ROBERTSON and VALUER GENERAL
[2007] WASAT 213
•27 AUGUST 2007
ROBERTSON and VALUER GENERAL [2007] WASAT 213
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2007] WASAT 213 | |
| VALUATION OF LAND ACT 1978 (WA) | |||
| Case No: | DR:424/2006 | 21 AUGUST 2007 | |
| Coram: | MR D R PARRY (SENIOR MEMBER) MR D LIGGINS (SENIOR SESSIONAL MEMBER) | 27/08/07 | |
| 18 | Judgment Part: | 1 of 1 | |
| Result: | Unimproved value of Lots 114, 115, 116, 117, 118 and 120 on Diagram 12049, Lot 130 on Diagram 12335/1, Lot 138 on Diagram 12378, Lots 140, 141, 142 and 143 on Diagram 12375 and Lot 2 on Diagram 14147 at Stoneville Road, Cameron Road and Joseph Road, Gidgegannup as at 1 August 2003 was $3 698 000 | ||
| B | |||
| PDF Version |
| Parties: | DONALD EUAN ROBERTSON VALUER GENERAL |
Catchwords: | Valuation of land – Unimproved value – Site value – Adjoining land in common ownership – Single group value – Rural land in Perth Metropolitan Region used for grazing purposes – Thirteen adjoining lots each with separate certificate of title and road access in common ownership – Gross realisation of lots discounted by an appropriate percentage ascertained from single sales involving more than one lot – Appropriate profit and risk factor – Whether a single sale of a single lot which was subsequently subdivided into four lots is of assistance in determining appropriate profit and risk factor and discount for single group value – Default Multi Lot Table applied |
Legislation: | Local Government Act 1995 (WA), s 6.28(1), s 6.28(2) State Administrative Tribunal Act 2004 (WA), s 27(1) Valuation of Land Act 1978 (WA), s 4(1), s 18, s 19, s 32, s 32(7), s 33, s 36A(1) |
Case References: | Nil |
Orders | On the application heard on 21 August 2007 by Senior Member David Parry and Senior Sessional Member David Liggins, it is on 27 August 2007 ordered that:,1. The application for review is dismissed.,2. The unimproved value of the land in Lots 114, 115, 116, 117, 118 and 120 on Diagram 12049, Lot 30 on Diagram 12335/1, Lot 138 on Diagram 12378, Lots 140, 141, 142 and 143 on Diagram 12375, and Lot 2 on Diagram 14147 at Stoneville Road, Cameron Road and Joseph Road, Gidgegannup as at 1 August 2003 is $3 698 000.,3. Exhibit 9 shall be returned to the applicant. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : DEVELOPMENT & RESOURCES ACT : VALUATION OF LAND ACT 1978 (WA) CITATION : ROBERTSON and VALUER GENERAL [2007] WASAT 213 MEMBER : MR D R PARRY (SENIOR MEMBER)
- MR D LIGGINS (SENIOR SESSIONAL MEMBER)
- Applicant
AND
VALUER GENERAL
Respondent
Catchwords:
Valuation of land – Unimproved value – Site value – Adjoining land in common ownership – Single group value – Rural land in Perth Metropolitan Region used for grazing purposes – Thirteen adjoining lots each with separate certificate of title and road access in common ownership – Gross realisation of lots discounted by an appropriate percentage ascertained from single sales involving more than one lot – Appropriate profit and risk factor – Whether a single sale of a single lot which was subsequently subdivided into four lots is of assistance in determining appropriate profit and risk factor and discount for single group value – Default Multi Lot Table applied
(Page 2)
Legislation:
Local Government Act 1995 (WA), s 6.28(1), s 6.28(2)
State Administrative Tribunal Act 2004 (WA), s 27(1)
Valuation of Land Act 1978 (WA), s 4(1), s 18, s 19, s 32, s 32(7), s 33, s 36A(1)
Result:
Unimproved value of Lots 114, 115, 116, 117, 118 and 120 on Diagram 12049, Lot 130 on Diagram 12335/1, Lot 138 on Diagram 12378, Lots 140, 141, 142 and 143 on Diagram 12375 and Lot 2 on Diagram 14147 at Stoneville Road, Cameron Road and Joseph Road, Gidgegannup as at 1 August 2003 was $3 698 000
Category: B
Representation:
Counsel:
Applicant : Mr JA Thomson
Respondent : Mr J Clark (Public sector employee)
Solicitors:
Applicant : David Rawlinson
Respondent : Valuer General's Office
Case(s) referred to in decision(s):
JB Investments Pty Ltd and Valuer General [2006] WASAT 55
(Page 3)
Summary of Tribunal's decision
1 The owner of 13 adjoining lots with individual Certificates of Title and public road access, but used as a single grazing property, sought review of a valuation of the unimproved value of the lots. The owner contended that the valuation is incorrect because it involves the application of an "arbitrary" discount rate from the gross realisation of the individual lots to determine a single group value for the property which is not based on a market determination of the profit and risk factor that would be required on a hypothetical sale of the property at the relevant valuation date.
2 The Tribunal determined that criticism of the stated discount rate for 13 lots in a policy of the Valuer General as "arbitrary" is not fair or reasonable. The policy contemplates that the nominated discount rates can be departed from in a particular case where there is sufficient sales evidence or another method to determine an appropriate discount factor. In the absence of sufficient sales evidence or another method, the policy regards the use of a nominated discount rate as a logical basis when determining unimproved value of lots in common usage.
3 The Tribunal determined that there was an absence of sufficient comparable sales evidence of single sales of multi lots in the locality. The Tribunal also determined that an alternative method advanced by the owner, which involved a calculation of a profit and risk factor based on a single sale of a single lot two and a half years after the relevant valuation date which was subsequently subdivided into four lots, was not an appropriate method to either test the discount rate nominated in the policy or to calculate an alternative discount rate. The Tribunal also determined that the profit and risk factor inherent within the nominated discount rate in the policy was adequate in the circumstances of the case to cover work that is likely to have been undertaken following a hypothetical purchase of the property for the purposes of resale of the individual lots.
4 In consequence, the Tribunal found that there was no proper basis to depart from the Valuer General's policy in general or the nominated discount rate for 13 lots to determine a single group value in particular. The correct and preferable decision on the review was to confirm the Valuer General's valuation. The application for review was dismissed.
(Page 4)
Introduction
5 These proceedings involve a review under s 33 of the Valuation of Land Act 1978 (WA) (VL Act) of the Valuer General's determination of the unimproved value as at 1 August 2003 of 13 adjoining lots owned by Dr and Mrs Robertson at Stoneville Road, Cameron Road and Joseph Road, Gidgegannup (property). The 13 lots that comprise the property are Lots 114, 115, 116, 117, 118 and 120 on Diagram 12049, Lot 130 on Diagram 12335/1, Lot 138 on Diagram 12378, Lots 140, 141, 142 and 143 on Diagram 12375, and Lot 2 on Diagram 14147. Each of the lots has a separate Certificate of Title and direct access to a public road.
Property
6 The property is situated approximately 3.5 kilometres south-west of the Gidgegannup townsite, approximately 6 kilometres north of the Stoneville townsite, and approximately 9 kilometres north of the Mundaring townsite. The property has generally sealed road frontage to Stoneville Road, Cameron Road and Joseph Road, with a small section of Joseph Road comprising gravel track which is bisected by the Gidgegannup Brook.
7 The property has a total area of approximately 505.6 hectares. Other than one lot which has an area of approximately 22 hectares, each of the lots comprising the property have an area of approximately 40 hectares.
8 Approximately 59% of the property has been cleared and is used for grazing cattle. Eleven of the 13 lots have at least one dam. The property is traversed by Gidgegannup Brook and two tributaries.
9 At the date of valuation, the property was zoned "General Rural" under the City of Swan Town Planning Scheme No9 (TPS 9) and was identified as "General Rural 2" with a minimum lot size of 40 hectares under the Gidgegannup Rural Strategy.
Statutory context
10 Section 18 of the VL Act states that "for the purposes of a general valuation, the Valuer-General shall determine, or cause to be determined, with respect to rateable land … the unimproved value … so far as that value is required by a rating or taxing authority for the purpose of assessing any rate or tax … ". Section 6.28(1) of the Local Government Act 1995(WA) (LGAct) requires the Minister for Local Government to determine the method of valuation of land to be used by a local government as the basis for a rate. Section6.28(2) of the LGAct states that:
(Page 5)
- "(2) In determining the method of valuation of land to be used by a local government the Minister is to have regard to the general principle that the basis for a rate on any land is to be -
(a) where the land is used predominantly for rural purposes, the unimproved value of the land; … "
12 The property is located within the Perth Metropolitan Region. The term "unimproved value" is defined in s 4(1) of the VL Act, unless the context requires otherwise, as the "site value" for land within the Perth Metropolitan Region. The term "site value" is defined in s 4(1) of the VL Act, unless the context requires otherwise, as follows:
"'site value' of land means the capital amount that an estate of fee simple in the land might reasonably be expected to realise upon sale assuming that any improvements to the land, other than merged improvements, had not been made … "
13 The term "merged improvements" is defined in s 4(1) of the VL Act, unless the context requires otherwise, as follows:
"'merged improvements' means any works in the nature of draining, filling, excavation, grading or levelling of the land, retaining walls or other structures or works for that purpose, the removal of rocks, stone or soil, and the clearing of timber, scrub, or other vegetation;"
14 The term "land" is defined in s 4(1) of the VL Act, unless the context requires otherwise, as follows:
"'land' means lands, tenements and hereditaments, and any improvements to land, and includes any interest in land;"
(Page 6)
15 Each of the 13 lots that comprise the property is "rateable land" for the purposes of the VL Act. The Valuer General is, therefore, required to determine the unimproved value of each lot under s 18 of the VL Act for rating purposes.
16 The Valuer General has adopted and published Policy 4.104 Adjoining Land in Common Ownership (Policy 4.104) to guide the determination of the unimproved value of rateable land within the Perth Metropolitan Region under s 18 of the VL Act. Policy 4.104 provides that adjoining lots are to be given a single group value if they meet the following four criteria:
"(a) The adjoining lots are in common ownership;
…
(b) The adjoining lots are used as one, such as:
…
- Grazing
(c) The current use is consistent with land use in the locality and, that it will continue into the foreseeable future.
(d) Sales evidence confirms the basis of valuation."
17 It is common ground in this review that the property met these four criteria as at 1 August 2003 and that Policy 4.104 therefore guides the determination of unimproved value under s 18 of the VL Act in the circumstances of this case. For reasons set out in JB Investments Pty Ltd and Valuer General [2006] WASAT 55 at [81] - [85], the Valuer General was authorised to issue Policy 4.104 and the Tribunal ought to follow and apply it unless a proper case is shown for departing from it.
18 Under the heading "Guidelines", Policy 4.104 states as follows:
"Method of determining one value on the basis of usage …
The valuation approach in valuing land used as one is still to calculate the gross realisation of the lots involved but to discount this figure by an appropriate percentage ascertained from single sales involving more than one lot.
(Page 7)
- The problem of formulating a supportable method, suitable for application in virtually all cases arose in the UV Section prior to the formation of the Regions. The initial instruction was as above, to allow a percentage reduction, based on sales evidence, on the total of the individual values. However, in practise this proved unworkable. The number of lots used together ranged from 2 to large multiples and comprised all zoning types – residential, industrial, commercial, rural. The major problem which arose was varying the percentage reduction to allow for number and size of lots, zoning, locality and individual or local circumstances, ie: percentage reduction applied to 5 rural lots used together in outer Wanneroo would probably be incorrect for 5 industrial lots in Belmont. Sales evidence was just not available to establish reductions over the range of lots in common usage. Charts were continually being issued and revised to accommodate varying situations.
The method adopted as being suitable for most situations was the principle of hypothetical development. This method calculates a value (UV) on the basis that all lots are purchased as once parcel for resale. The reduction can be varied by the application of different selling periods and [profit and risk] factors to suit particular circumstances." (Emphasis in bold added).
19 Policy 4.104 then provides an example of a hypothetical development involving five separate rural lots in outer Wanneroo, all fenced and used together as one market garden. The example involves the addition of the individual unimproved value of each of the five lots and the discounting of this sum by a stated percentage. Attached to Policy 4.104 is a "Multi Lot Table" which indicates a percentage "block deduction range" and a specific discount percentage to adopt depending on the number of lots in a single sale between two and 40 lots. The block deduction range ranges from 5% - 10% to 30% - 35% and the specific discount percentage to adopt ranges from 10% - 35% between two and 40 lots. For a single sale involving 13 lots, the block deduction range is 20% - 25% and the specific percentage discount to adopt is 24%.
20 After the example referred to earlier, Policy 4.104 states as follows:
"To ensure uniformity on Reval[uation], consultation between the Reval[uation] team in relation to [profit and risk] and selling periods to apply in differing circumstances is still necessary.
(Page 8)
- However, Valuers are not tied to rigid percentage reductions and can exercise discretion when necessary. In the absence of sufficient sales evidence, or any other method which may be suggested, this calculation provides a logical basis to apply when determining UV's on lots in common usage." (Emphasis in bold added).
21 Section 32 of the VL Act entitles any person liable to pay any rate or tax assessed in respect of land, who is dissatisfied with a valuation made by the Valuer General in relation to that land, to object to the valuation on the ground that the valuation is not fair or is unjust, inequitable or incorrect, within 60 days of the issue of an assessment by a rating or taxing authority of any rate or tax on the basis of the valuation. The Valuer General is required to consider any objection and may either disallow it or allow it, wholly or in part: VL Act s 32(7).
22 Section 33 of the VL Act provides that any person who is dissatisfied with the decision of the Valuer General on an objection may, by notice, require the Valuer General to "refer the valuation to the State Administrative Tribunal for a review". Section 36A(1) states that, upon a review by the Tribunal on a referral under s 33, the Tribunal may consider grounds in addition to those stated in the notice of objection and reasons in addition to those previously given by the Valuer General. Section 27(1) of the State Administrative Tribunal Act2004 (WA) states as follows:
"The review of a reviewable decision is to be by way of a hearing de novo, and it is not confined to matters that were before the decision-maker but may involve the consideration of new material whether or not it existed at the time the decision was made."
23 In this case, Dr Robertson objected to the valuation of the unimproved value of the 13 lots that comprise the property as at 1 August 2003 on the ground that the valuation is not fair or is unjust, inequitable or incorrect, within 60 days after the issue of a rating assessment by the City of Swan. Dr Robertson's objection was wholly disallowed by the Valuer General. Dr Robertson subsequently required the Valuer General to refer the valuation to the Tribunal for a review under s 33 of the VL Act.
(Page 9)
Competing valuations
24 The Valuer General presented valuation evidence from Mr Russell Dodd. Dr Robertson presented valuation evidence from Mr Kingsley Vincent. The valuers agree that the value of the gross realisation of the 13 individual lots that comprise the property as at 1 August 2003 is $4 865 991. The valuers also agree that, although there have been 13 single sales involving more than one lot over a six year period in the Gidgegannup locality, virtually all of the sales involved two lots and a number involved smaller lots than the lots that comprise the property or were not fully at arms length, and therefore are not relevantly comparable for the purposes of Policy 4.104.
25 However, the valuers disagree in relation to the appropriate discount rate to be used to determine a single group value for the property from the value of the gross realisation for the individual lots.
26 Mr Dodd considers that the appropriate discount percentage is 24% as stated in the Multi Lot Table of Policy 4.104, which would result in an unimproved value of the property as at 1 August 2003 of $3 698 000. Mr Dodd considers that the appropriateness of this percentage deduction is supported by an analysis of the sale of Lot 13 on Diagram 3126 which is known as Lot 13 Toodyay Road, Gidgegannup (Lot 13). Although Lot 13 comprised a single lot at the date of the sale, conditional subdivision approval had been granted by the Western Australian Planning Commission for its subdivision into eight lots. Lot 13 has an area of 402.8 hectares and, like the property, is predominantly undulating grazing country with dams and traversed by brooks. Unlike the property, Lot 13 is zoned "General Rural – Agriculture" under TPS 9 with a minimum lot size of 50 hectares.
27 Mr Dodd adopted the following evidence from a valuation report prepared by the previous District Valuer responsible for the valuation:
"The subject [property] would appeal to a developer as it contains 13 lots, each with its own certificate of title and road frontage. The property's current configuration would allow each individual lot to be sold immediately, greatly reducing the risk and holding costs. A discount factor of 24% has been applied which is considered adequate as land values have been rapidly increasing across all property types in the Gidgegannup region, with shortening selling periods."
(Page 10)
28 The 24% discount rate adopted by Mr Dodd reflects a profit and risk factor of 15%. RO Rost and HG Collins state in relation to profit and risk factor in Land Valuation and Compensation in Australia (Australian Institute of Valuers (Incorporated), second reprinted edition, 1981) at page 147 as follows:
"Various factors would be weighed by the purchaser when assessing the amount of profit expected from the venture, but two significant items in his calculations would be a sum to cover the element of risk, and a sum representing profit. The risk factor relates to the security of the capital interest invested in the enterprise and is a form of insurance against error in the estimates of costs and realisations. The other ingredient is profit, or net return on the money invested."
29 Mr Vincent considers that Mr Dodd's valuation of the unimproved value of the property as at 1 August 2003 is incorrect, because it is based upon "the unrealistic and arbitrary discount of 24%". Mr Vincent considers that a higher profit and risk factor is properly deduced from the 2003 marketplace than the 15% that is implicit in the 24% discount used by Mr Dodd, which would then indicate a higher discount rate and a lower unimproved value for rating purposes.
30 Mr Vincent produced two different valuations of the unimproved value of the property as at 1 August 2003. Mr Vincent's first valuation, dated 15 June 2007, is $3 352 000, reflecting a discount rate of 31% from the gross realisation of the 13 lots. Mr Vincent's second valuation, dated 15 August 2007, is $3 220 000, reflecting a discount rate of 33.83%.
31 Both of Mr Vincent's valuations are based on a discount rate reflecting the profit and risk factor based on an analysis of a single sale of Lot 37 on Diagram 9316 which is known as 37 Lilydale Road, Gidgegannup (Lot 37). Lot 37 comprised a single lot with an area of 83.33 hectares as at the date of its sale in April 2006. Mr Vincent gave evidence that, following the purchase of Lot 37, "the purchaser immediately applied for subdivision approval into four 20-hectare lots" and "this subdivision commenced very soon after purchase and the four lots are now on the market with two lots having recently sold". Mr Vincent described Lot 37 as "immediately ripe for subdivision".
32 In his first valuation, Mr Vincent valued each of the four lots which have been created from Lot 37 at $500 000. On the basis of the gross realisation of four lots at $500 000, the purchase price of Lot 37 at $1 300 000 and
(Page 11)
- deductions for agency and legal costs, development costs, interest on holding costs, rates and taxes and stamp duty, the profit and risk factor deduced by Mr Vincent for Lot 37 in his first valuation equates to 30% on cost. In his first valuation, Mr Vincent considers that the profit and risk factor of 30% for Lot 37 results in a profit and risk factor of 27.5% for the property, owing to the property's superior attractiveness and location. A profit and risk factor of 27.5% results in a discount from gross realisation of 31% and a valuation of the unimproved value of the property as at 1 August 2003 of $3 352 000.
33 In his second valuation, Mr Vincent valued each of the four lots created from Lot 37 at $800 000, being an increase in value of $300 000 or 60% over the value identified by Mr Vincent two months earlier. Adopting the same process as in his first valuation, the effect of this increase in the value of the lots created from Lot 37 is that the profit and risk factor on the purchase of Lot 37 in April 2006 increases from 30% to 98.5%. Although Mr Vincent described this latter profit and risk factor as "ridiculously high", he said that, on the basis of his experience, he nevertheless derives a profit and risk factor for the hypothetical sale of the property that is the subject of these proceedings as at 1 August 2003 of 30%. This profit and risk factor results in a discount rate of 33.83% from the gross realisation of the 13 lots that comprise the property and an unimproved value of $3 220 000.
Issue for determination
34 It follows that the sole issue for determination in this review is:
What is the appropriate discount rate to apply to the agreed gross realisation of the 13 lots that comprise the property under Policy 4.104 in order to determine the unimproved value of the lots under s 18 of the VL Act?
35 It also follows that a material consideration in this regard is:
What is the appropriate profit and risk factor in relation to a hypothetical sale of the 13 lots as at 1 August 2003?
What is the appropriate discount rate?
Use of Multi Lot Table
36 Mr Vincent criticised the 24% discount rate adopted by Mr Dodd as "arbitrary" and said that it should be rejected in favour of "a realistic factor derived from the marketplace at or about the time of the valuation,
(Page 12)
- or as near as possible to the valuation date". He gave the following evidence:
"It is possible that in a particular past year Valuer General Williams [who issued Policy 4.104] undertook some sales research to establish the Multi Lot Table of percentages and that research may well have been based on the analysis of sales of en globo land in various districts or centres near to Perth.
At best, in any other year, these percentages, held fixed within the attachment to Policy 4.104, can only give the VGO valuers a guide to the discount that should be adopted. Supply and demand for rural property in the near Perth districts such as Gidgegannup, Toodyay, Wanneroo, Mundaring, Chidlow, Bakers Hill etc can vary considerably due to such environmental factors as drought, too much rain, extensive bushfires, livestock disease epidemics, and economic factors such as undersupply, oversupply, lack of demand, zoning changes, high or low interest rates and mortgage rates, bank overdraft rates, credit squeeze and restrictions, war, Council restrictions with proposals for future development and the like. In any one or combination of the above conditions, the developer['s] expectations of profit and risk will change and this will of course lead to higher or lower sale prices being achieved in any one year. In some years the economy and/or the climate may not change at all, while in others there could be considerable change for both considerations.
In good years with stable interest rates for mortgages etc and with four good seasons, it would be reasonable to expect a developer's profit and risk expectations to be lower than in years where the CPI Index is reflecting high inflation levels and credit facilities are not readily available. In my opinion, profit and risk factors could swing from 20% in a good year to 45% in a slow year for a 5 30 lot rural subdivision. It would be rare for a profit and risk factor to fall below 10% in any one year regardless of economic and/or climatic conditions. Any less than that and a developer would not proceed with subdivision of his land."
(Page 13)
- ownership where an appropriate percentage cannot be ascertained from single sales involving more than one lot. Mr Dodd correctly said that if there were evidence of single sales of multi lots then the nominated discount rates stated in the Multi Lot Table might be departed from. While, as noted earlier, Policy 4.104 states that "[v]aluers are not tied to rigid percentage reductions and can exercise discretion where necessary", it also says that "in the absence of sufficient sales evidence, or any method which may be suggested, this calculation [that is, one based on nominated discount rates] provides a logical basis to apply when determining [unimproved value] on lots in common usage".
38 As noted earlier, it is common ground that there are no comparable single sales involving more than one lot in the locality. It is not, therefore, a fair or reasonable criticism of Mr Dodd's valuation to say that it is based on the "arbitrary" discount rate specified in the Multi Lot Table or that it should be rejected in favour of a discount rate derived from the marketplace. Policy 4.104 itself contemplates that where a discount rate cannot be determined from single sales involving multi lots, the "logical basis" on which to determine a single group value for adjoining land in common ownership is by the application of the rates in the table.
39 Furthermore, while the range of profit and risk factors of 20% in a good year to 45% in a slow year nominated by Mr Vincent may be correct for rural subdivisions of 5 - 30 lots, as Mr Dodd correctly observed, the subject property comprises 13 existing lots, each with its own Certificate of Title and access to a public road.
40 Mr Dodd conceded that it is likely that the hypothetical sale of the property as at 1 August 2003 would be to a developer who would want to survey the boundaries of each lot, fence the boundaries (where fences have generally been removed or moved), fix the dilapidated condition of external fencing and install fencing along a portion of Joseph Road where it is absent, and install firebreaks. Mr Vincent said that this work would cost approximately $120 000. However, we consider that a profit and risk factor of 15%, which is implicit in a discount rate of 24%, is adequate in the circumstances of this case. Based on Mr Dodd's valuation, a profit and risk factor of 15% equates to $609 307. While RO Rost and HG Collins say at page 147 that "separate amounts of money cannot be apportioned as between the elements of profit and risk", Mr Vincent expressed the opinion that profit and risk can be apportioned as three-quarters profit and one-quarter risk. Accepting this apportionment for present purposes, one-quarter of $609 307 is adequate to provide for surveying, fencing and firebreaks on Mr Vincent's evidence. Although
(Page 14)
- Mr Vincent identified a range of other potential risks, Dr Robertson did not call any evidence to establish that any of those types of risk were relevant in relation to a hypothetical sale of the 13 lots that comprise the property as at 1 August 2003. Indeed, the evidence of Mr Dodd, which was not questioned or contradicted, is that there was a medium rising market at the time. There is no evidence of any environmental or other factors which would have warranted a greater profit and risk factor. Finally, although Mr Vincent raised the prospect of a regulatory requirement to seal the small section of Joseph Road that is unsealed, developer contributions cannot be required because the 13 lots exist and do not require further subdivision approval.
Lot 13
41 Furthermore, we find that the 24% discount factor nominated in the Multi Lot Table is supported in the circumstances of this case by the sale of Lot 13. The valuers ultimately agreed that the unimproved value of that property was $3 145 000 as at the contract date in June 2002. This unimproved value translates to $7808 per hectare, which is similar to the unimproved value of the subject property determined by Mr Dodd after discounting by 24% of $7355 per hectare.
42 Although the sale of Lot 13 was not a single sale involving more than one lot, it is sufficiently similar, because the land was the subject of a conditional subdivision approval into eight lots, to provide support for Mr Dodd's valuation. The fact that the unimproved value per hectare of Lot 13 was approximately $500 more approximately 13 months before the relevant unimproved value of the property on 1 August 2003 indicates that, if anything, the valuation based on the 24% discount factor in the Multi Lot Table favours Dr Robertson.
43 Mr Vincent made two principal criticisms of the use of the Lot 13 sale to support Mr Dodd's valuation. First, the sale occurred approximately 15 months before the relevant date for the valuation of the property. Second, the terms of the sale were that payment of 90% of the purchase price was deferred until the settlement which occurred approximately 16 months after the date of contract. Mr Vincent considers that the true unimproved value of the land was, therefore, 9.75% less than the unimproved value of $3 145 000 having regard to the delayed settlement and payment of the purchase price.
44 However, as noted earlier, there was a medium rising market at the time. We consider that this factor adequately compensates for the effect of the delay in settlement in terms of value. Taking into account both market movement
(Page 15)
- and the delayed settlement, the unimproved value of $7808 per hectare reflected the approximate unimproved value of Lot 13 as at 1 August 2003. Mr Vincent's criticisms do not mean that the sale of Lot 13 should be disregarded in supporting Mr Dodd's valuation. However, if the sale of Lot 13 were disregarded, we would arrive at the same result in this review, namely that the Valuer General's valuation should be confirmed, for the reasons set out earlier.
Lot 37
45 We do not consider that the sale of Lot 37 in April 2006 is of any assistance in the determination of an appropriate discount factor under s 18 of the VL Act and Policy 4.104 for each of three reasons advanced by Mr Dodd.
46 First, an analysis involving Lot 37 is not comparing like with like. As at the date of the sale, Lot 37 did not comprise multiple lots, but rather was a single lot. As at the date of the sale, conditional subdivision approval had not been applied for or granted. While Mr Dodd conceded that, as at the date of the sale, Lot 37 was appropriately zoned, had excellent access and was appropriately serviced, he correctly observed that "there is always going to be some element of risk" associated with the purchase of a single lot which is absent in the purchase of 13 lots each on separate titles. As RO Rost and HG Collins note at page 148, specifically in relation to profit and risk factor, "[i]t must … be emphasised that sales provide the best evidence of value, but for comparisons to be useful there must be a strong measure of comparability between land sold and land being valued". We do not consider that the sale of Lot 37 is comparable to the valuation of the property.
47 Second, the sale of Lot 37 occurred approximately two and a half years after the relevant date for valuation of the property. The difference between Mr Vincent's first and second valuations indicates that, in as little as two months, there was a 60% increase in land values in the locality. We are not aware of precise market movement between August 2003 and the present, but it appears that at some point there was a change from medium increase to very significant increase in values. It would, therefore, be unsafe to place any reliance on a sale in April 2006 in determining value as at August 2003.
48 Third, as Mr Dodd observed, the increase in value of the four allotments created from Lot 37 between Mr Vincent's first and second valuations has a significant effect on the profit and risk factor. The increase in profit and risk factor from 30% to 98.5% for the same sale of Lot 37 between Mr Vincent's first and second valuations,
(Page 16)
- two months apart, is due to the 60% increase in his valuation of each of the four lots that were created from Lot 37. As noted, it is not clear, on the evidence, precisely what increase in land values occurred in the locality between August 2003 and April 2006. However, the very significant increase in land value indicated by the difference between Mr Vincent's first and second valuations after April 2006 and the consequent significant impact on profit and risk factor mean that it would be unsafe to rely on an analysis based on the sale of Lot 37 in this case.
Appropriate discount rate
49 We, therefore, find that the appropriate discount rate to determine a single group value for the 13 lots from the gross realisation of the lots as at 1 August 2003 is 24%. We find that the implicit profit and risk factor of 15% in the 24% discount rate is appropriate, having regard to the limited risk involved in a hypothetical purchase of 13 lots each with a separate Certificate of Title and access to a public road.
Conclusion
50 The Tribunal has found that the appropriate discount rate for the determination of a single group value for the unimproved value of the 13 lots that comprise the property as at 1 August 2003 is 24% as stated in the Multi Lot Table attached to Policy 4.104. Although Policy 4.104 contemplates that the discount rate stated in the Multi Lot Table can be departed from where there is sufficient sales evidence or another method to demonstrate an appropriate alternative percentage ascertained from single sales involving more than one lot, in the absence of sufficient sales or any other appropriate method the percentage stated in the Multi Lot Table "provides a logical basis to apply when determining [unimproved value] on lots in common usage".
51 In this case, there is no directly comparable sales evidence of single multi lot sales. Although another method has been suggested on behalf of Dr Robertson, which involves deriving a profit and risk factor on the basis of the sale of a single lot which was subsequently subdivided into four lots, the Tribunal determined that this is not an appropriate method to either test the discount rate stated in the Multi Lot Table or to provide an appropriate alternative to it. The Tribunal derived no assistance from the sale relied on by Dr Robertson, because there is a difference in risk between the purchase of a single lot with subdivision potential and the purchase of 13 already subdivided lots, the sale occurred two and a half years after the relevant date for valuation, and the profit and risk factor increased over a short period
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- to a level described by Dr Robertson's valuer as "ridiculously high" because of significant market movements.
52 Furthermore, the Tribunal has determined that a profit and risk factor of 15%, which is inherent in a discount rate of 24%, is appropriate in relation to a hypothetical sale of the 13 lots that comprise the property as at 1 August 2003. A profit and risk factor of 15% is adequate to cater for surveying, fencing and firebreaks which are likely to have been required by a developer purchasing the lots for resale.
53 Dr Robertson has failed to demonstrate any proper basis for departing from the terms of Policy 4.104 in general or the nominated discount rate for 13 lots stated in the Multi Lot Table in particular in the circumstances of this case. The correct and preferable decision on the review of the Valuer General's valuation of unimproved value as at 1 August 2003 is to confirm the valuation of $3 698 000 for the property.
Orders
54 The Tribunal makes the following orders:
1. The application for review is dismissed.
2. The unimproved value of the land in Lots 114, 115, 116, 117, 118 and 120 on Diagram 12049, Lot 30 on Diagram 12335/1, Lot 138 on Diagram 12378, Lots 140, 141, 142 and 143 on Diagram 12375, and Lot 2 on Diagram 14147 at Stoneville Road, Cameron Road and Joseph Road, Gidgegannup as at 1 August 2003 is $3 698 000.
3. Exhibit 9 shall be returned to the applicant.
I certify that this and the preceding [54] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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MR D R PARRY, SENIOR MEMBER
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