The Notice of Valuation letters from the Valuer General’s Office have just started to arrive. Our land valuation has gone up a whopping 114% from 2019 to 2022 and the valuations on the properties across the road from us have gone up 145%. By region, the largest increase was 57.6% in the Hunter Region, so North Arm Cove land valuation increases have exceeded most of the state by a large amount. This is great news if you sold at the peak of the market, but bad news for the rest of us.
Why is it bad news? Well, first you have to understand how the valuation is used to calculate council rates and land tax.
Council rates include amounts for various services including stormwater management, garbage collection, waste management, septic management and a base land fee. However, the bulk of the rates charge comes from the land value. This charge is the ad valorem charge and is calculated by multiplying the land value by a small set number. The multiplier is currently 0.0033420 for Lower Coastal in Midcoast Council. The land value used is the Valuer General’s amount and this amount is used by Council for 3 years or until another VG letter is sent out. The 2022 land value will be used by council to calculate the rates in 2023, 2024 and 2025.
Land Tax is collected by the State Government and it is calculated using the Valuer General’s land value and is only payable on second properties which exceed a threshold amount. However, the land value is recalculated every year, so the land value changes annually. The amount is then averaged over three years to calculate the land tax. Land tax for 2023 will be based on an average of the values for 2020, 2021 and 2022. Next year it will be an average of 2021, 2022 and 2023.
So why are high valuations bad?
Our Council rates for the next three years will be based on our new land valuations. Councils are not allowed to suddenly have a huge increase in income due to changes in property valuations. The total rates income is pegged by the State Government with an allowance for inflation. However, there is nothing to stop Council charging more for properties with high valuations and less for properties with low valuations, as long as the total pool of money stays roughly the same. As the 2022 valuation will be used by Council for 3 years, our rates amount could be impacted by the high valuations for at least the next three years.
The land valuations are based on sales for the 21/22 financial year and are set at July 2022, the peak of the property market. I have watched the North Arm Cove market for 35 years and it can go from boom to bust very quickly. Our property lost about 30% in value during the last bust and the price did not recover for over 10 years. The current high property prices are unlikely to be sustained. When our market falls, it takes a long time to register with the Valuer General because people stop selling and buying. Any properties being sold can sit on the market for months or years and there may be insufficient sales to dramatically alter the Valuer General’s calculations.
In NSW, holiday homes, rental properties and vacant land can be subject to Land Tax if their combined value exceeds the Land Tax threshold. This year the general threshold is $969,000. Some of the deep waterfront properties with views will exceed this threshold and may be liable for land tax. This will depend on whether the property is the owner’s principal residence or not and whether they own any other properties. For land tax purposes, the valuation is averaged over 3 years, so the amount payable this year will be calculated averaging the 2020, 2021 and 2022 valuations and working out how much the valuation exceeds the threshold value. The high valuation for 2022 will affect the land tax for the next 3 years as the valuation will be used in 2024 and 2025 land tax calculations. Even if values drop significantly, once you are caught in the land tax web, you can end up paying the tax for several years.
To avoid higher rates and for some people, to avoid land tax altogether, it is in our best interests to keep the valuations as low as possible.
In 2020 during a Covid lockdown, I lodged an objection to the land valuation of our place on Cove Boulevarde. Two others did the same thing. I argued that not all waterfronts in the Cove are the same value and that the tidal mudflats and oyster leases adversely affected the values of some properties whilst wider waterfronts, views over the Port and 24 hour water access positively impacted the value of other waterfront properties. I argued that the mudflat properties should not be compared to deepwater frontages due to limited water access. I further argued that the property size was not a major indicator of sales price and that width at the waterfront was a better indicator. Luckily the assessor was a boatie. He came out at mid-tide and he understood the differences between mud flat and deep water properties. The result was a $95,000 reduction in the land value, which led to a roughly $300 savings per annum in rates, a total of $900 over the 3 years life of the valuation. The two other objectors were also successful.
Similar arguments can be used for non-waterfront properties. Views, bushland to the rear, topography, easements and land size will all affect the land value and the land value may be different to nearby land values.
Unfortunately, the Valuer General does not have the resources to look at every property in NSW individually so the VG uses a system called mass aggregation. Basically they pick out a few representative properties and determine their values and then all properties are compared to the representative properties. If your property is substantially different to the representative properties, then your valuation may be incorrect. In the case of North Arm waterfronts, the valuations had been incorrect for years but no-one had objected.
I have had a look at all the valuations for waterfront properties for the latest round of valuations. The valuations for properties near tidal mudflats and oyster leases are now lower than the valuations for properties with deep water access. We need to make sure that this remains the case in the future.
There are still some inequities and problems with the valuation system, but the differences between different parts of the Cove have somewhat been resolved. However, I am not sure whether all the valuations are too high. You should still check the valuation of your individual property and make sure it is in line with recent sales and the valuations of nearby properties. If you think there is a problem, you have 90 days to object. When we get our rates notice in August, it will be worth having a look at the multiplier that is used to convert land value to rates. It is currently 0.0033420, Lower Coastal. If the ad valorem value in our rates dramatically increases, we could argue for a change in this multiplier.
Meanwhile we are stuck with exceptionally high land valuations done at the peak of the property market.
Note that all sales and valuation details plus property details for properties in NSW are available on the Valuer General’s website free of charge. There is a great map and you can download sales information in bulk for your area.
