Land and Environment Court of New South Wales CITATION : Gilles and Anor v Valuer General [2007] NSWLEC 556 APPLICANT Joseph John Gilles and Geoffrey Michael Gilles PARTIES : RESPONDENT Valuer General FILE NUMBER(S) : 31203 of 2006 CORAM: Miller AC KEY ISSUES: Valuation of Land :- LEGISLATION CITED: Valuation of Land Act 1916 Randwick Local Environmental Plan 1998 CASES CITED: Spencer v the Commonwealth 5 CLR 441 DATES OF HEARING: 23/07/2007 and 24/07/2007 DATE OF JUDGMENT: 6 September 2007 APPLICANT Mr P. Cleary, barrister Instructed by S. Sarkis of Giles Payne & Co. LEGAL REPRESENTATIVES: RESPONDENT Mr M. McGrowdie, barrister Instructed by Mr P. Rankins of Crown Solicitors Officers JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Miller AC 6 September 2007 31203 of 2006 Joseph John Gilles and Geoffrey Michael Gilles v Valuer General JUDGMENT 1 This is an Appeal by Gilles & Anor (the Applicant) against the Land Value assessed by the Valuer General (the Respondent) in respect of all of the land comprised in Strata Plan 33164 known as 488 Bunnerong Road, Matraville (the site). Background 2 The Land Value of the site, as assessed by the Respondent as at 1 July 2005 (the Base Date) was $780,000.00. The Applicant contended that the Land Value should have been $460,000.00. The Site 3 The site is located on the western side of Bunnerong Road, Matraville almost directly opposite Daunt Avenue. It has a frontage of 13.11 metres to Bunnerong Road, depths of 32.97 metres and 31.4 metres with an alignment to a lane, extending parallel to Bunnerong Road, of 13.33 metres. The land area is 417.3 m2. The land rises from street, frontage to the rear lane. 4 The site is located within the Matraville shopping centre which is, almost entirely, a one sided strip shopping area on the western side of Bunnerong Road extending, at its extremities between Beauchamp Road and Harold Street. 5 The site is zoned 3B Local Business under Randwick LEP 1998. The permitted Floor Space Ratio (FSR) is 1.5 to 1 giving an available (FSR) area of 625.95 m2. Erected on the land is a 3 storey mixed commercial and residential building comprising two lock up retail shops, at street level, and 4 residential flats located on two upper floors. Utilised FSR area is .9 to 1. Located on the northern side of the building is a driveway providing access to an open car parking area at the rear. 6 Mr A Gray, Registered Valuer No. 597, gave evidence on behalf of the Applicant and assessed the Land Value at $460,000.00. 7 Mr A St Leon, Registered Valuer No. 3159, gave evidence on behalf of the Respondent and assessed the Land Value at $780,000.00. 8 Both Valuers carried out their valuations in accordance with the provisions of Section 6A(1) of the Valuation of Land Act 1916. 9 The Valuers prepared a joint statement following their meeting on 6 July 2007. Part of that statement comprised a schedule of comparable sales which is set out hereunder. Address Title Site Area Price $ Date Comments Valuers Opinion as to Comparability to Subject m2 Mr St Leon: Inferior location. 1. 505 Bunnerong Rd Matraville A/355930 448.9 1,350,000 Feb 04 Land level, opposite, rectangular. Zoned 3 B Local Business. Indicates $3007 psm of site area and $2008 psm of FSR area Mr Gray: Accept VG's assertion – overpaid, as adjoining owner. Mr St Leon: Inferior for Commercial. 2. 552 Bunnerong Rd Matraville 82/C/8313 645 1,846,284 July 04 Land is larger and irregular in shape and is 2m below road level then generally level. Zoned 3B Local Business. Indicates $2862 psm of site area and $1908 psm of FSR area. Mr Gray: Better for residential, water views. Mr St Leon: Superior. 3. 803 Anzac Pde Maroubra 1/324607 506 2,290,000 Dec 04 Development site, zoned 3A General Business. FSR 3:1. Sold with DA for 18 units. Indicates $4526 psm of site area and $1508 psm of FSR area. Mr Gray: Vastly superior. Mr St Leon: Smaller site. 4. 534 Bunnerong Rd Matraville 1/517202 210 900,000 June 03 Smaller development site for three storey mixed use building. Zoned 3 B Local Business. Shows $4285 psm of site area and $2857 psm of FSR area. Mr Gray: Too small to be comparable. Built for resiting of post office. Mr St Leon: Inferior location. Not directly comparable. 5. 313 Bunnerong Rd Maroubra 2086/659637 505.9 875,000 Aug 03 Development site. Zoned General Business 3 A, FSR 3:1. Indicates $1730 psm of site area and $577 psm of FSR area. Mr Gray: Superior location for residential. Not developed because of continued slump in demand. Mr St Leon: Inferior location. 6. 507 Bunnerong Rd Matraville B/355930 449 1,330,000 May 03 Land level, opposite, rectangular. Zoned 3 B Local Business. Indicates $2982 psm of site area and $1976 psm of FSR area. Mr Gray: Water views from upper floors. Only inferior commercial – superior residential. 10 The valuers agreed that sales should be analysed and compared on the basis of $m2 of FSR area. 11 Matraville is a convenience type shopping centre which suffers from competition from a major regional shopping centre, namely, Westfield East Gardens, and to a lesser extent South Point Plaza, particularly since the Base Date. 12 The following additional information is relevant in respect of sales 1, 2, 3 and 6. 13 Sales 1 and 6. These adjoining properties are located diagonally opposite the site, on the eastern side of Bunnerong Road, and were sold to the same purchaser 9 months apart. The two parcels are almost identical in area and sold for almost the same price which translates into almost the same rate $m2 of FSR area. Each parcel is some 10% larger than the site. The parcels have been amalgamated and developed as one property comprising very limited ground floor commercial space with the major emphasis being on home unit accommodation. There is no dispute that the individual parcels and the amalgamated property is inferior as a commercial and retail location but significantly superior from a residential point of view. Mr Gray maintains that the price paid for sale number 1 in February 2004, at a time when the residential market had passed its peak, represented an over payment for this property. Mr St Leon disagreed as to the over payment but conceded that the market had declined by February 2004. Neither Valuer had any information as to negotiations that may have occurred between the parties leading up to the sale in February 2004. 14 Sale 2. This property appears to be on the corner of Harold Street but is, in fact, one removed from same. The street appeal of the property is enhanced by the fact that there is a considerable area of land between street frontage and the roadway as a result of some unfinished, and perhaps never to be completed, road alignment further south. It is at the southern extremity of the Matraville commercial area which effectively extends only to Perry Street on the western side of Bunnerong Road, one street north of the property. However, to comply with the zoning a small commercial space has been provided on the ground floor of the building. Mr Gray's evidence was that the property was put to auction in November 2005 when it was passed in at $1,550,000.00 or 16% less than the sale price in July 2004. There was no evidence as to whether or not the passed in figure was a vendor's bid or the bid of a prospective purchaser. In any event, the property did not sell and the owners proceeded to develop the property. The passed in price cannot be accepted as evidence of value but gave weight to the Valuers' opinion that the market for this type of property had declined from mid 2004 to November 2005. The Valuers agree that this is a superior residential location but inferior commercially. Views towards Botany Bay are available from the rear of the top floor in the back section of the building. 15 Sale 3. This property is located on the western side of Anzac Parade with car parking available from a rear street. It is zoned 3A General Business compared with the site which is zoned 3B Local Business. Both zonings require some commercial activity on the ground floor of the building. The significant points of difference are that the FSR under this zoning is 3 to 1 and a wider range of uses is permitted on the ground floor of any building. At the time of inspection construction of a home unit building of some 8 storeys, with ground floor commercial accommodation was well advanced. Surrounding development extending north to Maroubra Road and beyond comprises a number of large buildings of generally similar scale to this building. The Valuers agreed that this property was superior although Mr Gray considered it to be vastly superior. It is significant to note that it was sold with development approval for 18 units. It is some 90 m2 larger than the site, was sold 7 months prior to the Base Date and is the closest sale to that date. 16 The Valuers agreed that the market for this class of property peaked in the last few months of 2003, commenced to decline in early 2004 with that decline continuing up to and beyond the Base Date. No evidence was adduced as to the rate of that decline except what may be deduced from the unsuccessful auction in November 2005 of sale 2. Findings 17 Sales 4, 5 and 6 all occurred at or near the peak of the market for this class of property in 2003 some two years prior to the base date. Without evidence as to the rate of decline since the sale dates I have no option but to discard these three sales. 18 Sale 1 took place some 16 months prior to the base date. The land area is some 30 m2 more than the site, is located in a superior position, having regard to the highest and best use of the land for residential development which would tend to balance the lack of demand for commercial space on this side of Bunnerong Road. However, it suffers from the fact that the purchaser was the then adjoining owner of sale 6, who had purchased same in May 2003. Without convincing evidence of an arms length transaction, a sale to an adjoining owner must be always be treated with caution as such a transaction often fails the tests set out in Spencer v the Commonwealth 5 CLR 441. Without such evidence I must discard this sale. 19 Sale 2 is of a superior site, having regard to its highest and best use, and has a number of elements of a property located on the corner of two streets. While zoned 3B Local Business the character of this section of Bunnerong Road south of Perry Street is almost completely residential. It did occur 12 months prior to the relevant date and is of a property some 130 m2 larger than the site. It does not have the benefit of rear lane access. I am satisfied that the market value of this property as at the Base Date was less than its value at the date of sale 12 months earlier. 20 Sale 3 is the most proximate in time to the Base Date. The land area is some 90 m2 larger than the site. There is no doubt that it is superior; the question is whether it is "superior" (as described by Mr St Leon) or "vastly superior" (as described by Mr Gray). The potential buyers are quite different to those who would contemplate development of the site if it was vacant. It is a multi storey project of entirely different scale with a floor space available area 2.4 times that of the site indicating a total cost of construction at least 2.4 times that of the site but, in reality, possibly 3 times that of the site because of the nature of the development and the extra costs involved in multi storey construction. Accordingly, it is not surprising that the analysed price of $1,508.00 m2 is $400.00 m2 less than the analysed price of 552 Bunnerong Road although that comparison does not take into account the decline in the market from July 2004. 21 Having discarded sales 1, 4, 5 and 6 for reasons annunciated I have come to the conclusion that greatest weight can be placed on the analysis of sale 3, namely, 803 Anzac Parade, Maroubra. Proper allowance must be made for the fact that a Development Approval was in place at the time of purchase. Three further adjustments need to be made firstly, for the superior location of this property; I favour Mr Gray's description as "vastly superior". The second adjustment is for the declining market from December 2004 to the Base Date which, in my opinion, would have been more exaggerated at Matraville when compared with Maroubra and, thirdly, the smaller scale of any development on the site. I have come to the conclusion that, in totality, these adjustments amount to a reduction of 30% or $452.00 m2 of FSR area producing a figure of $1,056 m2 of FSR area for the site. 22 Applying 1,056 m2 of FSR area to the site FSR area of 625.95 m2 a figure of $661,003.00 is calculated which I have rounded to $661,000.00. Orders 23 The Orders of the Court – 1. The Appeal is upheld. 2. The Land Value of the land comprised in Strata Plan 33164 known as 488 Bunnerong Road, Matraville, as at 1 July 2005, is altered to $661,000.00 3. The Exhibits may be returned. ___________________ E Craig Miller Acting Commissioner of the Court ljr DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.