Article: Property Investment

Rateable Valuations with Frank NewmanRateable Valuations with Frank Newman

Property owners would by now have finally received their new rateable valuations in the mail. It’s an exercise carried out for the Whangarei District Council every three years, solely for the purposes of establishing how much you pay in rates, relative to other property owners in the district. Relative is the key word because it’s your local body politicians that set the total amount of rates collected, but it’s a property’s valuation that determines how much of that burden falls on an individual property owner.

The valuations are taken as at 1 August 2018, so are already five months out of date. The valuation notice breaks a property’s value into land value (LV) and the value of any ‘improvements’ (IV), which together total the Capital Value (CV). In the Whangarei District, the council use LV to calculate general rates. Most councils use CV (which should approximate the current market value of the property if sold on the open market) because they believe it better reflects the property owner’s ability to pay.

If your land value has increased by more than the land-type average then your general rates will increase because you will be paying a greater share of the rate take. If the council has also decided to increase rates (which both the WDC and the NRC have) then you will get a double whammy increase.

It needs to be clarified that the valuations relate to general rates only. On top are user charges, which include a ‘uniform’ annual charge on all properties and other charges depending on the services received.

The new rates will take effect from 1 July next year, but will not be known to the public until the councils set their annual budgets in the second quarter of next year.

In arriving at a property value, council’s valuer (Opteon) has taken what is called a ‘desk-top’ approach. They don’t visit each property but compare recent sale prices against the previous rateable value of those properties to produce an average percentage change that is then applied generally across a suburb or defined area. It’s very much an “average” approach based on assumptions and therefore may not reflect the “true” market value of the property.

Given the valuation is so approximate, here’s a quick way to check to see if Council’s valuation is too high. If it is, you will be paying more rates than you need to, and you should lodge an objection.

There are two websites that provide a free valuation of your property: homes.co.nz and trademe.co.nz/property/insights. Both sites claim to apply a secret algorithm, which they guard like KFC’s secret fried chicken recipe. The truth is probably they are using a similar approach to Opteon.

Simply go to the website address and type in the street address of your property to obtain their assessment of its market value. Compare those valuations with the CV figure shown on your Opteon (council) valuation. Here’s an example for a unit in Kensington and shows how much of a difference there can be.

The Opteon value of $398,000 (as at 1 August 2018) was significantly higher than the homes.co.nz value of $325k which was the mid-value of a range from $305k to $340k, and higher than the Trademe value of $300k (range $260k to $340k). Both the Homes and Trademe valuations are current (taken at 10 January 2019).

Given the Opteon value sits outside of the ranges of Homes and Trademe, there are good grounds to lodge an objection and request both the land and improvement values be scaled back proportionately to somewhere around $312,500.

The exercise becomes a little more involved because the CV needs to be split between LV and IV, given WDC rates are based on LV. This is where the discussion with Opteon will end up when they come and have a chat to you about your objection. They may suggest the IV value only be changed, which will not affect your rates bill.

None of the valuations mentioned look at the individual characteristics of a property, such as the quality of the improvements. To factor site specific factors into a valuation a valuer would need to be engaged to visit and assess the property.

While the valuation ranges may seem like a broad band, valuation is a very imprecise exercise dressed up with jargon and fancy formulas to look precise. One only needs to sit in on a discussion between two valuers at an arbitration hearing to have that reality hit you on the nose.

Objection forms may be downloaded from the WDC website wdc.govt.nz (type “Objection to Rating Valuation” in the search box). Objections must be in no later than Friday 15 February. Lodging an objection costs nothing.

Frank Newman is the principal of Newman Property Consultancy. He is the author of numerous books on investment matters. For questions or comment about this article contact .(JavaScript must be enabled to view this email address)


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