The valuation of agricultural land for rating purposes in Australia: methodology and administration
FARMERS CLUB JOURNAL ARTICLE
The valuation of agricultural land for rating purposes in Australia: methodology and administration.
Lucy Preston1 Harper Adams University College, Newport, Shropshire
Following the release of the 2007 Lyon’s report into Local Government there was understandable concern and outrage in agricultural circles regarding the recommendation that the Government look again at the exemption of business rates for agricultural land and buildings which has been in place since 1929. Whilst there are many valid reasons for the exemption what particularly interested me was that he recommended a valuation of agricultural land be undertaken to correctly assess the value of the exemption. It was suggested in 2007 that this could amount to approximately £450 million forgone in Government revenue, however with no valuation yet carried out, the actual value of agricultural land in the UK was and remains unknown. As a Rural Practice Chartered Surveyor lecturing valuation, I was intrigued as to how such a huge, daunting and undoubtedly costly exercise work may be carried out. Having worked in Australia in 2004/5 I was aware that agricultural land was rateable there and wondered how they managed the valuation task. I was fortunate enough to receive a Farmers Club Charitable Trust Research Bursary in 2009 and visited Australia in March/April 2010 to find out more about the processes in place. Due to the federal and state government arrangement the system was not quite as simple as I had initially anticipated. The administration and methods of valuation used in each state vary considerably as does the regulation of valuers undertaking the work. I chose to carry out my study in Western Australia (WA) and Victoria; two very contrasting states in terms of size, climate, geography and agricultural practice. When it comes to considering influences on the value of agricultural land there are many similarities between the UK and Australia, in particular the shortage of sales evidence and the impact of ‘hobby/lifestyle’ purchasers on prices. However, Australia has no history of 1
BSc(Hons) MRICS - Senior Lecturer & Senior Tutor in Rural Enterprise & Land Management, Harper Adams University College, Newport, Shropshire TF10 8NB. Telephone: 01952 815271, email: lpreston@harper-adams.ac.uk THE FARMERS CLUB 2010
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The valuation of agricultural land for rating purposes in Australia: methodology and administration
subsidies and grant support for agriculture, there are few environmental schemes and restrictions, there has been no official recession in the country and there are less diversified farm enterprises and buildings to consider. There is also very little let land within Australia and the investment market is very much in its infancy with corporations expecting a 5% return and no specific agricultural tenancy law in place. Initially I travelled to Perth in WA where I spent time at the state Valuer General’s Office (VGs) to find out more about their work. The state is split into agricultural regions with a significant majority of the area being desert. To the north there are areas of tropical horticulture and in the south west wineries and dairy land. The main source of income from agriculture in WA is however from the ‘wheat belt’ region. This area is the main arable growing area of Australia (wheat yields are approximately 2.4t/ha with a 2010 price of $160/t (on farm), gross margins are approximately $80/ha - $100 (all costs/pre-tax)). Main cropping is milling wheat, malting barley, canola and lupins. To be considered ‘viable’ a farm in this region is on average 4,000 ha. In WA rates are paid on the basis of Gross Rental Value (GRV) for both residential and business properties (as in the UK), however, agricultural properties are paid on the ‘Unimproved Value’ (UV) - unique to WA and Queensland The basis was originally introduced in order to avoid penalising farmers who improved land when Australia became occupied as the more they did the more it was worth and in effect the more tax would have been payable! In reality there is very little unimproved land now as all land suitable for agricultural use has been developed, therefore the method used to calculate UVs is the ‘improved value of the land’ minus buildings and then discounted by a percentage based on the estimated costs of clearance. This still allows a degree of valuers’ discretion and therefore subjectivity. Amongst the valuers there is considerable disquiet regarding the continued use of UVs for agricultural land and whilst various papers have been presented the current system remains in place. Most rating revaluations take place three yearly, however for rural areas these are annual and all work is carried out ‘in-house’ by a dedicated team with three regional offices across the state. The valuation task is heavily reliant on sophisticated computer software which maps land values. Areas are split up using Isovals and then into smaller SMAs (sub-market areas).These reflect key valuation criteria including rainfall, soil type, and proximity to urban areas. The system includes all relevant land sales data and satellite images and calculates values for each holding on a CHAxB basis (cleared hectare excluding buildings) with larger areas of land reduced in value on a p/ha basis. The percentage reductions for improvements are ‘gazetted’ every year and vary depending on the shire (similar to UK counties). Reductions may be up to 50% of the improved value. In Melbourne I visited both the Australian Valuation Office (AVO) and VGs offices and also had the opportunity to travel to Wodonga and Albany in the North Country on the New THE FARMERS CLUB 2010
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The valuation of agricultural land for rating purposes in Australia: methodology and administration
South Wales/Victoria border spending a day with a valuer with the AVO and travelling around the area visiting small holdings and farms and discussing valuation considerations. I also spent a weekend with a local valuer and past lecturer at RMIT who lived on a small holding in Wodonga. The Great Dividing Range which runs across the middle of Victoria is the natural division between high and low rainfall. The north west of the region is semi-arid and generally requires irrigation whereas south west of the state is prime dairy land with some market gardening south west of Melbourne. The North Country was an interesting combination of mixed agriculture, ski fields, wine growing, ex-tobacco plantations, old gold mines and several areas that had been severely affected by the bush fires in 2009. Each shire within the state has the ability to decide which valuation methods to use for rating purposes. The VGs ‘oversee’ the process and issue Valuation Best Practice criteria to each shire. Shires in turn issue contracts to Municipal Valuers to carry out work on their behalf. Four of the 78 shires carry out valuations in-house but most shires contract out all valuation work. Some of the companies that tender for contracts were set up purely to carry out municipal valuation work and most are not local to the areas. Whilst I was visiting proposals were underway to change the system so that the shires no longer had control over how valuation work was carried out – this is to be bought back under the control of the state government who will then tender contracts and outsource work. This has caused considerable consternation within the industry, particularly with shire-employed valuers, but it is hoped to reduce the number of appeals which currently amount to approximately 6,000 per annum with approximately 20 making it to court costing up to $200,000 per case. Within Victoria rating re-valuation work is carried out biennially. As in WA sophisticated computer programmes are used though these vary depending on the shire/contract valuer. Similarly submarket groups (SMGs) are created which divide land into areas with particular common characteristics. However the following valuation methods are used depending on the shire: 1. Site Value (SV): the capital value of land including improvements but no buildings 2. Capital Improved Value (CIV): capital value of land including all buildings and improvements 3. Net Annual Value (NAV): a ‘fair rent’ calculated for residential and farm property at 5% of CIV Most shires use CIV and some councils use a combination of methods – referred to as a “shandy”!
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The valuation of agricultural land for rating purposes in Australia: methodology and administration
There is currently only one university in Australia (in Queensland) providing a ‘Rural Valuation’ course and following my visits to Curtin University in WA, Melbourne University and RMIT in Victoria it was clear that the agricultural content of the valuation courses is limited. It was widely commented by those in the profession that there is a shortage of appropriately qualified, experienced and enthusiastic rural valuers within the country. After a very successful trip I feel that I have learnt an awful lot and made some incredibly useful contacts. I plan to investigate further the valuation of agricultural land and the potential impact of business rates on agricultural land and buildings in the UK. It is clear that all the systems in place in both states visited would not be appropriate back at home, however there are lessons to be learnt from both successes and difficulties they have encountered which may well help to streamline such a vast valuation task in the UK. I also managed to make some good links with several universities and we will continue to work together on future projects. As a result I am currently setting up possible placements for REALM students at Harper Adams University College in Australia and both the shortage of rural valuers in Australia and contacts made should help graduates find opportunities within the country. Acknowledgements My sincere thanks go to the Farmers Club for giving me this wonderful opportunity. I would also like to thank the many people that were incredibly supportive of my study trip and most generous with their time and advice. These include: James Baxter – Associate Professor of Property – RMIT University John Clark – Regional Valuer - Landgate James Collins – Senior Valuer – Valuer-General Victoria David Corrigan – Revaluation project Manager - Mornington Peninsula Shire Greg Costello – Associate Professor – Head of property programs – Curtin University of technology Simon de Garis – Land Valuer & Property Consultant Dr Harry Karamujic – Senior Lecturer in property and finance – The University of Melbourne Ian Krelle - Manager – Valuation Projects – Valuer-General Victoria Terry Maguire – Manager Valuation Certification – Valuer-General Victoria Phil McKenzie – Senior Valuer – Australian Valuation Office Andrew McMillan – Valuer – Australian Valuation Office Mario Palandri – Divisional Councillor – API – WA Division John Rowe – Chief Valuer Country - Landgate Colin Stabb – Managing Southern region – Australian Valuation Office Dr Georgina Warren-Myers – Senior Lecturer - RMIT University
WORD COUNT: 1,483 (excl. acknowledgements)
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