Land Ownership in the ACT
Private ownership of land in the ACT is held under a Crown Lease. The Crown Lease specifies the development rights and obligations of Crown Lessees in relation to the occupation and management of the land. This means that property transactions in the ACT relate to the sale and purchase of the Crown Lease and not as freehold land.
There are several types of Crown Lease that have been created in the ACT, the most common being a residential lease on a 99-year term. These leases generally include a right to a further lease, which means that for most land valuation exercises the value of a Crown Lease will closely resemble that of a freehold title.
Importantly, every Crown Lease includes a purpose clause. The purpose clause specifies what permitted use(s) the land can be put to and therefore defines the ‘Highest and Best Use’ possible on each parcel of land. The permitted uses are prescribed at the commencement of a Crown Lease but may be subsequently varied in accordance with its zoning under the current Territory Plan (e.g. adding residential to a purpose clause of a Crown Lease situated within a commercial CZ3: services zone).
Statutory rating valuations in the ACT are essentially a valuation of an unencumbered Crown Lease.
Highest and Best Use
Highest and Best Use is the use of a property that is physically possible, financially feasible and legally permissible and that results in the highest value as at the relevant date.
In the context of valuations in the ACT, the Highest and Best Use of a property is defined by uses permitted by the Crown Lease purpose clause, subject to the requirements of the Territory Plan.
In ascertaining the Highest and Best Use of the underlying land in a statutory valuation exercise, the added value of structural improvements is generally not taken into account. For example, where the Crown Lease purpose clause permits residential use, (which is the Highest and Best Use of the land) but the property is currently used as an office (which is NOT the Highest and Best Use of the land), then for statutory purposes the unimproved value of the site will be based on its use as a residential block and not as an office.
However, the effect of structural improvements on the unimproved value of land, such as contamination, may be considered if the effect was known by the general market at the date of valuation.
Existing Use In some circumstances the existing use of the land supports a higher value than what is currently permitted by the Crown Lease purpose clause. This means that in the event the property was potentially redeveloped to comply with the Crown Lease purpose clause and Territory Plan, the value may be less. In these circumstances the Highest and Best Use of the property is the existing or current use of the land. For example, a change in the planning scheme limited subdivision of the RZ1 sites to a minimum of 800 square metres per property, however some RZ1 sites were previously subdivided to an area of less than 800 square metres per property.
Statutory Valuations for Rating and Taxation
The Annual Revaluation Program
The Rates Act 2004 requires annual statutory land valuations for all rateable property in the ACT. Rateable properties are considered in three property categories – being residential, commercial and rural. Residential property constitutes the majority of rateable properties in the Territory.
There are two general types of residential property in the ACT: single dwelling residential properties; and residential unit sites. Single dwelling residential properties are valued using a ‘mass appraisal benchmarking’ approach.
The residential units, commercial and rural property are valued according to uses permitted by the Crown Lease purpose clause. General value trends are established from sales analysis and applied across the property groups in accordance with the specific use. For example, office value trends established from sales of office sites in Town Centres are applied across all office sites in the Town Centres.
In the event that a new rateable parcel of land is created or land needs to be revalued (e.g. surrender and re-grant of a Crown Lease, a Lease Variation Charge event), a new valuation notice will be issued. The valuation takes effect on the date indicated on the notice. Valuations are determined annually on the basis of unimproved value as at 1 January (base date) and take effect, following determination by the Commissioner for ACT Revenue, on 1 July of the same year (prescribed date).
The unimproved land value of each block is assessed by examining the market sales evidence of similar properties. Where possible, the sale price of vacant land is used as a comparison, with adjustments made for any ground improvements and individual differences such as size, location, aspect and views that may affect the value of each block of land.
Where there is limited or no sales of vacant land in the same or comparable areas to the subject land, the valuer works from the sales of improved properties, deducting amounts for the value of exempt improvements such as buildings, landscaping, paths and fences in order to determine an unimproved value of the sold blocks. These values are then used to assess the unimproved value of other similar blocks in the area.
The unimproved value of land is defined by sections 6 and 7 of the Rates Act 2004.
Unimproved value includes ground improvements such as grading and earthworks undertaken by the ACT Government or similar ground improvements made by a Crown Lessee under a Development Lease.
A Development Lease is defined in the Rates Act 2004 as a lease for the preparation of land ‘to make it suitable for subdivision into parcels of land to be leased.’
When assessing the unimproved value of land for statutory purposes, consideration is given to:
- General economic trends
- The relevance of sub-market group boundaries and benchmark properties
- Sales evidence associated for each category of use (i.e. residential, commercial and rural uses)
- Highest and Best Use of the property in the context of the Crown Lease purpose clause and current Territory Plan requirements
- Comparable sales of vacant land and/or analysed improved property sales to a deduced land value for use in the valuation of benchmark properties.
In many circumstances there are insufficient vacant land sales to support a robust statutory valuation process. This is common in the older established residential suburbs of the ACT whereas newly subdivided areas usually have a significant volume of vacant land sales to draw from. Accordingly, the demand for vacant land in older established areas is likely to result in a higher price due to scarcity.
In order to adjust for the effect of scarcity on unimproved value, sales of improved property are analysed, deducting the added value of improvements from the sale price to derive a deduced unimproved value. The deduced unimproved value is used together with relevant analysed sales of vacant land to support the statutory revaluation process.
The approach is consistent with the order of the High Court of Australia in Maurici v Chief Commissioner of State Revenue (No 8) [2007] NSWLEC 37.
Therefore, all other things being equal, residential unimproved values for ACT statutory purposes will rarely equate to the sale price of residential vacant land in established suburbs.
The ACT Government’s Voluntary Buyback Program, announced in October 2014, relates to 1,023 homes affected by loose fill asbestos insulation.
In 2016, the unimproved values of these properties were reduced by the ACT Valuation Office (ACTVO) in order to reflect the presence of loose fill asbestos insulation on the site. The approach is consistent with the order in Challenger Listed Investments v Valuer General (No 2) [2015] NSWLEC 60 where adjustments for contamination were required to the unimproved value of the land. This was despite contamination being directly associated with the structural improvements.
Following demolition, remediation and removal from the Affected Residential Premises Register, remediated blocks can be sold for redevelopment. The first of the remediated blocks was auctioned by the ACT Government in April 2016.
After remediation many of the affected blocks surrendered under the Voluntary Buyback Program benefited from Territory Plan Variation 343. Once a new lease was issued on the property, the site was revalued recognising any value uplifts associated with development rights permitted under the Crown Lease purpose clause.
This approach to the valuation of remediated sites was confirmed in the decision of Elliot v Commissioner for ACT Revenue (Administrative Review) [2018] ACAT 70.
The objection valuation exercise may vary depending on the nature of the property and the reasons presented by the taxpayer.
For objections relating to residential property valuations, where there is no or limited relevant evidence presented by the property owner, the objection process will consider whether the valuation for the property is consistent with the outcome of the annual mass appraisal valuation program.
For commercial and rural properties or where reasoning and evidence is presented for a residential property, a valuation report is completed. Under this approach, the individual property is reviewed and valued by comparison with the sales evidence.
The valuation will include adjustments for attributes that will equate the sale properties to the subject property, assuming a vacant block of land. Some of the attributes considered include:
- Land area
- Surrounding development
- Views
- Proximity to services and amenities
- Encumbrances such as registered easements and other restrictions and
- Development potential.
The review will always be weighted towards comparable sales evidence. The review will include the consideration of evidence that is:
- Sufficient in number
- Recent (i.e. as close to the valuation date as practical)
- Relevant (i.e. being of similar permitted uses to the property being valued)
- Verifiable.
Therefore, it is recommended that an objection to a statutory valuation include clearly articulated reasons of contention and actual, comparable sales evidence.
The review may recommend the confirmation or amendment of the unimproved value.
The ACT Revenue Office website includes information that outlines the process with respect to lodging an objection to your valuation.
Unimproved value of land vs market value of land
There is often confusion associated with the difference between the unimproved value of land and the market value of land.
Unimproved value of land
Unimproved values of rateable land are determined by the Commissioner for ACT Revenue in accordance with the Rates Act 2004. The Act requires the re-determination of every rateable property’s unimproved value as at the base date being the 1 January every year.
The simplest way to describe an unimproved property for the purposes of the Act is to imagine the site devoid of all structural improvements but with surrounding development around it unchanged. For example, if the site is serviced with water, power and sewer, then these services still exist but only up to the boundary of the site.
A revaluation of the unimproved land requires the consideration of comparable sales which are adjusted, if necessary, to equate to the rateable property. As there is generally a scarcity of vacant land sales especially within older established residential areas, then the sales of houses or improved properties may also be analysed. The approach is to deduct the value of the house and other improvements from the sale price which in turn provides a deduced unimproved value of the land.
The deduced unimproved value of the land is then compared to the property being assessed. This valuation approach is supported by legal precedent.
A mass appraisal benchmarking method is used in the revaluation of single residential properties. This method requires that a benchmark property is selected from a group of properties (called a submarket group) that are similar in location, type and use.
Using comparable sales, the unimproved land of the benchmark property is re-valued and a percentage change in value is established. This percentage is applied to the existing unimproved values of all properties within the submarket group resulting in new unimproved values. There are generally several submarket groups in a suburb and most rateable residential properties have been re‑valued using this valuation approach.
Frequently asked questions
There could be many reasons why your unimproved value is different to your neighbour’s unimproved value. The most significant differences are uses in the Crown Lease purpose clause and zoning in the Territory Plan. Other differences may relate to physical aspects of the land including land area, street orientation, easements and covenants or contamination.
A mass appraisal benchmarking method is commonly used in residential rating programs. Simply put, the benchmarking method includes the grouping of properties from which a single benchmark is selected. The benchmark is revalued every year in the ACT and any variations to the unimproved value of the benchmark will be applied equally across properties collected in the group. This ensures some consistency in the way that rating valuations are generated.
You are able to lodge an objection to the unimproved value and the easiest way to do this is through the ACT Revenue Office website. Any information you can provide outlining why your valuation is not correct is helpful including referencing any relevant sales in the area. If a valuation report is prepared as part of the objection process, a copy will be provided with the objection decision.
The sales of remediated Mr Fluffy blocks have not had a significant impact on changes in unimproved values across the Territory. This is because when unimproved values are determined from year to year, not just the Mr Fluffy sales, but all sales of vacant land and residential properties (house and land) are considered for that locality.
The impact of a premium for scarcity that might be paid for a remediated Mr Fluffy block or other vacant land in a locality is diluted because the valuation exercise includes many other sales.