Anastasios Prilis and Helen Prilis (the Applicants) challenge the land values determined by the Valuer-General (the Respondent) under the Valuation of Land Act 1916 (NSW) (the Valuation Act) for Lot 1 in DP 798784, at 325 King Street, Newtown (the Site) for base dates 1 July 2017, 1 July 2018 and 1 July 2019 (Valuing Years).
Pursuant to ss 6A and 14G of the Valuation Act, the Valuer-General ascertained the land value of the Site in the following amounts:
1 July 2017 - $3,910,000;
1 July 2018 - $3,910,000; and
1 July 2019 - $3,160,000.
The Applicants objected to each of these values. The Valuer-General disallowed each of the objections and the determined values were not changed.
The Applicants are dissatisfied with the determination of the objections and have appealed pursuant to s 37 of the Valuation Act against those determinations on the grounds that the values determined are too high.
[2]
Background facts
The Site is located on the north-western corner of King Street and Eliza Street, within the suburb of Newtown and the Local Government Area of Inner West Council (formerly Marrickville Council).
The Site has two street frontages: a southern frontage of 15.68m to King Street and an eastern frontage of 20.18m to Eliza Street. The ground floor is comprised of three retail shops. The first floor contains a commercial office. The site area is 321.2 m2.
For each of the relevant valuation years, development of the Site was controlled under the Marrickville Local Environmental Plan 2011 (Marrickville LEP) and the Development Control Plan, and the Site was zoned B2 - Local Centre.
The Site is shown on the Marrickville LEP Heritage Map and is individually listed as "Former CBC Bank including interiors" within Schedule 5 Environmental Heritage of the Marrickville LEP, item no. I153. The Site is not listed as an item on the State Heritage Register.
Whilst there are three different proceedings, the Court directed that evidence in one proceeding is to be evidence in the others as the evidence and the issues in dispute between the parties were common in all proceedings. Accordingly, any relevant findings will be applied to the relevant valuation year and adjusted to arrive at an appropriate determination of value.
Accordingly, the evidence and the submissions will be dealt with together and the relevant appeal determined on the application of any relevant findings will be made to each valuation year.
[3]
Legislative provisions
Section 6A of the Valuation Act relevantly provides:
6A Land value
(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made.
(2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that:
(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and
(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used,
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.
…
For each of the relevant Valuing Years, the Valuer-General determined that the land is "heritage restricted" for the purposes of s 14G of the Valuation Act, which relevantly provides:
14G Valuation subject to heritage restrictions under EPI
(1) Land that is heritage restricted on the date by reference to which its land value is to be determined is to have its land value determined on the basis of the following assumptions:
(a) that the land may be used only for the purpose, if any, for which it was used when the value is determined,
(b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued,
(b1) that all improvements referred to in paragraph (b) on that land are new (without any deduction being made because of their actual condition),
(c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land,
(d) that the cost of construction of improvements on that land has no effect on its land value, with the result that there is to be no reduction in land value because of any difference between the cost of construction of the improvements referred to in paragraph (b) as new improvements and the cost of construction of other improvements used as a basis for comparison in the determination of land value.
(1A) When the land value of heritage restricted land is determined on the basis of the assumptions required by this section, there is to be no deduction from or other adjustment of that land value on account of the effect on land value of any factor concerned with the land being heritage restricted land (other than the effect of those assumptions).
(2) Land is heritage restricted as at a particular date if the Valuer-General has determined that it would be reasonable to make the assumptions referred to in subsection (1) in respect of the land as at that date because of any provision of a planning instrument concerned with the heritage significance or heritage value of the land or any building, work or other thing on or in the land.
…
The relationship between ss 6A and 14G was analysed by Sackville AJA (with whom Basten and Simpson JJA agreed) in Valuer-General of New South Wales v Oriental Bar Pty Ltd (2016) 217 LGERA 1 (Oriental Bar) at [118]-[125] (footnotes omitted) in the following terms:
118 Section 14G, introduced into the VL Act much later than the forerunner to s 6A, is specifically concerned with the determination of the land value of heritage restricted land. Section 14G(1) requires assumptions to be made that reflect the actual position on the valuation date. Thus heritage restricted land is to have its land value determined on the basis (relevantly) of the following three assumptions:
(a) that the land may be used only for the purpose, if any, for which it was used when the value is determined,
(b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued,
…
(c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land.
119 In addition, s 14G(1)(b1) qualifies s 14G(1)(b), in that it requires an assumption that all improvements referred to in s 14G(1)(b) are new, without any deduction being made because of their actual condition. This provision manages to combine an assumption founded on the actual position (the improvements on the land at the relevant date) with a counterfactual assumption (that all improvements on the land are new, without regard to their actual condition).
120 Construing ss 6A(1) and 14G(1) of the VL Act harmoniously is a task not without difficulty. In undertaking that task, it is fundamental that close attention is paid to the text and structure of the relevant provisions. Nonetheless, as Spigelman CJ observed in Commonwealth Custodial Services Ltd v Valuer-General, when the courts have authoritatively pronounced upon the interpretation of particular legislation, subject to a contrary ruling by the High Court, that interpretation should be followed. A number of matters have been established by the case law.
121 First, in determining the land value of heritage restricted land, the applicable statutory provisions are ss 6A(1) and s 14G(1). Although, as has been seen, 6A(2) states certain assumptions in terms that to some extent are similar to assumptions in s 14G(2), the former do not apply to the valuation of heritage restricted land. This proposition was stated in Commonwealth Custodial Services Ltd v Valuer-General and accepted by the parties to the present appeal.
122 Secondly, the assumptions required to be made by s 14G(1) in the valuation of heritage restricted land do not replace or negative the assumption in s 6A(1) that improvements on the subject land must be treated as if they had never been made. The land value is to be determined on the basis of the value of the fee simple estate in the subject land stripped of all improvements (other than "land improvements"). That is, the subject land is assumed to be vacant land.
123 Thirdly, s 6A(1) postulates a notional sale. The sale is assumed to take place in a market in which the seller would be prepared to conclude a sale for the best price that could be obtained.
124 Fourthly, the valuation of heritage restricted land as vacant land is to be determined on the basis of the assumptions mandated by s 14G(1) of the VL Act. However, s 14G(1)(b), insofar as it mandates an assumption that all improvements on the land may be continued and maintained for the purpose identified, is referring to improvements "in the real world".
125 Fifthly, it has been accepted in New South Wales that the Privy Council's decision in Toohey's continues to apply to the determination of land value under the VL Act. This is so notwithstanding that the legislation has been substantially amended since the Privy Council's decision and that the reasoning in that case has been the subject of trenchant criticism. Toohey's stands for the proposition that in determining land value pursuant to s 6A(1) of the VL Act, it is wrong:
to begin with a valuation [of the subject land] which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure.
[4]
Dispute
The Applicants have disputed the issued land values for the 2017, 2018 and 2019 Valuing Years as being too high. The positions contended for by the parties are summarised as follows:
VALUING YEAR ISSUED Land Value Applicants' (Perkins) Land Value Respondent's (Hill) Land Value
2017 $3,910,000 $1,549,600 $2,970,000
2018 $3,910,000 $1,549,600 $3,090,000
2019 $3,160,000 $1,337,275 $3,325,000
[5]
The Applicants contends that each of the issued land values for each of the Valuing Years should be reduced to that determined by Mr Perkins.
In respect of the 2017 and 2018 Valuing Years the Respondent contends for Mr Hill's lower valuations. In respect of the 2019 Valuing Year the Respondent contends for the issued land value.
[6]
Evidence
An inspection of the Site and the locality was undertaken in the company of the representatives of the parties. In addition, an inspection of the exterior of the land value comparable sales was undertaken.
The parties each qualified an expert valuer to give evidence in the proceedings: Mr Perkins for the Applicants and Mr Hill for the Respondent.
These valuers prepared individual reports and participated in joint conferencing. In the joint conference report, there was limited agreement in that the valuers agreed:
1. The direct comparison method of valuation is most appropriate;
2. In adopting the direct comparison method of valuation, adjustments to the comparable sales (in addition to any adjustment for heritage assumptions) were necessary for:
1. Location: this relates to the location of the land within the precinct with the valuers agreeing generally that land to the north of the Site is superior and land to the south of the Site is inferior;
2. Size: Whilst the experts agreed as to the size of the Site and comparable properties, the measurement index to be used to compare size was disputed;
3. Shape;
4. Access: relating to the position of any allotment either within a block or at the end of a block; access by way of secondary or rear access; availability of pedestrian or car access; and
5. Frontage: this relates to the lineal frontage to the main road and its secondary frontage. The valuers agreed as to the measurement of the frontage but disagreed as to the "effective retail exposure" that the frontage permitted given its heritage restriction when compared to comparable retail frontages.
The valuers remained in dispute as to:
1. The appropriate valuation methodology where the Site is to be valued having regard to s 14G of the Valuation Act;
2. The highest and best use of the Site;
3. The selection of comparable sales and the quantum of the adjustments to be made to those sales;
4. The use of a site area versus net lettable area (NLA) measurement index to determine value; and
5. Market movement between the sale date and the relevant valuation year.
[7]
Valuation methodology and highest and best use of the Site
There was a dispute between the valuers as to the highest and best use of the Site. The selection of an appropriate highest and best use in this case also informed the valuation methodology adopted by each of the valuers.
[8]
Applicants' evidence
Mr Perkins considered that the highest and best use of the Site was not for its current retail/commercial use but for a mixed residential and retail use. He contended that the Site could accommodate a development that comprised retail on the ground floor and residential apartments in three levels above with off-street carparking.
Mr Perkins derived a s 6A(1) valuation by adopting the direct comparison method for land sales where such sales did not have a heritage restriction. To that end, he determined that the most comparable sales were those that became known as Sales 1, 2, 6 and 7. Using those sales he applied adjustments to render them comparable to the Site, analysed the sales to remove any component relating to the improvements and derived an adjusted land value per square metre of site area for each of the comparable sales and from that determined a s 6A(1) value for the valuation years of:
1 July 2017 - $2,080,000;
1 July 2018 - $ 2,080,000; and
1 July 2019 - $ 1,795,000.
Mr Perkins then undertook what he described as the second step to the valuation by adjusting the s 6A(1) valuation to take account of the s 14G impacts. That is, he adjusted the value of the non-heritage impacted value of the Site with its described highest and best use to take account of what he considered to be the factors that diminished that value by the operation of the assumptions required by s 14G. In this regard he made adjustments for:
1. Highest and best use - He contended that there was a market for retail/residential buildings of the type he described by referring to two examples one being what became known as Sale 7; and the other premises at 228 King Street and referred to as the "Beehive";
2. Difference between existing and permissible gross floor area;
3. Design obsolescence and useable floor space;
4. Frontage to King Street - having regard to the limited window exposure and impediment of planter boxes and the like;
5. The difference between existing and permissible building height;
6. Accessibility in that the current design did not permit for equitable access as it functioned only with stairs (both external and internal); and
7. Increased outgoings on a heritage building.
Taking all of these factors into account he decreased the s 6A value by 25.5% for the heritage restriction.
[9]
Respondent's evidence
Mr Hill contended that s 14G dictated that the current use of the Site is to be assumed to be the only use to which the Site may be put and, therefore, must be considered as the highest and best use of the land. The current use is ground floor retail and commercial at first floor and that is taken to be its highest and best use. Consideration of other use types are therefore to be disregarded to derive the value dictated by ss 6A(1) and 14G.
Mr Hill assumed vacant land for the purposes of s 6A(1) and then immediately proceeded to undertake a valuation of the Site making the assumptions required by s 14G of the Valuation Act.
In response to the contention of Mr Perkins as to the highest and best use, he contended that even if Mr Perkins's approach was appropriate Mr Hill considered the rental returns in the locality for both retail/commercial and retail/residential and determined that there were similar levels for both types of development such that there is no sales evidence to suggest that a hypothetical purchaser would pay more for a retail/residential development. He further observed that there was a limited presence of residential types of development in the locality of the type proposed by Mr Perkins and the layout described by Mr Perkins would not be a practical layout that would be adopted by a developer of the Site.
[10]
Applicants' submissions
The Applicants submitted that Mr Perkins's approach was the method that should be adopted as by adopting the two-step approach, the difference in land value by reason of the heritage restriction can be clearly determined. The difference between the s 6A land valuation and the s 14G land valuation is the difference between:
1. The value of the Site assuming the highest and best hypothetical development which could have been built on the land if the land were not heritage restricted; and
2. The value of the land assuming:
1. The only development which can be built on the Site is the current building (but in a new condition) and no other; and
2. The only uses of the Site which may be made are the current uses and no other.
The highest and best use as described by Mr Perkins is evidenced by the development of new retail/residential developments in the locality exemplified by the two sales referred to by him. Mr Hill has identified no recent retail/commercial buildings that would establish that that type of development was the highest and best use. Further, his reference to rental returns fails to take into account superior capital values achieved for sales with residential rather than retail components.
[11]
Respondent's submissions
Mr Perkins's approach is fundamentally misconceived from both an economic and town planning point of view and, therefore, his methodology cannot be relied upon by the Court.
Contrary to the suggestion of an "extremely buoyant" residential market, there is no evidence by way of comparable recent examples of a market for a new retail/residential building along King Street, either for capital or rental return. Such a deficiency in the evidence to support Mr Perkins's approach provides a good indication that the market is not in fact pushing for retail/residential in this location.
The evidence demonstrates that the fundamental driver of value in the location of the subject land is retail rental, and that retail rents exceed residential rents.
Having regard to the totality of the evidence and the manner in which each expert has adduced evidence to support their approach the valuation approach undertaken by Mr Hill is to be preferred as the most reliable method both due to his analysis of the highest and best use, and also because it does not necessitate the significant heritage adjustment of -25.5% that Mr Perkins makes before commencing the direct comparison adjustments.
[12]
Findings
Where land is heritage restricted, as in the present case, the Valuation Act requires a value to be established on the assumptions as set out in ss 6A(1) and 14G. What this entails is, as was stated in the Court of Appeal in Oriental Bar referred to at [13] above, a valuation of the Site that takes into account all of the relevant assumptions that are derived from a combination of ss 6A(1) and 14G.
In this case, each of the valuers have approached this task from a fundamentally similar understanding of the relevant assumptions. The difference between them turns exclusively on the determination of the highest and best use of the Site. It is Mr Perkins's determination that such highest and best use is not its current use that drives his need to interpose the "first step" in his valuation exercise and dictates the "second step". The determination on the evidence of the preferred valuation approach will, in large part, be determined by a consideration of the highest and best use of the Site.
It is necessary to determine the highest and best use of the land in the valuation exercise as it is assumed that the market for the land being valued will be based upon an assumption that the value of the land will be determined based upon a potential for the land to be used for a form of development that will generate the highest return on the investment. In this case, the valuers disagree as to what the highest and best use should be.
In assessing the highest and best use of the Site I prefer the evidence of Mr Hill. As identified by Mr Hill, whilst the planning instruments applicable to the Site identify a number of potential forms of development as permissible, the question is, in the circumstances of this particular site, what the market would consider to provide the best return on investment. In the particular locality that the Site is located the dominant form of development is retail at ground floor and commercial above, with some minor shop top residential forms. This dominance of the retail/commercial character in the locality reflects the attraction of the locality as a retail/commercial hub both to users and investors.
I do not accept that the fact that there is no evidence of "new build" retail/commercial uses undermines this finding. Whilst I must assume that the Site is vacant land the comparable sales are not. What the absence of new builds evidences is that the current uses of the comparable sales as predominately retail/commercial is the highest and best use. If the market considered that retail/residential development was the highest and best use there would be evidence of either demolition of existing improvements and rebuild as retail/residential or conversion of uses within the existing buildings. There is no evidence of such changes occurring on a sufficient scale to indicate that retail/residential is preferred to the current dominant uses in the locality.
The two sales relied upon by Mr Perkins to indicate a buoyant residential market are insufficient in number, having regard to the totality of the locality to alter this conclusion. Further, Sale 7 at 8-10 Enmore Road is not a true comparison as it was constructed as residential development to an extent that exceeds the current permissible controls. Whilst I was not provided with a date for the construction of this building it was agreed at the inspection of that property by counsel for the parties that it was not a recent build. I would dismiss this sale as an indication of a move towards residential uses for those reasons. The Beehive is a building in the City of Sydney not Inner West. In the B2 zone in that Council area residential flat buildings are permissible; in Inner West they are prohibited. In Inner West shop top housing is permissible but is a much more constrained form of development - with the residential components being required to be constructed over the retail. This constrains residential footprints and residential parking provisions. For those reasons, I do not consider the Beehive to be comparable to the Site nor evidence of a move in the locality to retail/residential forms of development.
To the extent it was submitted that Mr Hill's assessment of highest and best use relied upon rental returns rather than the "superior capital values" of retail/residential development, such a submission was made without identifying any evidence upon which such capital values could be determined. Each of the comparable sales (excluding Sale 7 and the Beehive referred to above) were analysed in the evidence and no sale identified a higher value ascribed to a sale on the basis of residential uses over commercial uses. To the extent that I have any evidence of the value of uses in King Street that evidence is of the rental market as identified by Mr Hill. I can only determine the matter on the evidence before me and the evidence of the rental market as adduced by Mr Hill indicates that the Site is producing comparable or superior rental returns to other retail/commercial properties in the locality. This analysis supports the conclusion that the highest and best use of the Site is its current retail/ commercial use.
In addition, I note that no evidence was adduced by any qualified architect or town planner as to the capacity of the Site to accommodate any specific development potential of the Site. Mr Perkins made an assessment, as a valuer, as to what type of development could be accommodated on the Site having regard to the provisions of the relevant planning instruments that applied to the Site at the relevant base dates. His assessment of the development potential of the Site, due to the constraints of the Site and the requirements of the form of user to render it permissible has not been sufficiently justified to permit any confidence that such a use could be undertaken on the Site. I accept the evidence of Mr Hill that based on the evidence of Mr Perkins I am not satisfied that the development of the Site for the purposes identified by Mr Perkins could be practically achieved.
Accordingly, for the purposes of determining the value of the Site for the relevant valuation years I determine that the highest and best use of the Site is for ground floor retail and first floor commercial.
[13]
Comparable sales and adjustments
The location of each of the land value comparable sales is shown in Figure 1 below:
Figure 1: Map of land value comparable sales supplied by the parties.
The valuers analysed the sales in both their reports in chief and in the joint report of the experts. A summary of the numeric values for such adjustments was provided in tabular form in excel format as is contained in Figure 2 annexed to this judgment.
As can be observed from Figure 2 Mr Hill has analysed each of the sales, however Mr Perkins only analysed the sales relied upon by him and has not analysed Mr Hills's sales in any meaningful way in either the written or oral evidence, this leaves Mr Hill as the only expert evidence to consider in assessing the appropriateness of these sales.
[14]
Analysed land value
The starting point to the determination of unimproved land value, as is required by s 6A(1), is to determine a sale price for unimproved land. In this case, there were no comparable sales identified that were not improved land. Accordingly, an adjustment to the comparable sales is required to be made to render them comparable to the assumption required by s 6A(1).
Each of the valuers have undertaken such an adjustment to the comparable sales upon which they rely and have determined what is referred to as the analysed land value, being the contract price of the sale less a dollar amount deducted from that price for the value of the improvements on the land at the time of the sale. Mr Perkins determined the value of any improvements by making an estimation based upon his experience. Mr Hill made his assessment based upon an application of industry accepted costings for improvements from Rawlinson's Australian Construction Handbook (Rawlinson's).
I prefer the evidence of Mr Hill. Whilst an expert may, relying on their experience, make an assessment, such evidence must also contain some evidentiary foundation or identification of the rationale for that assessment. In this case, Mr Perkins has merely asserted a dollar value and has declined to provide any rationale as to the relevant factors he took into account in reaching such amount. When compared to the approach adopted by Mr Hill where the reliance upon Rawlinson's provided an express and explicit foundation for his attribution of value, that is more compelling evidence in the circumstances of the case. For those reasons, I adopt the analysed land values of the comparable sales identified by Mr Hill.
[15]
Choice of comparable sales and non-heritage adjustments
At the completion of the evidence and as confirmed in closing submissions the parties each contended for different sales to be the most preferred sales to be used for comparison purposes, which sales were:
1. Applicant: Sale 1 and Sale 2; and
2. Respondent: Sale 3 and Sale 4.
I will deal with each of these sales below. However, for the reasons that follow, I accept that Sales 5 to 7 are the least comparable sales as compared to the Site and should be discounted for the purposes of the valuation exercise.
I consider Sale 5 is broadly comparable. However, in order to render it comparable to the Site significant and numerous adjustments, in excess of those required for the sales relied upon by the experts due to its superior location, smaller land area, shape and access (it has three street frontages) together with three large retail frontages. The number and extent of these adjustments render it a less reliable comparator than the sales relied upon by the experts.
I consider Sale 6 is not comparable. Sale 6 was a sale of a portfolio of properties of which Sale 6 was only one part. There is insufficient evidence to determine from the sale of the portfolio a value attributed to Sale 6. This fact is reflected in the significant adjustments that the experts identified would have to be made to render the sale comparable. I consider that the number and extent of such adjustments is an indication on the circumstances of that sale of its lack of comparability and, for that reason, do not consider it as a comparable sale.
For the reasons identified above at [40], I do not accept that Sale 7 is appropriately comparable to the Site due to the significant adjustment that would have to be made to take into account the existing exceedance of the planning controls.
During the course of joint conferencing Mr Perkins contended that two further sales that he had not previously identified as being relied upon by him for the determination of land value should be considered. These two sales were of adjoining lots at 193 and 195 King Street. Notwithstanding the late incorporation of these sales Mr Perkins ultimately placed little weight on them in order to determine the land value. I agree that these two sales are of little assistance. The sales were both made to the same purchaser (with which later events identified) an intention of redevelopment as a single development site. This factor, in conjunction with the location of the sales in the more prestige retail location along King Street render the sales insufficiently comparable and would require significant adjustments. No evidence was adduced as to the conditions of the sales and how, if at all, the effect of the desire to combine the lots influenced the sale price. I do not consider these sales are relevantly comparable.
[16]
Sale 1 - 315 King Street
Sale 1 is 50m north of the Site. It is a small and narrow mid-block site with pedestrian only access from a rear lane. The use at the time of sale comprised retail at ground floor with residential shop top style housing on first floor. Apart from any heritage adjustment the experts disagreed on the adjustments to be made for location, access and frontage.
Mr Perkins considered that this sale was superior in location due primarily to the fact that when measured by a lineal distance to be travelled by a pedestrian arriving from or travelling to the train station and it being more removed from the Enmore Road/King Street intersection. He further considered that the frontage was comparable to the Site, notwithstanding that it was inferior in lineal measure as the frontage had large display windows to King Street. He considered access to be comparable to the Site as the negative of not being on a corner position was offset by the superior features of: being closer to on-street parking; having a wider footpath; and not being located on a busy intersection.
Mr Hill considered that Sale 1 and the Site were comparable by location as they were located within 50m of each other. Sales evidence (with which the experts agreed) indicated that areas to the north of the Site were considered superior in location and those south of the intersection of the railway and Enmore Road/King Street were inferior. Therefore, the proximity does not require an adjustment for location. He did not consider this factor was affected by the pedestrian route from the railway. Access was significantly inferior as it was not located on a corner and had limited access off a rear lane. Frontage was inferior as whilst it did have a display window, the limited frontage did not produce a superior or even comparable frontage to the Site.
Having regard to the totality of the evidence including the site inspection I prefer the evidence of Mr Hill as to the appropriate adjustments to be made to Sale 1. The Site and Sale 1 are very proximate, notwithstanding any distance from the railway station. The two properties are within the same visual catchment when viewed from either side of King Street. The difference in value represented by location relates to the location within King Street and the 50m distance between these two properties does not render Sale 1 to be considered superior in its location. As to the frontage, Sale 1 has a significantly smaller frontage to King Street. Whilst it has a display window, it is small as compared to the frontage of the Site. The lineal extent of the frontage to the Site is such that it permits three separate retail spaces on the ground floor (two of which front King Street), by comparison, the small lineal frontage to Sale 1 only permits a single shopfront. The corner exposure of the Site and the length of frontage is superior to that of Sale 1. Access to the Site is superior due to the corner location with two frontages. Sale 1 has access only for pedestrians off a narrow rear lane, which access is not exposed to passing pedestrian traffic such to make it attractive or of any real utility. The access to the Site is superior.
Accordingly, a total adjustment of 15% is appropriate for non-heritage adjustments.
[17]
Sale 2 - 337-339 King Street and 4-6 Enmore Road
Sale 2 is an internal lot that runs between Enmore Road and King Street. The shape of the lot is not regular but displays a "boomerang" shape. At the Enmore Road frontage is a single storey retail building. To King Street there are two shops at ground level and a shop top residence at first floor. The experts disagree on adjustments for location, shape, access and frontage.
Mr Perkins contends that no adjustment should be made for location. Whilst the sale is in an inferior part of King Street that is offset by its proximity to the railway station and it is not on a busy intersection. No adjustment for frontage is required as the frontage of the sale to two main roads is superior and the total lineal frontage of the sale of 18m is comparable to the lineal frontage of the Site to King Street.
Mr Hill considers that a 25% adjustment is required to take account of the inferior location of the sale to the south of the Enmore Road/King Street intersection. The shape of the sale is inferior in that it is more irregular than the Site and, therefore, requires some adjustment. Access to the sale is comparable and no adjustment is required to render comparable a corner site with a double frontage internal lot. The frontage of the sale is inferior. The Site taking the total frontage into account has 35m of retail exposure whereas the sale has a combined retail frontage of only 18m.
Having regard to the totality of the evidence including the site inspection of the sale I prefer the evidence of Mr Hill. As outlined above, there is clear sales evidence that land sales south of the Enmore Road/King Street intersection is inferior and achieves lower rates per square metre of adjusted land sales. The differential in the rate between sales to the south of the intersection and sales to the north (including Sale 1) indicate that it is the desirability of the location rather than the proximity to the railway station that determine value. Sale 2 being south of the Site must be adjusted to reflect its inferior location. The adjustment of 25% proposed by Mr Hill is adequate to reflect the differential in value of the inferior location of the sale as compared to the Site.
The access of the sale compared to the Site does not require adjustment. The advantage of the corner position of the Site is an equal advantage to the two main street frontages of the sale where the sale is an inferior lot.
The frontage of the Site is superior. Even if the frontage to Eliza Street is considered secondary to the King Street frontage it is still an advantage over the comparable lineal frontage of the sale to King Street and Enmore Road. Some adjustment must be made to recognise the superiority of the Site in this respect and the 10% adjustment proposed by Mr Hill is adequate to reflect this superior aspect.
The shape of the Site is expressed in a longer southern boundary thereby splaying the King Street Boundary. The shape of the sale is represented by a bend in the middle of the lot between the two-street frontage. The irregularity of the sale lot is more likely to constrain regular building forms in any redevelopment of the sale lot whereas the irregularity of the Site would not provide constraints to the same extent. An adjustment to account for the inferiority of the shape of the sale should be made and the 5% proposed by Mr Hill is sufficient to render the sale comparable to the Site in this respect.
A total adjustment for non-heritage related adjustments to Sale 2 is 40%.
[18]
Sale 3 - 246-250 King Street
Sale 3 is located in the superior retail location in King Street opposite the Church Street T-intersection. The sale is an internal lot with rear access via a one-way lane. The sale is within the City of Sydney. The sale presently has ground floor retail with first floor commercial.
Mr Hill is the only expert to analyse this sale. He has made adjustments for location, size, shape access and frontage. I accept the adjustments he has made are appropriate for this sale. The location of this sale is in the superior retail location evidenced by sales and rental returns. The adjustment of -10% to reflect this superior position is appropriate. The sale has a higher NLA of 742m2 and, accordingly, is superior to the Site. The adjustment of 10% to reflect this superiority to the Site is appropriate. The shape of the Site, as described above, is slightly irregular. The shape of the sale lot is regular. Accordingly, the slight superiority of the sale lot is appropriately reflected in the -5% adjustment proposed by Mr Hill. The retail frontage to King Street of the sale is 13.32m and, therefore, is slightly less than the King Street frontage of the Site. I consider that the adjustment of 2.5% proposed by Mr Hill is acceptable and very conservative as it makes no additional allowance for the lack of the frontage enjoyed by the Site to Eliza Street. The access to the sale lot is inferior due to it being an internal lot with one street frontage to King Street and lane access to the rear. The corner lot of the Site provides two street frontages for access and is superior in that respect. The adjustment proposed by Mr Hill of 10% to reflect this difference is appropriate.
Whilst Mr Perkins did state that he considered this sale to be not made at arm's length as it was purchased by a sitting tenant without marketing he was unable to refer to any evidence that would suggest that the price paid was other than market value. Absent evidence that the price is out of line with market (either too high or too low) the mere fact that a sitting tenant purchased the land without marketing is not sufficient to discount the sale as a comparable sale for the present valuation exercise.
A total adjustment for non-heritage factors for Sale 3 in the total of 7.5% is appropriate.
[19]
Sale 4 - 241 King Street
Sale 4 is a lot on the corner of King Street and Church Street. The lot has rear access and is also immediately adjacent to a Council operated carpark abutting its rear boundary. It is located in the superior retail section of Newtown. It is within the Inner West Council area and is located almost directly across King Street from Sale 3.
Mr Hill has made the same adjustments to location, shape as he did for Sale 3. For the same reasons I outlined in connection with those factors as they related to Sale 3, I accept that the same adjustments would be made to Sale 4.
Mr Hill made further adjustments for size, access and frontage. These adjustments reflected the particular features of the sale lot. The size of the sale lot in its current configuration has an NLA of 475m2 being larger that the Site. Mr Hill proposes a downward adjustment of -5% to render the sale comparable to the Site. As to access he acknowledges the superiority of the three frontages of the sale lot and proposes a -10% adjustment to bring the sale lot to a comparable position with the Site. The King Street frontage of the sale lot is 5.5m and is only able to accommodate a single shopfront to that retail frontage. This renders the sale lot inferior to the Site both as to the capacity to provide retail to King Street and the exposure to the main retail frontage. This renders the sale lot inferior and an adjustment of 10% is appropriate to make it comparable to the Site.
I accept the reasoning of Mr Hill and the adjustments proposed by him. Accordingly, a total adjustment of -20% is made to Sale 4 for non-heritage adjustments.
Of the four sales that the experts rely upon I consider Sale 4 to be the most comparable. The corner allotment within the same local government area makes it more comparable than Sale 3. However, I consider Sale 3, like Sale 4, is a good indicator of the superior location to the north of the Site and that the primary use of the locality is retail/commercial. Sale 1 due to its proximity to the Site is also useful to provide some indication of the inferior retail location as compared to areas to the north in King Street. Each of these three sales I consider are the most useful comparisons for the purpose of determining value of the Site.
Sale 2 once analysed demonstrates that there is a drop in value in the market for properties to the south of the Enmore Road/King Street intersection. The location together with the dual frontage feature of the sale lot require significant and multiple adjustments to be made to render it comparable. Whilst this sale is informative in the process of determining value, I consider it to be the least reliable of the sales relied upon and the least assistance in the determination of value such that it should be given little weight.
[20]
Heritage adjustment and measurement index (NLA v site area)
The valuers agreed that the comparable sales required adjustment to render them comparable to the Site to take account of the heritage restriction and the consequential assumptions required to be made pursuant to s 14G. The approach to be taken to a valuation, having regard to the s 14G assumptions was identified in Oriental Bar as referred to at [13] above.
[21]
Applicants' evidence
As indicated above, Mr Perkins approached the valuation exercise by undertaking a two-step approach. First he determined what the highest and best use of the Site having regard to both the potential uses that could be carried out on the Site and what built form could be accommodated on the Site and determined a value for the Site based upon that highest and best use. Thereafter, Mr Perkins assessed land value applying the requirements of s 14G. In this respect he determined that the Site suffered from a reduced value after the s 14G assumptions were made by an amount of 25.5% on the basis that he contended that the value of any development on the Site would be 25.5% less valuable than a development on the basis of the highest and best use identified by him due to:
1. Highest and best use - with the heritage restriction the Site cannot be developed for the highest and best use as identified. This is a disadvantage as residential uses cannot be accommodated, which uses produce a higher value as:
1. They are more secure and less susceptible to economic shocks;
2. Commercial premises are typically harder to lease and hence have longer letting up periods;
3. Commercial leases typically include rental incentives;
4. Residential typically attracts lower yields from investors and hence higher values;
5. Finance for residential properties is easier to obtain with banks typically lending up to 80% on residential but only 50% on commercial; and
6. An inability to strata-subdivide and sell some lots;
As a consequence, a negative adjustment of 10% is required.
1. Permissible gross floor area (GFA) - if the land were not heritage affected further GFA would be permissible. The Site presently has 98.15% of the permissible GFA. A negative 1.4% adjustment should be made for this factor.
2. Design obsolescence and usable floor space - the heritage building has poor layout unsuitable to modern uses. Features such as thick walls and oversized circulation spaces, narrow passages and segmented design create obsolescence and inefficiencies. In the present building there are inefficiencies in shops 1 and 2 relating to the entry stair design and the first-floor layout and room numbers are inefficient. Overall a negative adjustment of 9.1% must be made to the value of the Site.
3. Frontage - only 2 of the 3 shops have frontage to the desirable King Street. The third shop has a frontage to the adjoining lane. The shop fronts have small window openings and the King Street frontage is dominated by planter boxes. The shops do not have an awning and the footpath is narrower than the rest of King Street. This is not a desirable retail presence. The factor requires a negative 5% adjustment.
4. Building height - the existing building is only two storeys in height. The permissible building height would allow a building that would accommodate four storeys. This consideration was taken into account in deriving the negative 10% adjustment for the highest and best use and, therefore, no further adjustment is required.
5. Accessibility - there is no disabled access to any of the shops or the first floor of the building. There is no possibility of installing a lift or overcoming such issues on the current building.
6. Increased outgoings - heritage buildings are more expensive to repair, maintain and insure.
Mr Perkins did not identify any comparable sales upon which he relied to determine the 25.5% reduction in value, rather it was the arithmetic addition of the adjustments referred to at [80] above.
Mr Perkins adopted as his measurement index the site area of the Site and compared it to the site area of the comparable properties. He contended that this approach was the most accurate as it was a fixed measurement index and one that would produce a result consistent with market expectations by determining a rate per square metre of site area. He criticised Mr Hill's use of NLA as this measurement index was uncertain and based upon an assumption that non-heritage restricted properties generally had an NLA that was comparable to 90% of the GFA, whereas this assumption was not always the case.
During the course of the evidence Mr Perkins adopted a further measurement index of GFA. However, no analysis of the comparable sales was undertaken on this basis.
[22]
Respondent's evidence
In making an adjustment for the impact of the heritage restrictions Mr Hill sought to take into account the potential inefficiencies of built form of the subject heritage restricted Site to the comparable properties which may result from heritage factors such as the thickness of walls and the presence of additional circulation spaces by adopting a measurement index of NLA being the area available for lease by a tenant. He suggested that by adopting such an approach (as opposed to site area or GFA) this presented a direct comparison. He applied an NLA to the Site by reference to an agreed position as to the internal calculation of available area of 475m2 NLA. He determined an NLA for comparable sales by adopting an amount equal to 90% of the permissible GFA being a sum which, in his experience represented the difference between GFA and NLA in non-heritage restricted properties.
Thereafter, he applied a further discount to take account of the heritage restrictions of the Site of 5% being the incapacity of the Site to offer open plan functionality to the office premises on the first floor and any inconvenient layout in the three retail premises on the ground floor.
With the combination of the use of NLA and the further adjustment of 5% he did not consider any further allowance had to be made for the heritage restrictions based on general "inconvenience" of the heritage restrictions. In making this determination he considered the rental return on the Site as compared to non-heritage restricted rental return in the locality which indicated that the Site was not suffering further disadvantage due to it being heritage restricted. However, if contrary to his evidence, the Court considered that a further allowance should be made for the inconvenience of heritage restriction it would only be a small adjustment of no more than an additional 5%.
Mr Hill criticised the approach taken by Mr Perkins on the basis that his adjustments relied upon a mathematical relationship between a difference and value, for example, if the floor space ratio (FSR) was less than permissible FSR Mr Perkins would perform a direct reduction of value by a percentage that represented the reduced floor space. He contended that value is not determined by the application of such mathematical precision. Further, to the extent that Mr Perkins identified differences between the heritage restricted Site and comparable sales that were not so restricted he assumed an impact on value without testing if such assumption was borne out in the market. Mr Hill compared the rental returns of the Site with comparable sites and determined that the Site was comparable if not superior in rental returns. This, he said, indicated that whilst there were differences, such as the size of windows and inefficiencies in layout, these differences did not translate into a loss of value.
[23]
Applicants' submissions
The Applicants submitted that whilst Mr Perkins's heritage adjustment did rely upon his two-step approach, which relied upon his highest and best use, being accepted, it was contended that even if such factors were not accepted his heritage adjustment should still be utilised. It was said that notwithstanding that Mr Perkins had determined his adjustments based upon a highest and best use of retail/residential the Court should consider his calculations to relate to the concept of a permissible building envelope of any mix of uses including retail/commercial. His adjustments should be considered in that context and, thereafter, make whatever modifications to the adjustments the Court would consider appropriate if any such adjustment related solely to the residential use.
It was further submitted that Mr Hill's adjustment of 5% was too low as it only related to the lack of open plan facilities and failed to take into account the inconveniences of ownership of heritage restricted properties which limits the carrying out of exempt or complying development. Lengthy written submissions were provided dealing with the constraints from the operation of such planning controls. The submissions were made based solely on the planning controls and no evidence was adduced specifically addressing these submissions. However, it was contended that the market would pay less as the owner has certain freedoms to change uses and interiors in a non-heritage restricted building whereas the Site would not have such freedoms. That inconvenience would affect market value.
[24]
Respondent's submissions
The Respondent submitted that as Mr Perkins's adjustment for heritage was founded upon the assumption of a highest and best use if that assumption is not accepted the adjustment cannot be retrofitted to apply to any other circumstances. If the underlying assumption is not accepted, then Mr Perkins's adjustments cannot be accepted.
Mr Hill's adjustment is not limited to the 5% adjustment for the lack of open plan, rather it is the combination of using NLA together with the 5% adjustment that ensures that the s 14G assumptions are appropriately reflected in the comparable sales. By adopting NLA as a measurement index the value is attributed to only those parts of the building for which a return can be assumed. The thickness of walls and the inefficiency of circulation spaces and the like are excluded in an NLA calculation. The additional 5% then takes account of the inconveniences of retaining the existing layout. Together this method covers both the inefficiencies and inconveniences of the heritage restriction and the assumptions required by s 14G.
The identification of a difference between a heritage restricted property and one not so restricted is not enough to establish an impact on value. What the Valuation Act requires is a determination of land value on certain assumptions and not a difference between development existing and permissible. As is evidenced by Mr Hill's assessment of rental returns for the Site and the comparable rentals in the locality the Site is equalling or exceeding comparable rental properties indicating that the heritage restriction and inconveniences to which Mr Perkins refers is not producing an impact on value.
[25]
Findings on heritage adjustment and measurement index
As identified above, I have rejected the determination of highest and best use as retail/residential and determined that the highest and best use of the Site is retail/commercial. As such a direct adoption of the adjustment made by Mr Perkins is not open without some critical analysis of the specific elements of his adjustment to determine the extent to which it remains a relevant factor in its application to the retail/commercial use.
The Applicants did not provide any real assistance in this regard choosing to leave it to the Court to determine for itself what adjustment could or should be made and any changes to Mr Perkins adjustments. Further, whilst submissions were made as to the continuing relevance of the adjustments for a building envelope assessment rather than a highest and best use for residential, such a proposition was never put to Mr Perkins to enable an understanding as to how he determined the adjustment initially and how it would vary if the highest and best use was not adopted. Again, to the extent that the Applicants relied upon inconveniences derived from exempt and complying development provisions as they applied to heritage restricted properties, such factors were not identified by Mr Perkins in any meaningful way in his evidence to understand how such factors related to the adjustment made by him and adopted by the Applicants.
Doing the best I can with the evidence before me the adjustment proposed by Mr Perkins of 25.5% cannot be applied for an adjustment for the heritage restrictions on the Site for the following reasons:
1. The 10% adjustment for the highest and best use relates specifically and entirely to the proposition that has been rejected that a purchaser would pay more for the Site for the development of a retail/residential use. If the highest and best use does not include residential, as I have found, such an adjustment cannot be sustained;
2. Permissible GFA - I accept the evidence of Mr Hill that a purely mathematical adjustment is inappropriate. There is no evidence of any market response that would require an adjustment for this minor reduction in permissible GFA. The permissible GFA is a maximum not an automatic entitlement. Further, the adoption of NLA as a measurement index rather than site area (which I accept for the reasons below) render this consideration irrelevant, as the rental returns for the Site and the comparable sales do not support a reduced value of the order proposed or at all;
3. Design obsolescence and usable floor space - the proposed 9.1% adjustment is again a mathematical calculation of the percentage of the actual floor space that is less useful due to the heritage restrictions and the land value is reduced by a direct mathematical calculation of the amount of that floor space. For the reasons outlined in (2) above, I reject this approach. Further, for the same reasons outlined in (2) above adopting an NLA as a measurement index takes account of such inefficiencies without the need for further adjustment;
4. Frontage - the proposed 5% adjustment is said to arise as a consequence of the heritage restrictions providing a less than optimal retail presence in King Street. It was suggested that the Site would be more valuable if it had an awning, wider footpath, larger windows and was able to remove the planter boxes. This submission, however, was asserted as a fact without any evidence or articulated foundation that would permit a finding that such features affected land value in the circumstances of this case or more generally. There was no sales evidence or other compelling justification for an impact on value by virtue of what was said that it was a less than optimal retail experience. Whilst I accept as a fact that such factors exist at the Site, I am unable, on the evidence, to deliver any impact on land value;
5. Building height - this factor was not ascribed a percentage adjustment as it had been included in the 10% adjustment for highest and best use. It is said to relate to the planning controls permitting a four-storey building whereas the subject is only two storeys. There is a fundamental misunderstanding of development potential in this assumption made by Mr Perkins. The planning controls control building envelope by a combination of controls, not just building height. Each of these controls must be met to provide a permissible form of development. Focussing only on the number of storeys does not demonstrate what form a permissible development would produce or the impact on value. The assumption that the number of storeys would automatically produce a higher value is not borne out by the analysis of floor area permitted. Notwithstanding the number of storeys, the Site currently achieves, on Mr Perkins analysis, of permissible GFA 98.15% of that permissible floor area. The increase of the built form to a four-storey building would not increase the floor area - just spread the existing floor area over a greater number of storeys. For this reason, I am not satisfied that any adjustment is required to take account of the building height or building envelope;
6. Accessibility - it is agreed that there is no equal access to the Site due to the presence of internal and external stairs and no capacity (on the s 14G assumptions) to provide equitable access. However, there is no evidence that such access arrangements provide for a reduction in value. Mr Perkins has identified no market sales or other basis for the assumption he has made that there would be a reduction in value. I accept Mr Hill's analysis of the rental returns for the Site that indicate that such a factor has not affected the value of the Site and no adjustment should be made for this factor; and
7. Increased outgoings - I am required by s 14G to assume a new heritage building at each valuation date. Therefore, some evidence that a reduced value would be paid for an anticipated additional maintenance would be necessary to accept that such a factor could or would affect land value. Mr Perkins has not identified any such evidence. No adjustment should be made for this factor.
For those reasons, none of the adjustments contended for by Mr Perkins can be sustained.
As to whether Mr Hill's adjustment is appropriate, I find that it is for the following reasons:
1. By adopting the NLA as a measurement index the inefficiencies of elements of a heritage restricted property arising as a consequence of wall thickness and common circulation spaces and the like are removed from the equation. The non-heritage restricted properties are assumed not to suffer from such inefficiencies and the adoption of 90% of FSR allows for the increase in NLA of such properties to be compared to the heritage restricted properties. Whilst the adoption of 90% may not be precise in all properties it is sufficiently precise to permit the comparison required by this valuation exercise;
2. If NLA is adopted, it avoids the necessity of making multiple specific adjustments to account for these variations. There is insufficient evidence before me to undertake any other precise comparison. Any adjustment for these factors would be equally imprecise by the adoption of a percentage adjustment made on assumptions as to the efficiencies of development on the comparable properties;
3. The adoption of NLA identifies a direct relationship between the building and the return on that investment. Adopting an NLA and undertaking the rental analysis adopted by Mr Hill provides a sufficiently reliable measure of the difference in value caused by the inefficiencies of built form that reduce the income producing floor space;
4. Of the inconveniences identified the only factor that is not adequately accounted for by the adoption of NLA is the presence of existing walls that may make the use of the assumed existing building less desirable to potential users. Such a potential is addressed by the additional 5% allowed by Mr Hill. The criticism that such sum is insufficient was founded on the misunderstanding that the adoption of the NLA provided for an inherent allowance for the other value reducing factors. I do not consider that the adjustment proposed by Mr Hill is insufficient when taken together with the adoption of NLA nor should it be increased to allow for further unidentified "inconveniences" of the effect of the heritage restriction; and
5. To the extent that the Applicants rely upon their submissions that a heritage building is inconvenienced by the exclusion of exempt or complying development or by an inability by operation of the s 14G assumptions to make changes to the building interior or services I do not find that there is a relevant reduction in value as a consequence of such factors. As has been observed with respect to other differences, there is a need to establish that a difference will result in a change in the value of the land as a consequence of that difference. There is no evidence that identified that the market would pay less for the land as a consequence of these factors. For that reason, I do not consider that a further adjustment is warranted to account for these considerations.
Accordingly, having regard to the evidence the appropriate measurement index to be adopted in the consideration of comparable sales is NLA, and with the adoption of NLA an additional adjustment of 5% should be made to make allowances for the inability to alter the internal layout of the Site to provide more flexible areas for retail and commercial uses.
[26]
Market movement
The valuers agreed that an adjustment should be made to render the comparable sales comparable to the valuation date, as the sales occurred at different dates to the valuation dates. This adjustment reflects market movement from the sale date to the valuation date. Both experts agreed that the sale and resale of the same property was the best evidence of market movement. There have been few sales in the locality that provide such evidence. The experts, however, disagree on the degree of market movement at the relevant dates.
The properties that the experts considered in the context of market movement in the locality were those illustrated in Figure 3 below:
Figure 3: Map showing properties considered in the context of market movement supplied by the parties.
[27]
Applicants' evidence
Mr Perkins considered that the peak of the market was in 2015/6 and since that date there has been a downward trend in the market.
There has been little movement in the market between 1 July 2017 and 1 July 2018. The market was 15% weaker in 2019.
Mr Perkins contended that high rents over the period to 2017 caused many businesses to fail and has led to large turnover and declining rents, as a consequence values have weakened.
In support of his analysis Mr Perkins relied upon a number of sales in the locality. From a consideration of those sales he determined that an adjustment of -15% was appropriate for the 2017 and 2018 valuation years and -5% for the 2019 valuation year.
Mr Perkins also contended that sales that indicated increase in price paid during the relevant period may not be evidence of increase in market value but rather an increase in the value of improvements during that period.
[28]
Respondent's evidence
Mr Hill identified three sales and resales in King Street during the relevant period. Whilst he acknowledged that the pool of sales were limited he considered that they permitted an assessment of market movement. In addition, Mr Hill identified and considered sales and resales of B1 and B2 zoned commercial properties in a wider locality. He considered these broader sales to be informative as a consideration of the broader market.
Mr Hill also gave consideration to rental returns on retail/commercial properties in the locality and concluded that there was an increase in such rents indicating an increase in land value.
In consideration of these factors he determined that there has been a slight increase in the retail/commercial market and that an adjustment of 5% per annum from the 1 July 2017 valuation year through to the 1 July 2019 valuation year is appropriate.
[29]
Findings on market movement
There are a limited number of sales in the immediate locality during the relevant period. Of those sales only one was the sale and resale of a property located at 241 King Street. That property was a retail/commercial sale and traded on 30 July 2015 for $4,400,000 and resold on 2 August 2018 for $4,550,000. This sale indicates an increase of 1.1% per annum. Whilst this sale is the best evidence it is impossible to derive a trend from a single sale.
Having regard to the sales without resale is informative but not determinative, as attention needs to be paid to other indicia of market conditions. Whilst there have been sales of other properties within King Street a comparison between any two properties needs to take account of the comparability of those sales to each other in order to ensure that any change in value can be isolated only to market movement and not some other factor.
Having regard to the totality of the evidence I am satisfied that there has been a slight increase in the land value in the locality primarily as evidenced by the sale at 241 King Street. That sale taken in the context of the increase in rental returns to which Mr Hill has identified indicate that the market is neither static nor dropping but has increased over the relevant years.
The quantification of such movement having regard to the evidence requires a synthesis of factors that whilst not directly comparable to sales with resales provides some indication of the state of the market. In that context I consider that the use of the broader locality sales is of assistance to perform that synthesis.
Having regard to the approach taken by each of the valuers I prefer the evidence of Mr Hill. His analysis was based upon a total picture derived from the best available evidence and by considering that evidence he identified that the trend was a slight increase. This opinion is consistent with the only relevant sale and resale. Mr Perkins's opinion on the other hand relied upon a mix of sales evidence and assumptions as to factors such as influences on retail of rent pressures. The rationale for such underlying assumptions was not revealed and he accepted that it was based on his experience rather than able to be supported by any evidence. The treatment of the sales evidence being influenced by the effect of these assumptions renders his assessment less reliable as I am unable to understand or test the approach adopted where the witness declines to adequately disclose the foundation for their opinions.
Accordingly, I adopt a 5% per annum movement in the market during the relevant valuation periods.
[30]
Determination of value for the relevant valuation years.
For the reasons outlined above, I consider that the relevant comparable sales for the purposes of determining the unimproved land value of the Site in accordance with the required s 14G assumptions are Sales 1, 3 and 4. Applying the adjustments that I have found are necessary to those Sales, the following analysed values for those Sales provide a range for each valuation year as:
1. 2017 Valuation Year - $ 6,765 - 6,050/ m2 NLA
2. 2018 Valuation Year - $7,101 - $6,380/ m2 NLA
3. 2019 Valuation Year - $7,437 - $6,696/ m2 NLA
I consider that the values adopted within this range by Mr Hill are reasonable in the circumstances of the case and, therefore, I am satisfied that the values identified by Mr Hill and accepted by the Respondent are the appropriate values to be determined in these appeals.
[31]
Conclusions and orders
For the reasons outlined above, I have determined that the Applicants' claims should not succeed. However, the Respondent accepted that the determined land values for the 2017 and 2018 valuation years were too high and should be that as contended for by Mr Hill in those appeals. As a consequence the appeals for the 2017 and 2018 valuation years will be upheld and the values will be determined in accordance with the determinations made by Mr Hill that I have accepted in those proceedings. As to the 2019 valuation year I have accepted the value as determined by Mr Hill which is an amount higher than that determined by the Respondent and the amount the subject of the Appeal for that valuation year, accordingly that appeal will be dismissed with the quantum of value determined by the Valuer-General remaining unchanged by the outcome of that appeal.
In proceedings 354865 of 2020 the Court orders that:
1. The Appeal is upheld;
2. The valuation of the land being Lot 1 in Deposited Plan 798784, known as 325 King Street, Newtown as at 1 July 2017 is set in the amount of $2,970,000; and
3. The exhibits are returned.
In proceedings 354858 of 2020 the Court orders that:
1. The Appeal is upheld;
2. The valuation of the land being Lot 1 in Deposited Plan 798784, known as 325 King Street, Newtown as at 1 July 2018 is set in the amount of $3,090,000; and
3. The exhibits are returned.
In proceedings 313106 of 2020 the Court orders that:
1. The Appeal is dismissed; and
2. The exhibits are returned.
Figure 2 (163754, pdf)
[32]
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Decision last updated: 18 February 2022