Valuations of Rural Leasehold and Licensed land in Victoria Australia

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Valuations of Rural Leasehold and Licensed land
in Victoria Australia

• Simon A. de Garis
• Senior Lecturer
• School of Property Construction and Project
  Management,
• RMIT University
• Melbourne, Victoria,
• Australia

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Where are we?
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Victoria
Hume Dam Study Area
4 Hour Drive NE of City
Melbourne RMIT
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Valuation of less than freehold

• Little Research
• Paper seeks a dialogue with some practical
  outcomes
• Paper Key areas
• Market rental valuations of rural land
• Valuation of land held under lease
• Native Title issues

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Area of leased and licensed land in Victoria is
small.

• 43,689 government tenants occupy 1,064,000 ha
• Private leases numbers are unknown
• Number to increase due to demographics and
  economics

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Rural Settlement Post 1825

• Landed squatters held large tracts
• Power of squatters gained by wool boom
• Victorian legislation of 1869 freed up land
• Settlers gain leasehold freehold

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Native Title

• Crown Land
• Extinguished by Freehold Grant
• Basis - Traditional Laws Customs
• Native Title Act 1993
• Mabo v State of Queensland

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North East Victoria
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Lake Hume Study Area

• Upstream of Albury/Wodonga
• Rainfall 715mm
• Average Maximum Temperatures
• Summer 31.8oC
• Winter 12.6oC
• Valleys - Murray, Kiewa Mitta
• Diverse Soils - Vertosols Shallow

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Literature Review

• Eves Study 2002
• NSW 1990-2000 Income Capital Land Value -
  Annual Average Weighted Return
• Rural Other Investments
• Rural - 10.75
• Shares - 12.72
• Bonds - 11.3
• Property - 5.2

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Bullivant v Minister 1936

• Flooding - Compensation - Hume Dam
• BFSL 100 Loss
• Peak Flood Area 33 Loss
• Higher Level 10 Loss (blot on title)

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Case Study Area

• NE Water Resources - GM Water
• Operates over 68,000 Ha - Controls 835 licences
• Hume Dam Capacity 3,035,500 Mgl
• Surface Area 20,000 Ha
• Licensed Land around Edge of Lake Hume
• 84 Licences Area 2-300 Ha
• 2 Arms Murray / Mitta

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Rentals - Traditional Methodologies

• Percentage of Market Rental
• Agistment Rates
• Productive Value
• Gross Margin / Income Approach
• Analysis of Productive Value is Preferred
• Little Market Evidence
• No Organised Leasing Market

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Analysis of Recent Sales Transactions
Freehold Land 2,030 - 6,200 per Ha
Freehold Leases District Leases 67 - 284 per Ha Study Area Average 93
Rental Returns Historically 6 of M.V.
Agistment Rates Cow Calf 5 / head / wk - Up to 9
G.I. per Year Cow Calf 500 1 Cow Calf 15 DSE
G.M. Per Ha 140
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Application of Methodologies - Data

• Land Value of 6,200 / Ha
• 1 Cow Calf 2 Ha

Rental Returns 6 370 / Ha 3 185 / Ha
Agistment 130 / Ha
Productive Value 500 250 / Ha _at_ Rental of 50 125/Ha
Gross Margin 140 / Ha _at_ 50 Rental 70 / Ha
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Methodologies Summary

• Significant Variation
• Land Value - Lifestyle Options - Rural Use
• Capital Gains - Value
• Agistment - Seasonal / Short Term
• Owner Responsible for Maintenance, Capital
  Expenditure Overhead Costs
• Productive Method Favoured by Farmers Over G.M.
  Approach
• Productive Method Ignores Lessor Overhead Costs

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Farmer Interviews

• Agistment Not Realistic
• Production or G.I. Approach
• Cow Calf Gross Income - 440-500 / Year
• 1 Cow Calf to 2 Ha
• Rentals 110 - 125 / Ha
• G.M. Approach too General - Data Not Available
• Alternative Approach - Assess DSE / Ha 7.5 x
  16 DSE 120 / Ha

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Crown Land Rentals - Methodology

• Productive Capacity - DSE / Ha
• Multiplied Rate / DSE
• Equals / Ha Rent (Forest Leases /Head)
• 33 of Total Productive Capacity Used as Basis
  for Rate / DSE. This is due to the following
  factors
• No Exclusive Possession
• Lessees Pay Rates Provide Benefit to Crown
• Lessee Has to Manage Pests Etc. Non-Productive
  Areas

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Goulburn Murray Water

• Some Conditions - Crown Leases Also Present
• Conditions of Licence Include
• Restricted to Grazing
• Flooding Weed Infestation
• No Fertiliser
• No Exclusive Possession
• Requires Reduction in Rental Rate / Ha

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Leases Other Issues

• Terms Conditions
• Rental Review
• Impact of Terms on Rental
• Valuation of Leasehold Interest - Capitalisation
  of Profit Rental

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Conclusions

• Uncertainty for Practitioners as to Correct
  Approach to Assess Market Rental
• Impact of Terms Conditions Significant
• Market Place Indicates the Productive Capacity
  Multiplied by a Rate per Unit
• Lessees Reluctant to a Lease Agreement Indicating
  a Commercial Return to Capital
• Return on Capital is Low Compared to Other
  Investments
• Further Research Needed.

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Valuations of Rural Leasehold and Licensed land
in Victoria Australia

• Simon A. de Garis
• Senior Lecturer
• School of Property Construction and Project
  Management,
• RMIT University
• Melbourne, Victoria,
• Australia