Valuation of Land

1
Valuation of Land Buildings

David Baulch
2
Valuer-Generals Valuations

• Valuations carried out on a seven year cycle
• Three Values
• Land Value
• Capital Value
• Assessed Annual Value

3
Defintions

• Land Value
• The capital value of land assuming that no
  improvements have been made.
• Capital Value
• The capital sum realisable from sale of land
  including all improvements
• Assessed Annual Value
• Gross annual income from rental after allowing
  for GST, rates and land tax.

4
Land Tax Adjustment Factors

• Land indexed annually for Land Tax purposes only.
• Indices are municipal averages
• Separate indices for commercial, industrial,
  residential and rural land
• Factors are not applicable for improvements

5
Adjustment Factors for 2004-05

• Residential range 1.00 to 2.00
• Commercial range 0.85 to 1.50
• Industrial range 0.85 to 1.50
• Rural range 1.00 to 1.50
• Acceptable to TAO for land values only

6
CPI index movements

• In the last four years
• CPI has moved 11.8
• Construction industry 15.4

7
Buildings

• V-G valuation will not represent fair value after
  three or four years
• Other options
• Independent valuation between V-Gs valuation
• Apply a suitable index to current replacement
  cost and restate depreciation
• Consider materiality?

8
Materiality issues

• Given the scale of infrastructure assets, roads,
  bridges, sewer and water assets, building values
  are unlikely to be material in the statement of
  financial position
• Likewise resultant depreciation of buildings is
  unlikely to be material in the statement of
  financial performance

9
What of the Future?

• V-G to move to a six year cycle with updates
  every two years
• Will apply to all three valuations that are
  carried out
• Expected to start in about two years time
• Does not solve todays problems

10
Audit Implications

• While uncorrected errors from a failure to
  update valuations may not be material in the
  financial statements, they will reduce the level
  of tolerance for any other uncorrected errors.
• You may be called upon to establish that there is
  no material mis-statement