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Statutory land value for a strata block exceeds $25 (Million) for a Wentworth Street Point Piper property
A well maintained 1970’s residential strata block of 14 X 3 bedroom units with 2 units per floor and basement car parking comprising 3,104.7 sqm of land zoned for unit development in Point Piper. The property is being compared with luxury waterfront detached dwellings in The Crescent, Vaucluse and Wolseley Road, Point Piper including, Bayview Hill Road, Rose Bay. As well as tiny strata plans on small blocks of land.
This has resulted in a land value of $26,100,000 and a unit value of $2,001,000 for one strata plan in Point Piper. These assessments are too high and out of line with market sentiment.
The land tax for some property investors in the eastern suburbs are under financial strain due to the land tax levied against the unimproved land value in the area. The unimproved unit value adopted by the Valuer General for the current land owner, equates to an annual land tax bill of approximately $30,000 per annum. However, unless a land value objection is applied for, a lot owner can not object to their strata unit value.
Following a Report to the Valuer General, the statutory land value is now being individually reviewed by a contract valuer appointed by the NSW Department of Land to resolve the objection. This review is by a person who was not involved in the original valuation.
The Valuer General adopted a unit value ranging as high as $2.3 million for a non-water front strata scheme. However, a recent sale in the block shows a sale price of $2.5 million and the highest ever recorded sale price of $3.7 million.
Accordingly, the sale evidence in the strata plan is not considered to be high enough to support the Valuer General assessment in the circumstances. In the alternative, the current unit value of $2,001,000 is disproportionate to the sale price $3,700,000. This represents a ratio in excess of 50% outside industry development standards. At the adopted statutory unit value the sales prices in the strata plan should otherwise be achieving upwards of $6 million, which clearly is not the case.
John Sanidas’s view that Valuer Generals statutory land value is too high, is supported by a widely accepted valuation principal known as the direct sales comparison, supported by the residual land value analysis.
The direct sales approach, reviews property sales evidence of land that affords a similar market segment to the subject property. Having a similar location, site area, zoning, height, density, and planning attribute to the property under review. The recorded RP Data sale price is then apportioned against the land area to determine the dollar rate per square metre of land. Or, the sale price is apportioned against the allowable density to determine the dollar rate per square metre of floor space. Alternatively, a calculation to show what a developer might pay as a wholesale rate on the basis of a dollar value per strata unit. This is generally calculated by dividing the assessed value or purchase price by the maximum number of units permitted.
The principal valuation method is then supported by the residual land value analysis. This method assumes firstly the calculation of the gross realisation value (GVR) of a hypothetical unit development having regard to planning requirements applicable at the time which bind the land such as zoning, height and density controls.
The valuer will then be required to have regard to various financial inputs to establish the hypothetical development cost. This includes but not limited to, the cost of stamp duty and legal fees, the cost of construction, 100% debt funding, the interest and holding charges on the land and construction, the developers profit and risk, the agent and marketing fees, tax input credit on development and the GST liability on the end sales.
The balance between the GRV and the development cost will result in the derived residual land value. This assumes a one year sales receipt and expenditure period. In these circumstances, the land value is the value of the land that would be struck between a hypothetical vendor and a hypothetical purchaser for the land. This assumes the land is offered for sale on the open market as at the date of valuation and not a related party sale.
The current statutory land value per square metre of land has been adopted by the Valuer General as being $8,406.61 which is considered too optimistic. However, this local market rate appears to be applicable to smaller land allotment sizes between 500-1,000 sqm as compared with a land allotment of 3,104.7 sqm, which otherwise equates to a lower dollar rate per square metre as the evidence shows.
It is imperative the assumptions made on the GRV are prices supported by market sales evidence. The values adopted should be based on sales of equivalent 1, 2 or 3 bedroom units or town houses depending on the development option having similar accommodation, size, aspect and outlook. Preferably, without developer’s cash back offers, car, holiday or furniture packs included.
The Point Piper review is an important statutory land value objection as this assessment will impact on other statutory land values in the eastern suburbs. Land tax is not applicable to owners who occupy accommodation as their principal place of residence. However, the benefits of an adjusted statutory land value assessment, impacts favourably on their property rates and taxes.