Pekol v Department of Natural Resources and Mines
[2003] QLC 20
•25 March 2003
LAND COURT OF QUEENSLAND
CITATION: Pekol v Department of Natural Resources and Mines [2003] QLC 0020
PARTIES: Donna Pekol
(applicant)
vChief Executive, Department of Natural Resources and Mines
(respondent)
FILE NO: AV2002/0245
DIVISION: Land Court of Queensland
PROCEEDING: Appeal against annual valuation under the Valuation of Land Act 1944
DELIVERED ON: 25 March 2003
DELIVERED AT: Brisbane
HEARD AT: Brisbane
MEMBER: Dr NG Divett
ORDER: The appeal is dismissed, and the unimproved value of Lot 7 on RP 817398, as determined by the Chief Executive in the sum of Two Hundred and Eighty Thousand Dollars ($280,000) is affirmed.
CATCHWORDS: Valuation – Valuation of Land Act 1944 - sales - use of sales – scarcity factor [35] to [45].
Valuation – method of valuation – changes in value – use of statistical indices – Consumer Price Index [50].
Valuation – valuation for rating purposes – exclusive use of unimproved sales – relevance of scarcity factor – selective use of limited sales – need to consider similar sales of improved lands – similarly level of improvements to subject.
APPEARANCES: Mr A Pekol for the appellant
Mr K Fisher for the respondent
Background:
This matter relates to land located at 157 Granite Street, Geebung, and described as Lot 7 on RP 817398, Parish of Kedron. The subject land has an area of 2,200 m² and has good access to Granite Street, which is bitumen sealed with concrete kerbing and channelling. All normal utility services are available. The subject land is located about 11.5 kilometres radially north of the Brisbane CBD, and is zoned as General Industry Area under the Brisbane City Plan 2000, effective at the date of valuation of 1 October 2001. The key issues are the nature of the land, changes in the valuation, method of valuation, relativity and comparison of sales.
On 25 February 2002 the Chief Executive issued a valuation of the subject land at $280,000. Following an objection the Chief Executive confirmed that figure on 25 June 2002. The appellant has now appealed claiming the unimproved valuation should more properly be $255,000.
Adam Alois Pekol, a professional civil engineer, appeared and gave evidence for the appellant. Mr K Fisher, Counsel of Crown Law appeared for the respondent, calling evidence from Edward Antoni, the departmental registered valuer responsible for determining the valuation.
The Evidence:
The Nature of the Land –
Mr Pekol explains that he is actively involved in the management of all of his family property business, including the regularly (weekly) assessment of investment decisions involving the purchasing of 11 industrial properties in Brisbane. In that capacity he argues that he has a good personal knowledge of the market for industrial properties. Mr Pekol has no disagreement with Mr Antoni in respect of the situation of the subject land being in the Geebung Industrial Estate, which is bordered by Zillmere Road to the north, Robinson Road to the south, Bilsen Road to the east, and Newman Road (including Prosperity Place) to the west. It is a long established estate (since about 1970), is a popular area, and is tightly held with few sites sold in recent years.
Mr Antoni explains that part of the Granite Street area (including the subject land) was subdivided and developed later in 1994 (Exhibit 7 – Survey Plan). The adjoining parcels (Lots 2 to 6) as well as the subject land (Lot 7) have a drainage easement 4 metres wide along the southern rear boundary. The subject land has a width of 36.2 metres, while Lot 2 to 6 each have widths of 33 metres, and Lot 1 at the corner of Bilsen Road has a width of 33.4 metres. Lots 2 to 7 each have unimproved values at $280,000, while Lot 1 is valued at $305,000. Each lot is shown on the supplied Blin Map as having areas of 200 m² which clearly is incorrect. (Exhibit 7). Mr Antoni has based his current unimproved values upon the Blin Map evidence, and now having the plan of survey available, acknowledges that he may have valued the subject land slightly low because of its greater area of 2,200 m².
The subject land has an overall depth of 60 metres, but only an approximate effective net depth of 56 metres, allowing for the drainage easement at the rear. The land is slightly below road level, with a cross-fall gently to the south-west. The land is currently developed with a fairly modern industrial building and office.
Mr Pekol argues that the Geebung Industrial Estate is now suffering from increasing vacant buildings as tenants seek to relocate to other localities. Mr Antoni advises that there have been no sales of vacant lands in that area between 1996 and 1999.
Changes in the Valuations –
Mr Pekol advises that the history of 8.8 % annual changes in the unimproved value of the subject land from 1995 ($155,000) to the current 2001 ($280,000), reflects a rate of increase inconsistent with wider economic factors, and therefore reflects an error by the Chief Executive. Mr Pekol is aware that the Valuation of Land Act 1944 may provide some restrictions upon considerations of those wider economic forces, but argues that it is inconsistent to retain such disparities without further consideration of the trend in unimproved values.
For comparison purposes, for example, he notes that over the same period there has only been an annual increase in rents on the subject land of 3.4% per year, compared to the Consumer Price Index (CPI) of about 2.3% for the same period. By those comparisons Mr Pekol argues that a generous increase in the unimproved value of the land over the same period would represent only a reasonable increase of about 5% to the current date of valuation, or $254,625. Mr Antoni rejects any reliance upon CPI increases, noting that approach is unrelated to the land market.
To support his advice on the applied unimproved value of the subject land in 1995 at $155,000, Mr Pekol provides a copy of a land tax assessment confirming that figure. The respondent later confirms that the unimproved value of the subject land was $155,000 at the 1 January 1995 revaluation, effective for 30 June 1995. Mr Antoni also provides a departmental record (Exhibit 8) confirming the following changes in the unimproved value of the subject land with effective from:
·30/6/1996 - $200,000
·30/6/1997 - $200,000
·30/6/1998 - $200,000
·30/6/1999 - $220,000
·30/6/2000 - $242,000
·30/6/2001 - $242,500
·30/6/2002 - $280,000
Mr Antoni confirms that the reason that the unimproved values in the Geebung Industrial Estate between 1996 and 1998 remained constant, reflected the lack of any sales of vacant lands in that area. However he notes that sales in other adjoining industrial areas had demonstrated changes in those areas over the same period. Mr Antoni advises that once vacant sales in the Geebung Industrial Estate became evident in 1999, the unimproved values had been increased. He advises further that there had been a big boom in industrial properties during 1999, which continued until 2000.
Mr Antoni further argues that the analyses of the vacant land at 10 Delta Street, Geebung (his Sale 1), demonstrates that increase. He advises that property sold in November 2001 for $185,000, and was applied in the current valuation at $167,500. He advises that land was formerly valued at $145,000, reflecting an increase of 15% in one year. Mr Antoni also notes that the application of his Sale 2 (90 Basalt Street) rose from $305,000 to $365,000 (19.6%) during the same year. He argues those increases support the current increase of the subject land.
Relativity –
In respect of the current valuation of the subject land, Mr Antoni advises that, as outlined in paragraph [5], the adjoining parcels to the east of the subject land all have the same unimproved value of $280,000 (Exhibit 7). On that basis he argues that surrounding relativities are consistent, and at least support the current applied valuation of the subject land. Mr Pekol argues that really, in his opinion, is a very subjective conclusion, noting that each of those adjoining parcels may well be too highly valued as well as the subject land. However he concedes that there is consistency in the current applied values.
Method of Valuation –
While Mr Pekol agrees that comparisons with comparable sales of vacant lands, if they are available, are the most direct method of valuing the unimproved value of the subject land, he argues that the paucity of sales information creates some problems in obtaining a fair conclusion. He draws support in the normal market interaction of supply and demand, where a limited supply situation results in escalating prices. Mr Antoni rejects any marginal adjustment in the sale prices, as he argues you either accept the sale or you reject it.
In the Geebung Industrial Estate Mr Pekol argues that what has occurred, where the theoretical process demanded by the Valuation of Land Act to assume the current improved subject land as if it were vacant, forces that parcel into the situation of representing one of the last remaining vacant lands in the market place. By his understanding of the resulting inelasticity of such a confined market place, any resulting marginal value of the last available parcels for sale would reflect a premium value, not evident in a wider market, where an average price would be much lower. On that understanding there is an analogy with comparisons on the basis of its “prairie value” prior to the continuing process of sales.
To support his hypothesis Mr Pekol seeks assistance in assessment by a development potential approach. Adopting his broad knowledge of local building costs, rental values, and current industry capitalization rates (9%) and applying those average rates to the current GFA (1,476 m²) of the existing building, he concludes an improved value of $1,230,000, the cost of the improvements at $974,160, and an unimproved value of the land at $255,840. He argues that supports his estimate of the value by his comparisons with his sales evidence.
Comparison of Sales –
To support his estimate of the unimproved value Mr Pekol provides the following comparisons:
·Sale 1 – (269 Robinson Road, Geebung – Lot 1 on RP 59954, Lot 1 on RP 116263 and Lot 14 on RP 80809). This is a 2.66 hectare parcel, formerly the Grants Timber Yard containing two parcels sold in April 2002 for a site value of $2,250,000 ($85 per square metre). The only physical improvements were several old tin sheds of little added value (Exhibit 3).
In seeking to make allowance for the much larger size of the sale, and also for its potential to be a contaminated site due to its former use as a timber yard, Mr Pekol has adjusted the sale price by 35% to reflect those differences with the subject land. (25% for the contamination and a further 10% for the difference in size). On that basis he concludes an effective rate of $116 per square metre for the subject land, reflecting an unimproved value of $255,200.
Mr Pekol explains that in determining the adjustments in the site cost per square metre, he estimated only from his personal experience of the average rates of 25% for contamination, and 10% for differences in size. He agrees that it would be preferable to compare sites other than those subject to contamination, but argues that due to the paucity of vacant sales in the area, he was restricted to the few vacant sales available. To support the use of contaminated sales, and also the method of capitalization of property, he refers generally to Supreme Court judgments in the matters of MAM Mortgages Ltd & Anor v Cameron Brothers & Ors [2001] QSC 162, 18 May 2001; Piesse Investments Pty Ltd v WR Mortgage Services Pty Ltd & Ors [2001] QSC 163, 18 May 2001; and also in Manwelland Pty Ltd v Dames & Moore Pty Ltd [2000] QSC 432, 23 November 2000.
Mr Pekol also relies upon Sale 2 – (90 Basalt Street, Geebung – Lot 2 on RP 817399). This is a common sale with the respondent, and has an area of 2,489 m², and sold in September 2000 for $395,000 ($158 per square metre). To account for the impact of its marginal pricing, Mr Pekol applies a discount of 25%, providing, in his opinion, a reasonable adjusted rate of $118 per square metre, which concludes an implied unimproved value of the subject land at $259,600.
To support his valuation of the subject at $280,000 ($127 per square metre), Mr Antoni provides the following sales of general industry land:
·Sale 1 – (102 Delta Street, Geebung – Lot 31 on RP 132545). This is a 1,012 m² parcel located about 200 metres south-west of the subject land, in the same Geebung Industrial Estate. The sale is regularly shaped, with a 25 metre frontage to Delta Street. There is a 4 metre wide drainage easement along the eastern boundary (Exhibit 5). The sale is similar to the subject land except for its much smaller size and narrower frontage, resulting in it being overall inferior, but also having a much higher rate per square metre.
The sale in November 2001 for $185,000 ($183 per square metre), was analysed at $175,000 ($173 per square metre), and applied at $167,500 ($166 per square metre).
·Sale 2 – (90 Basalt Street, Geebung – Lot 10 on RP 817399). This sale is 100 metres south-west of the subject land, and is on a bend in Basalt Street just off Granite Street. The sale is larger than the subject land, and because of its corner location, has a 90 metre frontage to Basalt Street. There is also a drainage easement along its western boundary. Because of its wider effective frontage the sale has a higher rate per square metre than the subject land, and is seen overall as superior. This is a common sale with the appellant, and has an area of 2,489 m², and sold in September 2000 for $395,000. The sale was analysed at $371,000, and after allowing for clearing and fill, was applied at $365,000 ($147 per square metre).
Mr Antoni explains that his Sale 1 is his primary sale because of its closer size to the subject land. He explains that he had only applied a rate of $166 per square metre (96%), because the sale occurred just after the date of valuation. He advises that conservative application made some allowance for the rising nature of the market during the previous year. He further advises that the major difference between his Sale 1 and the subject land relates to the larger size of the latter (200%) and also its greater frontage (220%).
In respect of the size difference Mr Antoni advises that departmental analyses of a wide range of sales evidence indicates that a reduction factor of 25% should be applied for the greater size of the subject land, as larger parcels tend to attract a lesser rate per square metre. On that basis alone an effective rate of $166 by 75%, or $125 per square metre would apply to the subject land or $275,000.
In respect of the additional frontage of the subject land, similar departmental records indicate a premium of about 5% (or $13,800) would be applicable to the subject land. However to be conservative Mr Antoni has only allowed an extra $5,000, concluding a value of $280,000. Mr Pekol who is a traffic engineering expert, agrees that a minimum frontage of 25 metres is allowable under the Town Plan, and can be a constraint upon the accessibility of semi-trailers turning within a site. However he argues that Council approval can also be obtained for trailers to reverse into a site, and then drive straight out in a forward direction. On that basis he rejects Mr Antoni’s conclusion that the narrow width of Sale 1 is a detriment. Mr Antoni rejects that conclusion noting that a prudent purchaser will always pay more for a wider frontage.
In respect of his Sale 2 (90 Basalt Street) Mr Antoni notes that was an early sale about one year before the relevant date, and its application at 100% of the analysed price might better reflect its true value. However he has conservatively applied the sale at only 98% of the analysed value. To that figure of $147 per square metre he has made an allowance of 10% for the corner influence of Sale 2, not applicable on the subject land, concluding a rate of $132 per square metre for the subject land, or $290,000. On those comparisons he adopts $280,000 as his determination.
In drawing comparisons on the effects of the respective drainage easements on the properties, Mr Antoni notes that the impact of an easement along the side boundary (as on his sales), is greater than only along the rear boundary (as on the subject land). The reasons for those differing impacts relates to the inability to utilize the full GFA of a parcel, subject to Council special approvals.
In respect of Mr Pekol’s sale at 269 Robinson Road Mr Antoni rejects any comparison with that land because of the major difference in size of the two parcels. That sale is about 12 times the size of the subject land, and does not reflect any comparison of like with like. Mr Antoni advises further that if there had been no sales available for comparison of comparable size, which there are in this case, then he could only consider that sale of the inglobo land at Robinson Road after a full hypothetical development process.
Mr Antoni notes that such approaches have been widely criticized as a method by the courts due to the greatly varying unit rates that may be applicable, including developer’s profit and risk factor. Mr Antoni also notes that the 269 Robinson Road sale is a late sale in April 2002, well after the date of valuation of 1 October 2001, or even the date of issue of 25 February 2002. On that basis, in a rising market, that sale is more appropriate to a subsequent valuation.
Mr Antoni also advises that rather than seek to adopt a hypothetical subdivisional approach of the 269 Robinson Road inglobo parcel, as a check method, it would be better to seek to analyze some of the sales of the more lightly improved old industrial sites in the industrial estate itself. However he rejects such an approach in view of the two vacant sales available to him. He also notes that a further fallback method might involve analyzing sales of vacant lands in other adjoining industrial areas, and making appropriate allowances for the different localities. However he argues that any such secondary approach is unnecessary in view of the available comparable sales.
Mr Pekol questions the adoption of the common sale at 90 Basalt Street as representative of a normal arm’s length transaction, without making some allowance for the nature of the ten year lease negotiated with a major tenant prior to consummation of the sale. He argues such a sale would contain a premium for the existence of that long lease. Mr Antoni rejects such a conclusion, relying upon the decision of the Land Appeal Court in AMP Society v Chief Executive, Department of Lands (1994-95) 15 QLCR 344. In that matter in respect of a rental guarantee at the date of sale the Land Appeal Court said at p.349:
“We feel that the present case can be distinguished from Toohey’s Case, as there the enhancement in value was clearly attributable to the buildings which had been constructed on the site. Whilst it may be argued in this case that the rental guarantee would influence the mind of the purchaser as to what sum he would pay for the land, it seems to us that it is quite another proposition to say that the value of the guarantee should be deducted from the selling price of the land. Even if that proposition was correct, what sum should be deducted, bearing in mind that the security offered by the guarantee is relative to the completed development, is for a limited period, and has value only if there is a shortfall between the actual and guaranteed rental returns.”
However that decision would seem to have some difference with the current ten year guaranteed lease on Sale 2 in the current matter, which was clearly attributable to the existing building on Sale 2.
Decision:
Before turning to the evidence I note directions from the legislation which say that unimproved value is defined as follows:
“3.(1) For the purposes of this Act –
‘unimproved value’ of land means –
(b)in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.
Clarification of how that is to be interpreted was provided by the Privy Council in the matter of Tetzner v. Colonial Sugar Refining Company Limited (1958) AC 50 where Their Lordships said at page 57:
“what in Their Lordships’ opinion is required in the present case is that the physical improvements, with any value which they attach to the land on which they are situated, be excluded from the valuer’s computation. The land will then be valued as land devoid of buildings but situated in the community with the amenities and facilities which have grown up around it. Their Lordships see no objection in the process of valuation to regarding the land as land situated in a sugar town. The valuer need not shut his eyes to the fact that there is a sugar manufacturing industry in existence, though he is not entitled to value the sugar mill and its accessory situated on the subject land. Their Lordships find themselves in agreement with an illustration given by the Learned Magistrate in his judgment. ‘If the undeveloped capital value of a city powerhouse is being assessed one does not assume a city without electricity and all the consequences of the lack of such an amenity.’”
That also followed the findings of the Privy Council in Tooheys Limited v. The Valuer-General (1925) AC 439 where Their Lordships said at page 443:
“Now, what he has to consider is what the land would fetch as at the date of valuation if the improvements made had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvements; what would it fetch in the market? It will be observed that the value is not what has been sometimes designated by the expression ‘prairie value’. The land must be taken as it exists at the date of valuation.”
In simple terms the land is to be treated as if all improvements had not occurred, while all the existing surrounding developments at the time of the valuation are to be considered extant.
The situation as outlined by the appellant is that such a theoretical exercise provides an environment where the scarcity of land parcels, where there are no sales of comparable vacant lands, inevitably drives up the asking price for the last parcels available. Indeed that would be the inevitable logical economic conclusion where the land itself exists in a closed market situation. The whole argument of a “scarcity factor” is a situation well known in economic theory, where the price mechanisms of a free market economy dictates that the price continues to rise until, at its equilibrium level, the rate of consumption is equal to the rate of production. (An Introduction to Positive Economics by Richard G Lipsey, 2nd edition (1966) p.133).
The matter of “scarcity” has recently been addressed by the High Court of Australia in Maurici v Chief Commissioner of State Revenue [2003] HCA 8, 13 February 2003, where the value of vacant land at Hunters Hill in Sydney was seen to include such a factor. Indeed in that matter the valuer representing the respondent admitted that every single parcel in that highly developed and highly valued area, had included in its value “a notional component for scarcity value” (para 5). The facts of that matter reveal that the valuer for the respondent (Mr Croker) had adopted a method of valuation that rejected the use of analyzing improved sales in the immediate area of the subject land, relying instead upon the analysis of a limited number of vacant sales. Mr Croker noted that in his opinion it was even better to analyze sales of vacant lands remote in time and even in place, than to use improved sales. It was noted that such an approach was the method adopted widely across fully developed areas of Sydney.
The background to the Maurici matter is worth noting, as it highlights the general approach to the widely adopted method currently used across Australia in determining the value of land. The matter of the relevance of “scarcity” was argued in the lower Courts, and the question of whether it involved questions of law or fact was explored. The fact that Mr Croker had acknowledged that a scarcity factor did exist was accepted by Cowdroy J in the Land and Environment Court, when he said at para [26]:
“Had it not been for the acknowledgment by the respondent of the existence of the scarcity factor, this ground would be rejected. However as it is acknowledged to exist and as it is not clear whether such factor has caused the sales of vacant parcels of land to be inflated, this issue must be addressed.” (1999 105 LGERA 318, at 323).
The Court of Appeal rejected that approach, following guidance in the decision of the Privy Council in Tetzner v. Colonial Sugar Refining Company Limited. The Court of Appeal went on to note at para [30] when considering Tetzner:
“Equally it may be said in the present case that the valuer need not shut his eyes to the fact that Hunters Hill exists as a developed residential suburb. The tax payers third challenge to the valuation adopted by Commissioner Notti must also be rejected. Leave to appeal from the decision of Cowdroy J in this respect should be granted and the appeal should be allowed.’”
However the High Court overturned that decision, when it said at para [17]:
“The method adopted by the respondent suffered, in our opinion, from these defects. It was unduly selective. It looked, on a fair reading of Mr Croker’s evidence, effectively exclusively to four sales (including a resale) only. Those were sales of vacant or substantially vacant land. They were not representative of sales in Hunters Hill. That must be so, because, as both sides accept, vacant land in Hunters Hill is scarce, if not to say, very scarce. The approach of the respondent, taken to its ultimate conclusion would mean that if there were one only (reasonably comparable, in location, outlook and other relevant features) vacant parcels of land left in a district, the likely or actual recent sale price would effectively set the value for each and every improved parcel of land in that district. The respondent accepted that the valuer called on his side, not only valued the subject land as if its improvements had been shorn from it, but also as if it, now, a notionally unimproved, and therefore vacant site, was as scarce as the vacant sites the subject of the sales to which he said he had primary, but to which he effectively had exclusive regard. No attempt, it may be observed, was made by the respondent, to resolve the inherent paradox that as every improved parcel of land would be required to be treated in an equivalent way, the consequence would be that all parcels were notionally vacant and that there would no longer be any scarcity of vacant land.”
The High Court went on to say at paragraph 21:
“Nothing that was said by his Lordship in Tetzner bears upon the way in which a valuer should go about the task of selecting and applying comparable sales under the applicable legislation. The appellant does not suggest, to borrow his Lordship’s words, that the valuer should close his eyes to any relevant fact. Indeed the contrary is the case. It is, the appellant submits, the respondent’s valuer who closed his eyes to relevant matters. He should have had regard to all of the relevant facts including the scarcity of vacant land, the possibility of a particular and limited class of persons in the market for it, the scarcity or otherwise of improved land, the added value of the improvements to comparable lands, and in particular, truly comparable sales, which ideally would include like land similarly improved to the subject land. And whilst it is true that s.6A is intended to apply to each valuation made under it, its statutory operation in relation to all valuations, that is, all pieces of land to be valued, is another factor which cannot be ignored, and requires that a scarcity of vacant sites not be the determinant factors in valuations made under the Act.”
Now the relevant issue in Maurici is that the respondent had acknowledged that a scarcity factor did exist in the lands at Hunters Hill, but made no attempt to quantify that scarcity factor. While the level of scarcity is likely to reflect the availability, if any, of any alternative sites for purchase, its quantification is a matter to be reflected in the market place. While there remains some alternative choice in the market place, any scarcity factor is likely to be minimal. However once the availability of comparable lands becomes restricted to only a few truly comparable properties, then the scarcity factor is likely to increase.
In the Maurici matter Mr Croker did not analyze any improved sales in the immediate area of Hunters Hill. The High Court noted at paragraph 19:
“Improved sales are used daily for the purposes of statutory valuations under provisions similar to s.6A(1) of the Valuation of Land Act, by subtracting the added value of the improvements to them from their sale prices to derive unimproved values. It may be that in such a desirable area as Hunters Hill where there are apparently many mansions, their presence and the presence of lesser houses may add little, or much less than replacement value to the sale price of the land on which they stand. But that does not mean that the respondent is entitled to ignore reasonably contemporaneous sales of comparable improved land. Such sales, particularly in the case of a scarcity of vacant land cannot be disregarded. The contrary approach is required by the Act.”
Now in the current matter Mr Antoni rejects the existence of a margin for scarcity [paragraph 14]. On that basis I believe that Maurici can be distinguished. However I believe that Maurici does provide useful guidance for all parties in matters, where sales of vacant lands are either non-existent in an area, or where only a few isolated cases exist, or where previously improved lands are later cleared for redevelopment purposes. However the use of such sales where demolition of old improvements has occurred, must always be tested to see if that sale is out of line with the market. Such situations are an increasingly common occurrence in City areas, where total old developments have existed for some time. The current high demand for sites in such areas, and the existence of planning constraints that limit removal or modification of old dwellings, creates a scenario where the guidance of Maurici could be relevant.
If for example there are no available sales of vacant or lightly improved lands in the locality of a parcel being valued, then it is not uncommon for a valuer to seek vacant land sales in adjoining localities, well removed from the subject land. However, Maurici now warns that care needs to be taken to see that the land so chosen are in fact comparable, and that those few sales do not reflect a scarcity premium because of their very restricted market competition. It is noted for example that the common meaning of the word “scarce” is taken to be a circumstance which is insufficient for demand, and which reflects a lack of alternative options. It must therefore be remembered that competition, or lack of it, is at the heart of a free market situation. Market forces will therefore reflect whether a commodity will be merely responding to normal supply and demand, or whether the scarcity of the commodity is unreasonably increasing its availability, and therefore its price. That principle is also true for land.
I am also referred to a previous decision of this Court, where a similar scarcity argument was explored. In that matter of LA and RJ Hiley v Chief Executive, Department of Natural Resources (AV98-856), 24 September 1999, unreported, the learned Member found at p.2:
“Mr Hiley raised the point in evidence that vacant sites in Coorparoo are very scarce and the scarcity value pushes up the prices artificially. But I should point out that the unimproved value of the subject land, as with all other sites in the Coorparoo Division, is to be assessed on the basis of market value assuming the improvements on the land do not exist, and that the land is situated in the environment within which it exists, and if there is a scarcity value reflected by the vacant sales, then this scarcity value would also apply to the unimproved value of the subject land.”
This now needs to be reconsidered in light of the recent High Court decision Maurici.
While the industrial lands in the Geebung Industrial Estate have demonstrated certain characteristics which are similar to a closed market situation, the reality is that industrial lands in that general locality of Brisbane are not restricted only to that estate. Indeed the situation confronting a potential buyer wishing to locate in that estate, in the absence of sales of vacant lands, would have the option of either purchasing a lightly improved older property in the estate, or locating elsewhere in an adjoining area. Such is also the situation confronting many purchasers of other land use types elsewhere in Brisbane, where total development in an area has occurred.
The reality is that if the required location in the Geebung Industrial Estate was seen to have such a high prestigious nature, then purchasers would continue to pay for vacant lands up to the point where it would be more economic to buy an old site, and then demolish those buildings to make way for the new enterprise. That situation is now occurring daily for residential properties, where demand has exceeded supply.
In such circumstances I am sure any prudent owner would seek the full value of his investment in the context of what price a prudent purchaser would pay to acquire the site. Any unimproved value for rating purposes could have no lesser value if it fairly represents the definition explained by the High Court in Spencer v The Commonwealth of Australia (1907) 5 CLR 418, where Isaacs J (later CJ) said at page 441:
“To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant 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.”
What we have to determine is the fair market value for the subject land, as if it was vacant at date of valuation. In the current matter we cannot ignore the two sales of vacant lands in that same estate, and on that basis I reject Mr Pekol’s subjective adjustment to allow for any marginal value of the land.
Changes in the Valuation –
In respect of any reliance upon changes in the CPI as an indicator of the potential changes in the value of land, I note there is a common misconception that the CPI provides a reliable measure of increases in the market value of lands. However the CPI figure, which is widely publicized throughout the community, is no more than a statistical representation of the quarterly changes in the price of a basket of goods and services available. That basket includes 11 main groups including food, alcohol and tobacco, clothing and footwear, housing, household furnishings, health, transport, communication, recreation, education and miscellaneous items. There is no direct links to movements in the value of land. While CPI changes are used to measure trends and inflation in the community, it has no direct correlation with the market for land.
Now a thorough understanding of community statistical criteria may be seen to be helpful in understanding the market forces existing in the community. However it does no more than seek to measure the various factors influencing the minds of buyers and sellers who seek to arrive at a figure which both parties agree to transfer the ownership of the land.
That was clearly defined in the respected text of “Land Valuation and Compensation in Australia” 4th edition by Rost and Collins, (1993), which notes at p.37:
“Viewed broadly, the value of land, particularly urban land, is created or enhanced largely by the provision of public works and utilities, transport facilities, industries, community settlement, and favourable economic conditions. The market value of individual parcels of land is, however, determined in the market by buyers and sellers. The land valuer, by analysing transactions is in a position to interpret the market and to make valuations based on sales data.”
While I am aware that such percentage rises in values are often of concern to appellants in seeking to have confidence that their personal property has been fairly treated in any valuation, they in fact do not prove conclusively that any error has been made in the valuation process. Such rises may, at best, be an indicator to owners that they should further investigate the valuation, but there may be many reasons why a valuation has changed at what would appear to be a rate out of line with some overall statistical percentage.
This matter has been considered many times by the courts, and I note from precedent that a large increase in itself is not evidence of some error in the valuation. I note, for example, in the decision of NR and PG Tow v Valuer-General (1978) 5 QLCR 378, where the Land Appeal Court said 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, where in the Full Court of Queensland, Macrossan J (later CJ) said at p. 63:
“The appellants also relied upon a schedule, exhibit 4 in the Land Appeal Court, which shows 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 case 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 land with sales of comparable sites in the vicinity of the subject land at the time of the valuation.
In respect of Mr Pekol’s reliance upon a 3.4 % annual increase in the rents received from the subject land over the period of seven years, I note that factor can vary from site to site, depending upon the quality, nature and character of the improvements. While it is a more direct relationship between the value of the land and the rents received, I believe the most useful comparison is with the prices paid for comparable land. It is also likely that the overall value of a parcel to an investment owner is not only the annual rental returns on the investment, but also any capital gains in the value which may occur.
Comparison of Sales –
I turn then to Mr Pekol’s Sale 1 (269 Robinson Road) and note that his method of analysis of that sale has not seen to explore any potential risk of a hypothetical subdivisional approach. The subject allowance for contamination and size are unsupported by market evidence, and appear to reflex Mr Pekol’s personal opinions. I would support Mr Antoni in rejecting such an approach. I note for instance the warnings of Dixon CJ in the High Court of Australia in the matter of Turner & Anor v The Minister of Public Instruction (1956) 95 CLR 245, where he said speaking about a hypothetical development approach, at p.267:
“The formula the use of which apparently has become so familiar in valuing land suitable for subdivision contains a number of factors all of which seem to depend on little or nothing more than opinion, and it may be supposed that widely different results may be produced by variations in detail, though no given variation itself may seem considerable. It would appear natural therefore for a judicial valuer to seek his result by reference to as many sources of information and inferences as may be found, even if he might consider that they would not provide him, had they stood alone, with a satisfactory independent basis for an ultimate conclusion.”
In respect of the use of contaminated lands for comparison purposes, I note in the matter of Manwelland Pty Ltd v Dames & Moore Pty Ltd (supra) that the comparison in that case related to damages from the defendant company, which was an expert in the field of remediation of contaminated lands. The comparison with other uncontaminated lands in Mackay was criticized by the Court of Appeal, where MacPherson JA found that the valuer (Deakin) had incorrectly made an allowance in his application of a significant discount to cater for buyer resistance to purchasing contaminated land, but ignored the subsequent disclosure that part of the subject land in that matter was capable of being developed (p.5).
The concern of the Court of Appeal would appear to lie in the principle of seeking comparisons on a like with like basis. In the current matter the existence of contamination is unknown, and the application of any adjustment for contamination is merely a hypothetical exercise. I see no support for the current use of contaminated land assessments in that reference. A subsequent appeal to the High Court against the Court of Appeal decision on the principle of misrepresentation was rejected. (Manwelland Pty Ltd v Dames & Moore Pty Ltd B 89/2001, 26 June 2002.
A perusal of the Piesse Investments Pty Ltd v WR Mortgage Services Pty Ltd & Ors (supra) also discloses that, while the capitalization method of valuation is a process accepted by the courts, its inherent difficulties must be recognized. In that matter Douglas J noted at p.9:
“[22] It is clear that in relation to the hotel valuation, David Cameron’s valuation was in error in his failure to check whether the rental being paid was a sustainable market rental, and in his adoption of a capitalisation rate of 11% which was too low in the circumstances.”
A key part of that matter lay with the unreliable, or dishonest, valuation approaches of the valuer (Cameron) who provided valuations for the financing of the applicant’s development. The caution of Douglas J in adopting unsubstantiated capitalization rates support the caution of Turner v The Minister. The further matter of MAM Mortgages Ltd & Anor v Cameron Brothers & Ors (supra) provides no further assistance to Mr Pekol’s case in this matter.
I turn then to the comparisons with sales of vacant or lightly improved lands, and note that that principle was supported by the Land Appeal Court in PH Clough v Valuer-General (1981-82) 8 QLCR 70 at page 76. The method was also favourably accepted in WM and TJ Fischer v Valuer-General (1983) 9 QLCR 44, where the Land Appeal Court said at page 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. Whilst maintenance of correct relativity is also of considerable importance for rating or revenue type valuations, we cannot prefer in the circumstances of this case, the use of the principle of relativity to the exclusion of the sales evidence.”
While Mr Pekol’s assertion that an existing ten year lease on Sale 2 may influence the price of that sale, there is no evidence to demonstrate that the purchaser paid any more than the market price for the parcel. On the evidence before me I find the most conclusive comparisons are as follows:
Sale Area Applied Rate Comparison 102 Delta Street 1,012 m² $166 per square metre Inferior (smaller) 90 Basalt Street 2,489 m² $147 per square metre Superior Subject land 2,200 m² $127 per square metre - If I make the adjustment for difference and size of Sale 1 of 75% as applied by Mr Antoni, based upon a wide market appraisal of various sales evidence, I could conclude a rate for a comparable size parcel of 2,200 m² at $127 per square metre (see [paragraph 24]). On those comparisons there is nothing to disclose that Mr Antoni has made any error of fact. He has certainly used a correct principle of valuation.
Summary:
In summarizing this matter I am aware that s.33 of the Act directs:
“33. 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 reminded that unless the appellant can demonstrate that the Chief Executive has followed a wrong principle, or has made a serious error of fact, then the valuation shall stand. (Brisbane City Council v The Valuer-General (1977-8) 140 CLR 41, per Gibbs J at p.56).
That is further supported by s.45(4) of the Act, which when referring to a Notice of Appeal in an annual valuation, 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.”
That responsibility has not been expunged by the appellant.
Conclusion:
Having considered the whole of the evidence I am not persuaded that the appellant has proved her case. The appeal is dismissed, and the unimproved value of Lot 7 on RP 817398, as determined by the Chief Executive in the sum of Two Hundred and Eighty Thousand Dollars ($280,000) is affirmed.
NG DIVETT
MEMBER OF THE LAND COURT
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