Victorian Statutory Revaluation
Valuer-General Victoria and Municipal Group of Valuers
Guidelines on Valuation Methodology for
Development Land – Residential and Industrial (in globo)
Introduction
These guidelines are to be used when valuing residential and industrial development land for rating and taxation purposes.
The guidelines need to be used in conjunction with the General Provisions for Specialist Guidelines, which refers to the general requirements, legislation and procedures relating to all statutory valuations.
An acceptable classification for in globo residential and industrial land is summarised below.
· In globo residential land
Residential zoned land situated inside the Urban Growth Boundary (UGB) which, although not subdivided, would find a market if subdivided into a number of allotments or small areas.
· In globo industrial land
Industrial zoned land inside the Urban Growth Boundary (UGB) which, although not subdivided, would find a market if subdivided into a number of allotments or small areas.
In globo land or subdivisional land is generally considered to be land with characteristics that would allow its subdivision into smaller parcels.
Definition
The following definition of subdivision is contained in Section 3 of the Subdivision Act 1988.
Subdivision – the division of land into two or more parts which can be disposed of separately.
Guidelines on Valuation Methodology for Development Land – Residential
And Industrial (in globo) - August 2011 Page 1 of 11
Victorian Statutory Revaluation
Other definitions and industry terms
Hypothetical subdivision
Hypothetical subdivision is a valuation methodology where a gross realisation of anticipated selling prices of lots is estimated. To arrive at the in globo land value, the accurate estimates of development costs (including developer’s profit and risk) and duration of the selling period are then calculated and deducted from the gross realisation.
Goods and Services Tax (GST)
The GST, introduced on 1 July 2000, is a broad-based 10 per cent consumption tax on the sale of most goods and services in Australia.
Margin Scheme
The margin scheme is an alternative method of calculating the GST, payable when real property is sold as part of a business. GST payable is equal to one-eleventh of the ‘margin’, rather than one-eleventh of the total selling price.
Depending on when the property was purchased and who it was purchased from, the margin is generally the difference between the sale price and:
· the amount paid for the property; or
· an approved valuation of the property at a given date; or
· the sale price and the value of the real property as at the relevant valuation date (usually 1 July 2000) if the property was purchased before 1 July 2000.
GST law regarding the margin scheme was amended in 2005.
The margin scheme does not apply to the taxable sale of real property if it was not applied by the time the sale was made:
· before 29 June 2005; or
· after 29 June 2005, but a contract or granted rights or options over the real property was entered into before 29 June 2005.
Urban Growth Boundary (UGB)
The Urban Growth Boundary (UGB) indicates the long-term limits of urban development and where non-urban values and land uses should prevail in metropolitan Melbourne, including the Mornington Peninsula.
Essentially, it follows the existing boundary defined by urban zones and growth strategies for the majority of the urban areas in metropolitan Melbourne, including the Mornington Peninsula.
The UGB came into effect in conjunction with the release of Melbourne 2030. Some significant milestones for the UGB include the following items.
· The Interim Urban Growth Boundary was implemented 8 October 2002 and the Urban Growth Boundary was settled 18 November 2003. It includes five designated growth areas across 17 municipalities. On 4 March 2008 the Victorian Government announced a new Urban Growth Zone (UBZ) in UGB growth areas to speed up residential development and contribute to the government maintaining a 10-year supply of zoned land.
· Developers in the newly created zone are no longer required to apply for rezoning on individual blocks of land; instead, planning permits are issued if proposals comply with Precinct Structure Plans (PSPs) established in consultation with local communities.
Creation of the new UGB was the first step in new planning measures. Incorporating Native Vegetation Precinct Plans into PSPs, rather than dealing with them separately as an appendix to the planning process, is another proposed initiative. The growth area councils are:
· Cardinia Shire Council
· City of Casey
· Hume City Council
· Melton Shire Council
· City of Whittlesea
· Wyndham City Council
· Mitchell Shire Council.
· On July 29 2010, amendment VC68 was passed by the Victorian Government to expand Melbourne's urban growth boundary.
· On 16 May 2011 the Victorian Government announced a new process in reviewing possible urban growth boundary inclusions. The GAA will only review the merits of land submissions and then refer submissions to a new independent Logical Inclusions Advisory Committee for final determination and advice to the Minister.
Growth Areas Authority (GAA)
The Growth Areas Authority was established in 2006 as part of the Victorian Government’s plan for outer urban development, The Growth Areas Authority is an independent statutory body with a broad, facilitative role to help create greater certainty, faster decisions and better coordination for all parties involved in planning and development of Melbourne’s growth areas.
Urban Growth Zone (UGZ)
The Urban Growth Zone applies to land that has been identified for future urban development.
The UGZ has four purposes:
· to manage the transition of non-urban land into urban land
· to encourage the development of well-planned and well-serviced new urban communities in
· accordance with an overall plan
· to reduce the number of development approvals needed in areas where an agreed plan is in place
· to safeguard non-urban land from use and development that could prejudice its future urban development.
Precinct Structure Plans (PSP)
Precint Structure Plans are master plans for developing whole greenfield communities. PSPs combine the rezoning and permit approval process. PSPs deal with roads, shopping centres, schools, parks, housing, employment the connections to transport and generally resolve the complex issues of biodiversity, cultural heritage, infrastructure provision and council charges.
Growth Areas Infrastructure Contribution (GAIC)[1]
Growth Areas Infrastructure Contribution is a contribution on development land payable to the Victorian Government for the provision of infrastructure in developing areas. The contribution is administered by the Planning and Environment Act 1987. The Act incorporates changes to provide for growth areas infrastructure contributions.
There are four types of land that make up the contribution area:
· Type A land – land that was brought into the Urban Growth Boundary (UGB) between 28 November 2005 and 31 December 2006 (inclusive), and in an urban development area on or after 2 December 2008.
· Type B-1 land – land that was included in the investigation areas 1 to 6, brought within a growth area, an UGB and an Urban Growth Zone (UGZ), on or after 2 December 2008.
· Type B-2 land – land that was included in the investigation area 7, brought within a growth area, an UGB and an UGZ, on or after 19 May 2009.
· Type C land – any land, that is not type A, B-1 or B-2 land, that was brought within a growth area and an UGZ, on or after the commencement date of the legislation on 1 July 2010.
Land within the contribution area will have a notice recorded on title. It is important to ascertain the type of land in the contribution area because it will determine when liability to pay GAIC arises for that land and the amount of GAIC payable.
The liability to pay GAIC is activated by the first of any one of the following trigger events (GAIC event) that occurs in respect of land in the contribution area:
· the issue of a statement of compliance for a plan of subdivision
· the making of an application for a building permit in respect of substantive building works or
· the occurrence of a dutiable transaction relating to the land, for example a land transfer or a significant acquisition of an interest in the land rich landholder holding land in the contribution area.
The GAIC rates for the 2011–2012 financial year are:
· $82,550 per hectare for Type A land
· $98,030 per hectare for Types B-1, B-2 and C land.
The GAIC rates for the 2011–12 and subsequent financial years will be indexed annually based on the Consumer Price Index. The indexed GAIC amount for each financial year will be published by 1 June of the preceding financial year in the Government Gazette and will be available on the Department of Planning and Community Development website www.dpcd.vic.gov.au.
The most recent changes to the legislation [the Planning and Environment (Growth Area Infrastructure Contribution) Act 2011] makes it possible for all or part of the GAIC to be paid for by the provision of land, infrastructure or building works rather than in cash. This is referred to as the provision of Work-in-Kind (WIK)[2].
Guidelines on Valuation Methodology for Development Land – Residential
And Industrial (in globo) - August 2011 Page 1 of 11
Victorian Statutory Revaluation
Additional Victorian legislation and cases applicable to development land
The following legislation is also relevant to this topic:
Subdivision Act 1988
Planning and Environment Act 1987
Archaeological and Aboriginal Relics Preservation Act 1972
Heritage Act 1995
Environment Protection and Biodiversity Conservation Act 1999 (Commonwealth)
Flora and Fauna Guarantee Act 1988
Court cases:
Following are some of the court cases applicable to development land valuations. Each case has the catchwords sourced from the cited case.
· Murdesk Investments v Roads Corporation [2006] VSC 363
Compensation for compulsory acquisition of part of land – Before and after value – Pointe Gourde principle – Hypothetical zoning – Hypothetical availability of services – Highest and best use – Comparable sales – Enhancement – Severance – Expert evidence – Land Acquisition and Compensation Act 1986, ss.40, 41, 43. [3]
· Brewarrana Pty Ltd v Commissioner of Highways (1973) 6 SASR 541
Compensation – Role of Court – Expert Witness – Comparable Sales – In globo Lands – Price per lot method – Hypothetical Subdivision method – Allowance for Interest – Profit and Risk.[4]
· Coastal Estates Pty Ltd v Bass Shire Council – [1993] 2 VR 566
Resumption and acquisition of land- reservation of land for retarding basin and community use-Compulsory acquisition-Compensation-Method of Valuation-whether presence of retarding basin affected valuation on pointe gourde principles-whether solatium claimable by a corporation-whether cost of preparing matter for trial is expenditure “necessarily incurred” because of acquisition-whether interest suspended for period of implied grant of extension of time-land acquisition and compensation Act 1986(No121), s40, s41, s43, s53, s57.
· Turner v Minister of Public Instruction [1956] HCA 7
Valuation – Residential allotments – Land suitable for sale in sub-division – Resumption – Principles of valuation – Risk of realisation – Valuation of Land Act 1916-1951 (N.S.W.), ss. 5, 6, 68 – Public Works Act 1912 (N.S.W.), s. 124 – Land and Valuation Court Act 1921-1940 (N.S.W.), ss. 9 (1), 17.[5]
· Closer Settlement v The Minister 1942 (The Land and Valuation Court of NSW)
‘The Valuer’ Vol. 7, Folio 134.
Compensation. In globo land. Method of valuation. Profit and risk. No special value to professional subdivision.
Other relevant material:
· Planning website – http://www.dpcd.vic.gov.au/ > Planning > Planning Schemes > Planning Toolkit > Statutory toolkit > Practice and advisory notes > Residential, subdivision.
· Growth Areas Authority website - http://www.gaa.vic.gov.au/
· State Revenue Office – www.sro.vic.gov.au >Taxes & Duties > GAIC
· Major developers also have their own websites, for example – the Mirvac Group www.mirvac.com.au and Stockland www.stockland.com.au.
· Information on bioregions can be found at www.dse.vic.gov.au > Conservation and Environment > Victoria’s Bioregions.
Guidelines on Valuation Methodology for Development Land – Residential
And Industrial (in globo) - August 2011 Page 1 of 11
Victorian Statutory Revaluation
Identification of properties
Australian Valuation Property Classification Codes (AVPCC)
To appropriately categorise residential and industrial development land in a municipality, refer to the Australian Valuation Property Classification Codes (AVPCC) available at www.dse.vic.gov.au/valuation.
The following codes apply to development land:
Vacant in globo residential subdivisional land (AVPCC 102)
· Unspecified – 102.1
· Subdivisional land (multi lot) – 102.2
· Subdivisional land (in globo/potential) – 102.3
Vacant industrial in globo land (AVPCC 301)
The valuer needs to appropriately categorise development land in the municipality. The three suggested categories are:
· Development land is land zoned residential and most appropriately valued by sales evidence within a distinct market group.
There is sufficient sales evidence within a sub-market group (SMG) to set up a development block table for the land areas where the sales support a higher than residential land value.
To determine these properties the valuer should refer to strategic planning (particularly overlays) and preferred development criteria within the council, availability of services, topography etc. For the selected properties, the criteria that supports the selection of properties to be valued using a development land value table needs to be documented in the relevant SMG submission.
· In globo land is development land that fits the criteria outlined in these guidelines and is supported by sales evidence. The valuer may determine that the in globo land is development land greater than a certain land area (with the required attributes as outlined in this document).
In globo land is usually not driven by market activity with an SMG, but by sales across or outside the municipality.
· Land that is outside the UGB and the sales evidence supporting the valuation on the same basis as the surrounding land values (i.e. the relevant SMG). Land in this category is frequently purchased in speculation of future development.
Guidelines on Valuation Methodology for Development Land – Residential
And Industrial (in globo) - August 2011 Page 1 of 11
Victorian Statutory Revaluation
Property inspection – specific requirements applicable to development land
· Ascertain if the property is inside or outside the UGB.
· Inspect property.
· Availability of services to the site.
Guidelines on Valuation Methodology for Development Land – Residential
And Industrial (in globo) - August 2011 Page 1 of 11
Victorian Statutory Revaluation
Methodology
Site value
The site value of a parcel with or without a planning permit should be valued on the basis of highest and best use and potential value of the property assuming a permit would be granted for the development, given the underlying land zoning.