Land and Environment Court New South Wales Medium Neutral Citation: Galtom Investments Pty Limited v Valuer General [2012] NSWLEC 1130 Hearing dates: 19 and 20 April 2012 Decision date: 22 May 2012 Jurisdiction: Class 3 Before: Miller AC Decision: (1)The appeals are dismissed. (2)The land values under s 6A(1) of the Act are confirmed at $899,000 at each of the base dates, namely, 1 July 2008, 1 July 2009 and 1 July 2010. Catchwords: VALUATION OF LAND - Legislation Cited: Valuation of Land Act 1916 Shoalhaven Local Environmental Plan 1985 Category: Principal judgment Parties: Galtom Investments Pty Limited (Applicant) Valuer General (Respondent) Representation: Counsel Mr Gallegari (Applicant in person) Mr N Broadbent (Respondent) Solicitors Crown Solicitor's Officer (Respondent) File Number(s): 31015, 31016 and 31017 of 2011 Judgment 1Galtom Investments Pty Limited (the applicant) is the owner of Lot 41 DP 819433 Golden Beaches Drive, Kioloa (the subject property). 2Appeals have been lodged under s 37 (1) of the Valuation of Land Act 1916 (the Act) against land values issued by the Valuer General as at the base dates of 1 July 2008, 1 July 2009 and 1 July 2010. Those land values were determined under s 6A(1) of the Act. Under s 40 (2) of the Act the applicant bears the onus of proof. 3Land value is defined in s 6A of the Act in the following terms: (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 bone-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 subs 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. Land values 4The base date valuations issued by the Valuer General were as follows: 1 July 2008 $899,000 1 July 2009 $899,000 1 July 2010 $899,000 5The contended land values before the Court were: Galtom Investments Valuer General 1 July 2008 $675,000 $1,056,000 1 July 2009 $600,000 $960,000 1 July 2010 $525,000 $960,000 6Registered Valuers, Mr C Rogers and Mr P Hyam gave evidence on behalf of the applicant and the Valuer General respectively. The subject property 7The Court accepts Mr Hyam's description of the location of the subject property which is as follows: "The subject property is situated towards the western fringe of the coastal village of Kioloa, approximately 750 metres north west of Merry Beach, some 32 kilometres south of Ulladulla and 45 kilometres north of Batemans Bay in the southern Shoalhaven on the New South Wales South Coast. The northern and western boundaries of the property adjoin Murramang National Park, which is heavily timbered with native forest, while development in the Kioloa village comprises predominately detached residential dwellings together with tourist parks. Basic General Store shopping and community/recreational facilities are available in Kioloa while a local shopping centre is located in nearby Bawley Point and schools, major shopping facilities and other services etc. are available at the regional centres of Ulladulla and Batemans Bay." 8The subject property comprises an area of 5.094 ha, is rectangular in shape, is located at the northern end of Golden Beaches Drive from which point it rises generally to the south east and north west. The land is mostly cleared but some scattered timber remains. Except for some rural fencing and an entry gate the property can be considered as being devoid of any improvements. 9The land is zoned No. 2(e) (Residential "E" (Village) Zoned), under the Shoalhaven Local Environmental Plan 1985, which was gazetted on 17 May 1985. "The objectives of this zone are to provide a village lifestyle with a range of residential accommodation and support urban facilities." 10The only services available to the subject property are electricity and telephone. Town water and sewerage are not available. Subdivision approval 11The subject property forms part of an area of approximately 10 ha lying to the north of Forest Road which was subject of subdivision approval granted in or about April 1991 for 85 residential blocks. 12Stage 1, comprising 37 lots, was completed some time later. That part of Golden Beaches Drive extending to the boundary of the subject property and Hapgood Close were constructed. Almost all of the lots in stage 1 have been developed with single unit dwellings. 13The subdivision was approved on the basis that each lot would be dependent upon tank water for domestic purposes. Owing to the size of the lots it was not anticipated that septic tanks would be provided on site. The evidence was that Shoalhaven City Council are obliged to continue sewage pump out services to stage 1 and to the subject property if or when individual lots are developed. The valuers agreed that the saving in costs of not having to provide town water and sewerage would be in the vicinity of $10-$15,000 per lot. 14As "substantial commencement" has occurred in respect of the approval for 85 lots, subdivision of the remaining 48 lots, comprising the subject property, can be activated and implemented, either in whole or in part, at any time. Highest and best use 15The valuers maintain divergent views. 16Mr Rogers considers the use to be as a rural residential site. However, he acknowledges that the subdivision approval is a feature not found in rural residential sites in the general vicinity and recognises this potential by adding a premium to the rural residential site value. 17Mr Rogers does not consider that the subject property should be valued as an en globo subdivision due to a lack of demand for development sites and the low sales rate of vacant residential lots in Kioloa. 18In coming to that conclusion Mr Rogers noted that only five sales of residential lots, comparable to those that could be provided on the subject property, were sold in Kioloa in 2010 while the number of such sales in the Kioloa area during the past six years averaged three per annum. In his opinion a prospective purchaser would adopt a sales rate of three lots per annum indicating a total marketing time of 16 years. This is before making any allowance for the sale of already developed vacant land within Kioloa or the provision of infrastructure. This could delay sales of lots in the subject property by some 2 to 3 years. 19On the other hand, Mr Hyam considers that the "highest and best use" is as an en globo residential development site taking advantage of the subdivision approval. Valuation by Mr Rogers 20Mr Rogers valuations can be summarised at the respective base dates as follows: 1 July 2008 $500,000 as a rural residential site plus a premium of 35% - $675,000. 1 July 2009 $450,000 on the same basis plus a premium of 30% - $585,000. 1 July 2010 $400,000 on the same basis plus a premium of 30% - $520,000. 21In his valuation report Mr Rogers details the sale of 12 properties which support his valuation before the addition of the premium. Of that number six were inspected on the view. All sales were transacted in either 2006 or 2007 and ranged in size from 2.1 ha to 82.5 ha. 22I am satisfied that as a rural/residential site, with no further subdivision potential, the subject property had a value, as at 1 July 2008, of $500,000. Mr Rogers' evidence was that the market for rural/residential properties declined over the following two years by 10% per annum. 23The more contentious part of his evidence related to the application of a premium, representing the subdivisional potential of the land, ranging from 35% in July 2008 to 30% in the following two years. Mr Rogers admitted that the percentage allowance was subjective and represented his professional opinion. He believes that the property would be an attractive to a class of buyer who could construct a residence on one or more of the subdivided lots, incur minimal expense in regard to the provision of necessary infrastructure to service that lot or lots and proceed, over at least 16 years, to undertake further infrastructure works and sell the remaining lots. 24Mr Rogers made no attempt to explain the logic behind the selection of the premium percentages, the matters that he took into account in selecting same or to justify the percentages that he proposed. Valuation by Mr Hyam 25In accordance with his view that the "highest and best use" of the subject property was as an en globo residential development site, Mr Hyam preceded to arrive at a land value by reference to sales, on a per lot basis, of subdivisional land in a very broad area extending from south of Batemans Bay to Nowra- a distance of approximately 130 km. 26Three sales were located some 13 km south of Batemans Bay; two being in Malua Bay and the third in the adjacent suburb of Lilli Pilli. Sale prices ranged from $32,032 to $46,154 per lot. With the benefit of the view I am satisfied that these suburbs are not comparable to Kioloa with demand and lot values influenced by their proximity to Batemans Bay. 27Mr Hyam introduced four property sales which he considered comparable on the south-eastern fringe of the major centre of Nowra. 28One sale related to a rural residential property with lot areas of approximately 1 ha. I reject this sale as being comparable. The other three sales, having regard to the location and the nature of the encroaching urban development, I do not consider could possibly be regarded as comparables rendering any analysis of no assistance. 29At the time of the view, it was not possible to inspect what Mr Hyam regarded as his key comparable, namely, the sale of lot 39 DP 1094814 Sussex Inlet Road, Sussex Inlet. However, aerial and ground level photographs were of considerable assistance in enabling me to understand the nature of this property and its location. 30It is located approximately 70 km north of the subject property. Sussex Inlet Road is the main road leading from the Princes Highway to the township of Sussex Inlet which, according to Mr Rogers, has a population of 15 to 20 times that of Kioloa with a sale rate of new residential lots of 8.6 per annum. Sussex Inlet is influenced by its proximity to Nowra (approximately 38 km distant) and is regarded by some as a dormitory suburb. 31The property has an area of 23.08 ha and was sold for $3,450,000 by contract dated 1 June 2010. Mr Hyam describes it as an: "irregular shaped large residential development site which is gently to moderately sloping/undulating and predominantly timbered with native forest/scrub and being approximately 30% low-lying swampland. Located at the western fringe of Sussex Inlet township and considered suitable for approximately 160 lot residential subdivision". 32The sale shows a rate of $21,563 per lot based on a 160 lot subdivision. Mr Hyam estimates that the sale value of the lots on completion of the subdivision would be between $120,000 and $140,000. This compares with his estimate of average lot values, on completion, for the subject land of $145,000. 33Having reviewed all of his comparable sales Mr Hyam concludes that: "The sales evidence shows South Coast en globo residential development sites to have sold at between $20,000 and $46,154 per undeveloped lot. We have therefore adopted the lower or conservative end of this range to apply to the subject property for the purposes of assessing the values under Section 6A (1) of the Valuation of Land Act 1916, although the subject property has the considerable advantage of substantially lower development costs due to not having to provide either sewerage and town water services as pump out of septic systems and tank water supply would be the responsibility of the end lot purchasers". He then adopts: ""a reasonably conservative rate of $20,000 per en globo residential lot in relation to the 1 July 2008 base date and a reduced $20,000 per in globo residential lot in relation to the base dates of 1July 2009 and 1 July 2010 to reflect the downturn following the "global financial crisis" of late 2008 and early 2009"". 34In arriving at his conclusion Mr Hyam has not made an adjustment for the saving of between $10,000 and $15,000 per lot for the saving in costs relating to absence to provide town water and sewerage. When I take into account those savings, the location of the subject property and the estimates of time until all lots are sold I find that Mr Hyam's conclusion could not be considered unreasonable. 35Having regard to the paucity of comparables and the size and location of what I consider to be the most comparable sale it is important that the conclusion reached by Mr Hyam must be checked in whatever way is appropriate in all the circumstances. 36The check used by Mr Hyam was the hypothetical development approach. The Court accepts this as appropriate method. 37He produced four spreadsheets two of which related to "pre-GFC" conditions and two "post-GFC" conditions. In each group average price per lot on sale, development costs and the selling period were varied with the lot prices in the "post-GFC" conditions being reduced by $20,000 in each case. In the "pre-GFC" scenarios interest was charged at 10.5% while in the "post-GFC" scenarios interest was charged at 9.5%. 38I raised queries with Mr Hyam in respect of a number of calculations within the spreadsheets. While I am not entirely comfortable with all of his explanations and some of the calculations I am satisfied that they sufficiently support the conclusions which he reached using the comparable sales approach. Findings - Mr Rogers' valuation 39The approach taken by Mr Rogers to apply a premium due to the potential of the land, beyond the lots that a prospective purchaser would require, is not without some merit. 40This is because I expect the cohort of prospective purchasers may not include traditional developers due to the extremely long timeline before all lots would be sold. However, Mr Rogers approach introduced a subjective element (the percentage uplift) which, without any supporting evidence, cannot be tested or checked. For that reason I do not accept this as a valid valuation approach in this instance. Valuation conclusion 41Notwithstanding that Mr Rogers raised well founded concerns regarding Mr Hyam's valuation I am satisfied that the applicant has not discharged the onus of proof in demonstrating that the issued base date valuations were too high. Orders 42The orders of the Court are as follows: (1)The appeals are dismissed. (2)The land values under s 6A(1) of the Act are confirmed at $899,000 at each of the base dates, namely, 1 July 2008, 1 July 2009 and 1 July 2010. E Craig Miller Acting Commissioner of the Court 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. Decision last updated: 22 May 2012