South-East Queensland property valuations on the rise?

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This article was written by Matthew Austin and Brad Egerton. 

It is that time of year again.

The Valuer-General is required to issue valuation notices by 31 March (if he hasn't already done so), with new valuations taking effect on 30 June, unless challenged by the landowner.

Recent Land Court decisions have highlighted how landowners stand to benefit from objecting to statutory land valuations, as well as the challenges that may be encountered in pursuit of a reduced valuation.

In Brisbane Square Pty Ltd v Valuer-General [2016] QLC 69, the landowner of a prominent city block, Brisbane Square, was successful in having their valuation reduced by $8.2M (from $58.9m to $50.7m). The case concerned a large parcel of prime city real estate that is improved by a modern 38 storey commercial tower, with the balance of the land (around 30%) used as a civic plaza which connects South Brisbane via the Victoria Bridge to the Queen Street Mall and the city centre.

The key consideration in the case was whether a reduction in the valuation was justified based on various considerations relating to the use of the plaza area.

The Land Court found that a hypothetical prudent purchaser could be expected to negotiate a meaningful discount to the purchase price if there was a reasonable basis to believe that a significant portion of the land would be required for public open space.

The court was not prepared to accept the landowner's submissions that a development approval, or town planning scheme place legal constraints on the land. However, the case demonstrates that the court will make adjustments to valuations in instances where it can be demonstrated that as part of any future development of the land to its full potential, there would likely be a requirement to provide an area of open space that is comparable in size to the existing civic plaza. This was characterised in the case as 'planning risk' and the Land Court ultimately made an allowance for it.

Macarthur Central Shopping Centre Pty Ltd as TTE v Valuer-General (No. 2) [2016] QLC 80 involved a heritage listed building at 229 Queen Street, known as Macarthur Chambers. In this case the respective valuers for the parties were somewhat hamstrung by the lack of comparable sales of volumetric lots affected by built heritage listings. In this vacuum, the Valuer-General had relied on "relativity sites" as a check on the valuation already derived from comparable sales that share similar (albeit not identical) features to the subject lot. The relativity sites were used for the limited purpose of checking the GFA rate that was derived from a comparable sales analysis.

The landowner, on the other hand, undertook a different exercise whereby relativity sites were used to place the subject lot within a range comprising high and low market parameters and was therefore a fundamental part of fixing the value. The court rejected the landowner's novel approach, finding that the landowner had failed to establish the relativity sites were comparable or that their valuations were correct. The Valuer-General's $4.1m assessment was upheld.

The case highlights the challenges faced by landowners when calling into question valuations that are based on orthodox valuation methodology by the Valuer-General.

Brisbane and the Gold Coast valuations on the rise?

Prior to sending out valuation notices, the Valuer-General customarily publishes a yearly Property Market Movement Report. This year's report is yet to be published, however last year's Report indicated that commercial properties increased in value by 24.3% in Brisbane, while in contrast, industrial properties increased by a significantly lesser margin of 2.7%. The Report attributes the marked increase in Brisbane commercial values as reflecting the highest and best use of the land as a consequence of the relatively new planning scheme, City Plan 2014, allowing for a multiplicity of higher order uses to be undertaken, which in turn influenced developer and investor interest. The comparatively modest increase in industrial values was put down to limited vacant or lightly improved sales across the sector. The Gold Coast experienced increases of 11.3% and 10.4% for commercial and industrial land respectively.

Current market intel suggests that marked increases are proposed for commercial properties in 2017.

What can landowners do?

Landowners have an ability to object to the Valuer-General if they do not agree with their new statutory land valuation. There are formal requirements that must be adhered to, including lodging the objection within 60 days of the date of the valuation notice. In the event that the landowner does not agree with the Valuer-General's decision on an objection that is properly made, the landowner may lodge an appeal to the Land Court.

On what grounds can landowners object?

The Macarthur case demonstrates that the Land Court is likely to prefer orthodox valuation methodologies, particularly with respect to comparative property sales. The Brisbane Square case demonstrates that where the characteristics of land used for the comparative sales analysis can be distinguished from the characteristics of the land under challenge, it may justify a reduction in the valuation.

The cases illustrate that when considering potential grounds of objection, it is important for a landowner to carefully identify all the relevant features of a property, which, when viewed separately or together, may affect its value, as the ability to achieve a reduction in the valuation may entail a range of considerations, such as sales, town planning, architectural, environmental, traffic engineering, etc.

Matters affecting you

KWM has successfully represented numerous landowners in their land valuation and compulsory acquisition matters. If you would like to discuss any valuation concerns affecting your property portfolio, please contact us.

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