Jessica Investments Pty Ltd v Valuer General

CASES CITED: Graham Trilby Pty Limited v Valuer-General [2000 May] NSWLEC 217 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 (27/2/2008)

DATES OF HEARING: 12/08/2008, 13/08/2008 and 14/08/2008

APPLICANT Mr J. Atkin, solicitor Instructed by Lazarus Tomoko Lawyers LEGAL REPRESENTATIVES:

RESPONDENT Mr J. Maston, barrister Instructed by Crown solicitors

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

31156 of 2007 Jessica Investments Pty Ltd v Valuer General

JUDGMENT Introduction 1 This is an appeal against the Value General's valuation of Lot 100 DP 1060693 (the site), being land in Campbelltown Road, Glenfield under s 6A of the Valuation of Land Act 1916. The relevant valuation notice is for base date 1 July 2006, the relevant date being 9 October 2006, indicates a land value of $26,000,000. ($88.72 per square metre overall). If the appeal is to be upheld, pursuant to s 40(2) of the Act the onus of proof rests with the applicant.

2 Lot 100 has an area of 29.305 ha and under the Campbelltown (Urban Area) Local Environmental Plan 2002 17.715 ha is zoned Residential, 2.04 ha is zoned Special Uses-Railway and 9.55 ha is zoned Open Space. The site is included in the Edmondson Park Urban Release Area Precinct. Services are available but not connected.

3 Mr C Sorrenson, the respondent's valuer, contends that the notified land value of the site can be justified but that a land value of $25,000,000 ($85.31 per square metre overall) would nevertheless be appropriate, using the comparable sales approach of valuation, this being the most appropriate method for determining the land value. He also acknowledged that, with correct inputs, the residual approach supports his assessed land value.

4 Mr B Wicks the applicant's valuer contends that the site's land value should be $20,000,000 ($68.25 per square metre overall), determined by means of the residual approach, this method being the most appropriate method given the lack of directly comparable sales. He nevertheless accepted that some of the sales utilised by Mr Sorensen could be used (by means of comparable sales approach) to support the residual approach. Valuation Methodology 5 In Graham Trilby Pty Limited v Valuer-General [2000 May] NSWLEC 217 Jagot J criticised the use of tables of adjustments for comparable sales where the Court's practice and procedure does not require them. She was particularly critical of such tables where they contain detailed percentage adjustments that were prepared working backwards from a conclusion (land value) reached on the whole of the available material. She explained that such an approach tends to obscure rather than illuminate a valuer's reasoning.

6 Despite this, the adjustment factors themselves continue to be relevant, otherwise how else can the identified sales be utilised as part of the comparison process. Also, in my opinion, if a valuer does not have a final land value in mind, the detailed percentage adjustment approach could be utilised and revealed in an attempt to provide transparency. Otherwise the valuer's less transparent approach would be to identify a range of factors that distinguish in one way or another, the comparable sale from the subject property and, based on the valuers own judgment simply assert the land value.

7 In Graham Trilby, her Honour also points out that if comparable sales are available, direct comparison has repeatedly been identified as the "conventional valuation technique". This is because if comparable sales are available they represent direct evidence of the market's valuation of all of the variables that must otherwise be taken into account in the subjective opinionative process in the residual or hypothetical development approach. 8 My attention was also drawn to the High Court's finding in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 (27/2/2008) that the parties to a hypothetical sale must be supposed to be ...perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicial it...

9 In these circumstances and accepting as I do that there are several comparable sales that can be utilised for the purposes of valuing the site, I propose to give greater weight to the comparable sales method preferred by Mr Sorrenson. Also, given that both experts agree that a feasibility or residual analysis is relevant and should be considered, this can be taken into account. Comparable sales method 10 In his evidence Mr Sorensen identifies six land sales that he says are relevant for the purposes of the comparable sales method of determining land value for this site:

1. 150 Lodges Road, Elderslie. 2. Various allotments in Richardson Road, Spring Farm. 3. 279 Richardson Road and 36 & 66 Springs Road, Spring Farm. 4. 212 A Springs Road, Spring Farm. 5. 282, 288, 300 & 306 Caddens Road, Claremont Meadows. 6. 365 & 394 Caddens Road, Claremont Meadows. 11 Of these sales Mr Wicks says that sales 2, 3 and 4 are not relevant. Instead sales 1, 5 and 6 together with the following additional sales are relevant:

7. 931 Cobbitty Road, Oran Park. 8. 1025 Camden Valley Way, Catherine Field. 12 Mr Sorensen says that sales 7 and 8 are not relevant.

13 Having reviewed all of the evidence and taking into account that the experts agree that three of the sales are relevant, I am satisfied that these three sales (sales 1, 5 and 6) can be compared to the site and utilised for the purpose of determining its land value. Mr Sorensen assesses these sales in his report, Exhibit 3 and in the joint report Exhibit 5 essentially as follows:

Sale 1 - Lodges Road, Elderslie 14 The property at 150 Lodges Road, Elderslie was sold by contract dated December 2005 for $12,773,000. This residential, elevated, gently undulating property has an area of a little over 11 ha with district views. Services are available. Some earthworks will be required. It includes some open space and drainage lands. Development consent for subdivision had not been obtained.

15 According to Mr Sorensen this site had an effective purchase price of a little under $13,820,000 taking into account certain benefits including road works. He reduced this by 5% for the decrease in the market between the base date and December 2005. He then says that it should be reduced by a further 45% for the larger size of the site, larger proportion of open space together with servicing difficulties and extra development costs. To this he made an adjustment for an infrastructure levy of just under $4,000,000. On this basis his overall analysis of this sale indicates a rate of $89.56 per square metre that could be applied to the whole of the subject site. 16 However instead of a 45% reduction his calculation for this sale actually involves a 55% reduction (unlike his calculations for Sales 5 and 6 where his reference to a 45% reduction actually is a 45% reduction). Hence, by reducing his effective purchase price of $13,819,851 by 5% then by a further 45% (not 55%) and adding the infrastructure levy and then by dividing this by the site area this indicates a rate of $98.19 per square metre.

Sale 5 - Caddens Road, Claremont Meadows 17 The property comprising 282, 288, 300 & 306 Caddens Road, Claremont Meadows was sold by contract dated January 2005 for $10,160,000. This residential, irregular shaped property has an area of a little over 10 ha. It has a wide frontage to Caddens Road. There is in its northeastern corner and area of endangered Cumberland Plain Woodland. It includes some open space and drainage land. Development consent for subdivision had not been obtained.

18 According to Mr Sorensen this property's sale price should be reduced by 10% for a decrease in the market since January 2005. He reduced it by a further 45% for the larger size of the site and allowed for locational attributes, availability of services, smaller proportion of open space and extra development costs. To this he made an adjustment for an infrastructure levy of just over $3,500,000. His overall analysis of this sale indicates a rate of $85.19 per square metre that could be applied to the whole of the subject site.

Sale 6 - Caddens Road, Claremont Meadows 19 The property comprising 365 & 394 Caddens Road, Claremont Meadows was sold by contract dated June 2006 for $11,050,000. This residential property has an area of just under 11 ha. It includes some open space land. Development consent for subdivision had not been obtained.

20 According to Mr Sorensen this sale price does not need to be adjusted for time but should be adjusted by 45% taking into account size, locational attributes availability of services, smaller proportion of open space and development costs. To this he makes an adjustment for an infrastructure levy of just under $4,000,000. His overall analysis of this sale indicates a rate of $90.70 per square metre that could be applied to the whole of the subject site.

21 Overall Mr Sorensen said that that these three sales reflect an analysed rate per square metre within what he describes as a tightly defined range of $85.19 to $90.70. Because the notified land value of $26,000,000 reflects $88.72 per square metre overall and this being within the range the notified value is thus supported. In apportioning his assessed $26,000,000 land value across the site Mr Sorensen said that the 9.55 ha of open space would have a value of $4,775,000. He also said that a further $86,000 of land improvements needs to be taken in account. 22 On this basis and accepting Mr Sorensen's adjustments, even with my calculated rate of $98.19 per square metre for Sale 1, $88.72 per square metre is still within the range. But it is well below the average ($91.36) of the three calculated rates, possibly indicating that a land value of $26,000,000 is too low.

23 Mr Wicks assessed the three sales in his report, Exhibit D, and in the joint report Exhibit 5 and in essence concludes that they are each more valuable on a dollar rate per square metre than the subject land, for a number of reasons including: o Being a master planned residential estate it will have a higher total development cost. o Community titles as proposed less favored by the market by comparison with Torrens title. o The cost of various additional works including rear lanes, road works, sound barriers and landscaping. o Anticipated oversupply of residential allotments in the locality. o The site's multiple zones. o The open space zoned land adds no value. 24 Taking these matters into account Mr Wicks contends that the subject land has a value within the range $95 - $100 per square metre for the residential land and the special uses land but not the open space land. Given that these lands together have an area of 19.755 ha this indicates a value of between about $18,800,000 and $19,800,000. He excluded the open space lands because they add little value to the site because they are low-lying and have flora and fauna issues thus restricting the site's development potential.

25 Despite this I believe Mr Sorensen to be correct in attributing some value to the open space. This is because it will add to the amenity of the area as a passive and active recreational resource although I doubt that it would be worth $4,775,000, especially if it were to be dedicated to the council without compensation. However this is not determinative of the land value here because Mr Sorensen included the open space lands in his analysis of each of the three sales which he adjusted to reflect the open space that is part of the subject site. 26 I accept Mr Wicks' contention that the likely community title subdivision in accordance with the publicly exhibited master plan (but not finalised) would, by comparison with a Torrens title subdivision, tend to reduce the land value and add to the cost of development. Again I am satisfied that Mr Sorensen has taken this into account and no further adjustment is required.

27 All things considered and bearing in mind the matters that Mr Sorensen took into account (including the style of the subdivision and the master plan) in significantly adjusting the prices of the three comparable sales downwards and bearing in mind his concession that $25,000,000 would not be an inappropriate value I accept that this would be a reasonable land value for the site. Residual analysis 28 In carrying out the residual/feasibility analysis the valuers used the same theoretical model having applied their own determined inputs, Mr Wicks contends a land value of $20,000,000 whereas Mr Sorensen contends a land value of just under $25,000,000, perhaps not surprisingly reflecting the land values that they each determined using the comparable sales method. The difference in the two values results from their disagreements in relation to a number of inputs into this model as detailed in Exhibit 12.

29 According to Mr Sorensen an allowance in the sum of $1,470,750 should be made for selling costs, legal costs and marketing, whereas Mr Wicks says that $2,766,125 should be allowed. The major difference here being that Mr Wicks says that an amount of $1,100,000 should be allowed for marketing and the sales office whereas Mr Sorensen says a total of $120,000 should be allowed. In this regard I am inclined to accept the evidence of Mr Sorensen who consulted with real estate agents who are experienced in marketing developments of the kind anticipated for this particular site. I nevertheless believe that the amount he has allowed would not be sufficient given the more than two years sale period. 30 In relation to the rate of sale input Mr Wicks contends that the proposed lots would probably sell at a rate of 6 - 7 lots per month whereas Mr Sorensen contends that a rate of 8.1 (average) lots per month would be achieved. Whilst this does not seem to be a large difference I understand that a difference of 1 lot per month could equate to a difference in land value of about $1,000,000, an indication of the sensitivity of the model. As I have no way of conclusively determining which of these two figures is correct, for the purposes of the exercise I assume that a sale rate somewhere between the two is likely.

31 As for the start date for subdivision work Mr Sorensen says that this could commence in January 2007 whereas Mr Wicks says this could not occur until August 2007. The critical difference in this regard was that period of time that they allowed for the obtaining of development consent with Mr Wicks allowing a period of 13 months and Mr Sorensen allowing a period of six months. In this regard I expect that Mr Sorensen is, for the purposes of this exercise, more likely to be correct taking into account Mr Sorensen's direct enquiries at the Campbelltown City Council and accepting that the relevant development application was consistent with the master plan.

32 Given my preference for Mr Sorensen's suggested inputs into the model it follows that for the purposes of feasibility analysis the land value is likely to be somewhere between but closer to $25,000,000 than $20,000,000. I do not however attribute weight to this outcome sufficient to vary the conclusion reached in relation to the comparable sales method. Conclusion 33 Having considered the evidence and bearing in mind the conclusions that I have reached in relation to both the comparable sales method and the feasibility analysis I am satisfied that the statutory valuation should be varied. A land value of $25,000,000 is, in my opinion appropriate, despite the non-inclusion of $86,000 of land improvements that were not included in Mr Sorensen's original analysis.

      T A Bly
      Commissioner of the Court
      ljr

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