Valuation of Land & Buildings David Baulch
Valuer-General’s Valuations • Valuations carried out on a seven year cycle • Three Values: • Land Value • Capital Value • Assessed Annual Value
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.
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
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
CPI index movements • In the last four years • CPI has moved 11.8% • Construction industry 15.4%
Buildings • V-G valuation will not represent fair value after three or four years • Other options • Independent valuation between V-G’s valuation • Apply a suitable index to current replacement cost and restate depreciation • Consider materiality?
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
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 today’s problems
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