there is insufficient evidence to show whether the land had been leveled, or filled to make it level. While some leveling is plausible, I do not accept that anyone would have filled a depression when the assumption by anyone would have been that some excavation would be required to the land.
The experts gave evidence about the way in which the need for excavation of the site is to be taken into account in relation to calculating the UV. I found that evidence from both valuers to be confused and confusing. The evidence seemed to be that for the commercial aspect of the development, the cost of excavation was not taken into account. For the residential aspect, the excavation was not relevant as the car parking for the residential part was not within the excavated car park, but is a separate undercroft area within the residential part. However, when the experts compared other sites, excavation was clearly an important issue, and the experts disagreed about the cost of possible excavation that may have been required, or that had already taken place at some of the comparable sites.
The only conclusion I can draw from this is that the experts have taken the cost of the excavation into account with respect to the commercial aspect and that it has little, if any, relevance to the residential component of the land.
This creates some difficulty in comparing the subject site to other sites that are purely residential. Most if not all comparable sites require excavation for a car park. The cost of excavation is clearly considerable, but again the experts disagreed on that cost, and
I note that neither expert is a quantity surveyor or experienced builder. There was also no evidence as to the cost of having undercroft parking. Such parking must have a cost as it takes up space under the building which may have been used for other purposes, whether commercial or residential. Once again, the experts came down to putting a value on the residential units. This was in much the same way that each came to a figure for the square metre value of the commercial aspect of the site.
In relation to the commercial aspect, the experts arrived at almost the same result, while disagreeing with each other. The difference in their opinions in relation to the residential aspect was considerable. Mr McInerney concluded that for the purpose of UV, the residential units had a value of $40,000, while Mr Swinbourne arrived at a figure of $28,000. Such a difference demonstrates a real disagreement. In this case the disagreement is with respect to the evidence relied upon, and thereafter the conclusion which made in relation to value. The evidence relied upon is comparable sales of properties and sites.
Mr McInerney cast his net wide for what he regarded as comparable properties. I have already noted that Mr McInerney used commercial properties as comparables but I did not consider those to be of great assistance. In dealing with the residential aspect, he referred to a variety of properties in the local area, as well as properties further away from Gungahlin. Mr McInerney found that a number of the properties he looked at were not comparable. Mr Swinbourne focused on comparable sales in the Gungahlin area. At the start of the hearing I viewed the sites in the Gungahlin area. Having heard the evidence of the experts following the view I conclude that the relevant sites are those in Gungahlin. Sites further afield seem to be of little use. There are a reasonable number of sites in the Gungahlin area, some of which are already developed and which gave the experts a greater insight into relevant property values.
The sites viewed were largely along the Flemington Road corridor stretching from the Gungahlin Town centre, whereas the subject site is more in a southerly direction towards the industrial area of Mitchell. Both experts identified the proximity of each site to the Town Centre as an important criterion. There was disagreement as to whether the subject site was more or less valuable for residential purposes being in the middle of the town centre. The subject site may be attractive to some people, but others would not wish to be in proximity to a commercial environment given the noise that may entail. Some evidence went to the distance of other sites from the Town Centre and whether being closer to the Town Centre was attractive as it enabled people to walk to the Town Centre. There was no evidence that anyone would walk that distance, which for the close sites was about 800 metres. Mr McInerney gave evidence that he had never seen anyone walk from Franklin to the Town Centre. I asked Mr McInerney whether a site furthest from the Town Centre may be attractive because it is closer to places people may work such as the City or Russell. That appeared to be something that
Mr McInerney had not considered. He conceded that this factor may make a site more attractive to some people.

I found Mr McInerney’s evidence to be overly complicated. I formed the impression that his analysis was directed to showing why Mr Swinbourne was wrong rather than to establishing the basis for his own opinion.
The statement of Mr McInerney of 15 August 2011 lists many properties regarded by him as comparable. I regard the properties in Gungahlin and particularly along Flemington Road as comparable. I have not taken into account other properties referred to by Mr McInerney. The relevant properties are:
·     Block 1 Section 97 Franklin;
·     Block 1 Section 99 Harrison;
·     Block 1 Section 95 Franklin;
·     Block 2 Section 95 Franklin;
·     Block 2 Section 96 Franklin;
·     Block 1 Section 94 Franklin;
The method used by Mr McInerney to the valuation of the comparable sites was to take the price of the sale of the undeveloped land, add to that his estimate of the cost of earthworks and divide the final figure by the number of units. This method would have been of use had Mr McInerney taken the cost of earthworks at the subject site into account in some way. He did not. He also made no allowance for the cost of under croft parking at the subject site, although Mr Swinbourne also did not. I do not accept that the cost of earthworks should be ignored for the subject site on the basis that it is only used for the commercial aspect of the development, but that earthworks should be taken into account for nearby developments which are solely residential.
Mr McInerney also found 2 of the blocks to be inferior. One of those is Block 1, Section 99 Harrison. Mr McInerney says it “is an inferior location several kilometers from the CBD of Gungahlin”. No evidence was produced to support the proposition that being several kilometres from the “CBD” made the site inferior. As Mr McInerney conceded, there may be some purchasers who consider that being closer to the CBD of Civic is more attractive. Mr McInerney also found Block 1 Section 97, Block 1 and 2 Section 95 Franklin, Block 2, Section 96 Franklin and Block 1 Section 94 Franklin to be inferior due to what he described as excessive slope or other natural variation in the land which would require expensive earthworks. He does not take into account that there may be other factors that make those blocks more attractive. Such considerations would be their location away from the town centre, with the noise and inconvenience of a commercial centre, and the advantage again of being closer to Civic and places of employment such as Russell.
Mr Swinbourne in his report of 11 January 2011 refers to the same properties. His method for valuing is to take the sale price and divide by the number of units. Such a method fails to take into account earthworks, but as I have found this appears to be a method which more directly compares these sites with the subject site when neither valuer took into account earthworks or undercoft parking at the subject site.
Mr Swinbourne found that Block 1, Section 97 Franklin would be more valuable as it is solely residential and therefore better than the subject site which is in the centre of a commercial district. Unfortunately it was not put to Mr Swinbourne whether being closer to Civic may increase the value of these blocks. He saw Block 1, Section 95 Franklin as more valuable as it has some elevation and the advantage of backing on to a reserve.
Mr Swinbourne also looked at properties in other areas but Counsel for the Applicant made it clear that only the Gungahlin properties were relied on for the purpose of the valuation of the subject site. Mr Swinbourne produced a table of sales of many of the relevant properties (exhibit 9).
Mr McInerney did not agree that average figures such as those set out in Exhibit 9, provide a proper basis for valuation. He said that valuers know that. Further,
Mr McInerney gave evidence that a larger sample size does not necessarily work well, and that there may be a better way of doing such an exercise.
The table in exhibit 9 also compares values based on the cost per square metre of units when sold. Mr McInerney made the point that buyers of residential units do not make comparisons on a square metre basis, and that sellers do not advertise units for sale on a square metre basis. I accept that point in a broad sense, but notwithstanding, found the exhibit a useful way of comparing unit prices. As such I do not agree with Mr McInerney’s opinion that this exhibit is of little use.

I accept the evidence of Mr Swinbourne that the residential units should be valued at $28,000 each.
Both experts made allowance for variation in price by taking into account the date of the sales and the date for the valuation of UV.
Evidence was also given as to the effect of the Global Financial Crisis (GFC).
Mr McInerney was of the view that it was not relevant. Mr Swinbourne gave evidence that values dropped in 2009. The tribunal looked at the issue of the GFC in Commissioner for ACT Revenue v S Pelle Pty Ltd [2011] ACAT 54. It is difficult to compare matters where each may turn on its facts. In Pelle the Tribunal makes no real finding other than that any GFC affect would have been short-lived. In this matter Mr Swinbourne notes a drop in values but does not seem to relate that to the GFC. Accepting Mr McInerney’s opinion, I find that the GFC cannot be factored into the valuation of these units. I accept, however, the evidence of Mr Swinbourne that values did fall in 2009.
I find that the UV for the subject site should be calculated as follows:
·101 units at $28,000 being $2,828,000;
·7,566 m2 of commercial space at $635 per m2 being $4,804,410;
The UV is therefore $7,632,000.

………………………………..

Mr B. Hatch,
Senior Member

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A

FILE NUMBER:	AT 11/111
PARTIES, APPLICANT:	Owners Units Plan 2995
PARTIES, RESPONDENT:	Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
COUNSEL APPEARING, RESPONDENT
SOLICITORS FOR APPLICANT	Mr Phelps Phelps Reid Lawyers
SOLICITORS FOR RESPONDENT	Ms McCann ACT Government Solicitor
TRIBUNAL MEMBERS:	Mr B. Hatch Senior Member
DATES OF HEARING:	8, 9, 29, 30 September 2011
PLACE OF HEARING:	Canberra

PART B

RECOMMENDATION:

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )

COMMENTS: