Rateable values irk land agents

Blue Hancock.

01-04-2007 |

Rateable values (RVs) produced in 2005 are raising the ire of some real estate agents who believe farms in some parts of New Zealand have been overvalued.

The RVs, previously known as government valuations (GV), are produced nationwide usually every three years. District councils contract registered valuers to assess properties and the councils use these valuations to help formulate the cost of rates.

Valuations that were completed in September 2005 reflected the strength of the real estate market at the time. However, in the following 18 months, the market cooled off meaning rural properties in some areas are selling for less than their RV.

Bayleys Feilding real estate agent Peter Barnett says this affects property sales because the valuations are used both by vendors and buyers as an independent price indicator for property values.

“As much as a valuer will tell you that a rateable value is just a rateable value and it doesn’t really matter, the fact remains that when a buyer enquires about a property, they are looking for objective data to make some sort of assessment as to whether or not they are going to go ahead with it or not.

“One of the questions they invariably ask is either ‘what’s it worth’, ‘what have other farms been selling for in the district,’ and ‘what’s its rateable value’.”

Barnett says he noticed farms beginning to sell under their RV in early 2005. A handful of farms within the Rangitikei District Council boundary were sold prior to the new ratings being released in September.

“When the GVs came out on these properties a few months later, the rateable value was higher than what the property was sold for,” he says.

It was not until 2006 that more farms sold under their RV, as the rural property market started to level off.

One such property was Otiwhiti Station near Hunterville. This 3354ha property was one of Bayleys’ biggest in its 2006 autumn portfolio. It had a rateable value of $13 million yet was sold under the hammer in May 2006 for $8.75 million.

“If you spoke to the vendors, they were stoked that the property sold at that price, so they’re not disappointed at the price, but it’s astounding that someone gave it a government valuation of $13 million when its fair market value was less than $9 million,” says Barnett.

Marton-based Property Brokers agent Diane Hanson calls the situation “bloody ridiculous”.

“We sold a property of 337 acres (136.37ha) just before Christmas. The GV was $2.5 million and we sold it at $2.1 million.

“It’s bloody ridiculous and no farmer can make any profit off that if they’ve got a mortgage,” she says.

“The ability to sell properties at the moment is very hard because vendors see the GVs and their eyes light up.”

This puts potential buyers off looking at properties because they think they are too expensive, she says.

“It might not necessarily be out of a buyer’s financial range, but they just don’t see the value in it. It doesn’t matter if it’s a tender or an auction as if you want to get some sort of parameter, you generally ask for the GV.

“If you looked in the paper and thought that looks like a $300,000 property, and you ask what’s the GV and they say it’s $500,000 what are you going to do? You say ‘I’m out of there’.

“If you are looking at a property for sale and the GV is $500,000, the natural reaction to have is that the vendor will probably want more than that, rather than the vendor will probably want less than that, because that’s human nature.”

Te Puke-based PGG Wrightson real estate agent Stan Robb says he has struck a similar problem selling orchard properties that fall in the boundary of the Western Bay of Plenty District Council.

While there have been few sales because of the state of the industry, he says at least 50% of the sales that have taken place have been 20% below the ratings valuation. Prior to the 2005 valuations, he believes similar types of blocks would have sold for 30%-40% above their rateable value.

“It’s giving a false impression. They’re bad news at the moment for orchard properties,” he says.

Robb believes valuers have taken the sale figures from the few good sales that took place and given all orchards a similar valuation.

He says the gap has not been as prevalent with other types of farmland such as sheep and beef and usually these farm types sell on or around ratings values. However he has sold some orchard properties where the ratings value has been 20% above what it sold for.

In Gisborne, Bayleys agent James MacPerson auctioned Homebrook Station in December 2006. This 362ha farm was sold for $2.25 million. It had a rateable value of $2.93 million.

“In my time in real estate I have sold farms that have been quadruple their rateable value, and for less than half their rateable value,” he says.

“Some of them are millions away, literally and there’s no benefit at all for the vendor to have a high rateable value except to help the local council.

“To me, it’s just something we put in the information pack. They’ve got no credibility whatsoever; it’s only a tax gathering mechanism. They don’t mean anything.

“Some of the RVs are giving people false hope or hope that the property is worth ‘X’ but really the market price might be quite different. Having said that, there are some RVs that are low, and the property will sell in excess of that. So they’re not all blanket highs but most of them are fairly high from our observations at the moment.”

Tauranga company Landmass Technologies Ltd was contracted by the Gisborne District Council to do its ratings valuations and MacPherson says it is hard for valuers to get it right because some of the very good sales that have occurred in the region do tend to skew all valuations.

“They’ve taken some of the top-notch sales and spread them across just about all of the properties.”

MacPherson says the only way farmers can get a proper valuation is if a registered valuer does an inspection of that property and a full valuation.

“That’s the only independent solution because people will always assume that we’re coming from a sales angle.”

Timaru-based CRT Real Estate general manager Calvin Leen says rural properties in most regions were overvalued in 2005.

“It’s more regionalised to be fair, and up in the Tasman District, the sales we have been achieving have been in broad terms, ahead of the 2005 valuations.

“Further south, the valuations are out of kilter. In Otago and Southland they were done in 2004 and 2006 so the 2004 valuations we’re ahead of those. With the 2006 valuations that have come out recently, we’re in line with those.

“But the 2005 ones were overcooked,” he says.

He says these would be the majority of sales achieved in recent months right across the board. Where the valuations of 2005 were attributed to the properties, they are generally below valuation and in some cases, well below.

Two examples of this are a 180ha cropping and sheep farm in Mid Canterbury that had a RV of $3.75 million and was sold by tender for $2.9 million after several offers were made.

The second example was another tender property near Temuka. This 206ha farm had a RV of $2.34 million and sold for $2.050 million.

“The impact is that the vendors, to a certain degree, are guided by the valuations and the valuations are not market related. So therefore their expectations have not been achieved by that, they’ve been clouded by those issues,” says Leen.

Quotable Value (QV) central regional manager Blue Hancock confirmed that sale data showed that farms were selling below their RV in the Rangitikei and Gisborne and Timaru.

“Looking at it, there’s some reasonably sizeable farms there that have sold on the open market and have sold below the rating value.”

He says horticultural properties are also selling below their RV in the Tasman, Western Bay of Plenty and Timaru regions. He says the state of the industry was one explanation for this. However, he maintains that any pastoral and dairy farm sales that fall below the RV are in the minority.

Despite its flaws, he says RVs are a good starting point for buyers and sellers but they should be aware with what’s happening in the market place and what movement has occurred since the rating valuations came out.

“It’s a mass appraisal system and let’s be honest, some properties will miss out and hopefully the owners will object (to the value applied) and get them corrected through the process.”

He says with the rural market, QV do not have the luxury of huge sale numbers and has to interpret the market from those limited sales. The company also does not have the resources to travel out to the field and evaluate every farm any more.

“Back in the 1970s and 1980s, we had 700 people doing this. Now there’s 150-200 people doing this around New Zealand.”

He doubts whether shortening the three-year gap between valuations will make any difference because of the fluctuations of the property market.

“Generally what you see in the property market is that there is a very quick movement and then a levelling off. Even if they were done yearly, they may miss that movement or catch the top of that movement.

So it’s a bit of a moot point as to whether there is any benefit in doing them annually, biannually, or tri-annually.

Hancock says that from a council point of view, having the valuations done every year was not practical.

“What I do know is that for the local authorities, it’s a hell of a lot of work reassessing whenever a valuations done to line things up again and decide what their ratings policy is from the new valuations.”

He says the simplest solution is to get a registered valuer to inspect the property.

“You often spend $200-$300 on getting a car looked at that’s worth $2000-$3000. But you won’t spend $3000-$4000 on a $3 million investment, and that just seems nuts to me.”

  Printable View