Capital Improved Value – Valuation of Land Act – Jam Factory Case – Accounting Assessment Answer

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Accounting Assessment Answer

Task: 1

An owner has approached you regarding the valuation of four industrial factory units they built and now rent. The factory units are separately titled being on a Plan of Subdivision. The owner was given a 2018/19 Valuation and Rate Notice for each factory with the following valuations: Site Value $500,000, Capital Improve Value $1,500,000 and NAV $122,000. To assist the owner, describe in your own words the practical meaning of Site Value (SV), Capital Improved Value (CIV) and Net Annual Value (NAV) as defined in Section 2 of the Valuation of Land Act 1960. You are required to refer to at least one source or reference material for each definition to support your response.

Note:

* For SV purposes also refer to the definition of Improvements contained in Section 2 and Section 2(2).

* For NAV also refer to Estimated Annual Value (EAV) definition including Section 2(2A) and Section 2A.

TASK 2 PART A

Calculate the SV, CIV, EAV and NAV for each factory as at 1 January 2018 for the owner in accordance with the Valuation of Land Act 1960 using the information, data and evidence provided (on page 4 &5) by applying the Act and relevant valuation principles. You must fully set out all your workings and methodology with supporting detailed rationale, assumptions or considerations.

PART B

The owner is aggrieved with the amount of rates payable of $4,000 per factory. Advise the owner on the grounds (if any) of an objection and considerations (including having regard to your valuation outcomes from Task 2 Part A) that apply when lodging an objection, including prescribed times frames in accordance with the Valuation of Land Act 1960 (as applicable).

TASK 3 

In Challenger Property Asset Management Pty Ltd & Anor v Stonnington City Council & Anor [2011] VSC 184 known as the Jam Factory Case the court adopted six considerations as the correct approach when assessing capital improved. Two of these considerations are:

1. the value of the land is to be assessed by reference to a hypothetical sale of a fee simple interest in the land and on the basis that the fee simple interest is not affected by any actual lease; and

2. the hypothetical sale should assume that the occupation of the land is at market rates.

With reference to the Jam Factory Case describe in your own words the court’s interpretation of each of the above considerations and the discuss the relevant application in valuation practice.

TASK 4 

The owner recently obtained a market valuation of the factories and wants to know the difference/s and similarities (if any) between a valuation made for “market value” purposes and CIV made for the purposes of the Valuation of Land Act 1960. Provide an explanation to the owner in your own words and provide any supporting rationale to support your response.

Property Data – Task 2

Address: Unit 1-4/20 Industrial Drive, Industrialtown

Land Area (Whole site): 2000m2

Gross Building Area (Each Factory): 400 m2

Other: Shared driveway, perimeter landscaping and car spaces for 20 vehicles

Construction Material: Concrete

Year Completed: 2017

Costs to Construct by Owner

Building: $2,000,000 completed in 2017

Site Works (draining & filling): $80,000 completed 2016

Lease Details – each factory

Passing Rent (pa): $118,000

Lease Start Date: 1 January 2018

Lease Term: 3 years plus further term of 3 years.

Permitted Use: Industrial Premises

Annual Expenses/Outgoings – whole complex

Council Rates: $16,000 ($4,000 Each Factory)

Water Rates: $2,000

Land Tax: $2,000

Insurance: $3,000

Electricity: $1,000

Security: $500

Gardening: $1,000

Maintenance: $1,000

Depreciation: $500

Comparable Industrial Market Evidence – as at 1 January 2018

Land Values (from comparable vacant land sales): $1,000 per square metre

Improved Values (sales of comparable factory units): $3,800 per square metre of gross building area.

Rental Values (from comparable factory units): $300 per square metre.

Capitalization Rate (from comparable improved sales): 8.0%

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