CBD landlords reeling from tax rises
A Swanston Street retail building owner has had a tax bill rise from $4600 to $68,900 after a council assessment found his property had more than tripled in value in just two years, according to a survey by agency Kliger Wood.
"The valuations are just outrageous. You can't get a doubling or tripling of values in such a short time," an owner of several CBD buildings told BusinessDay. "Paying those kinds of rates are going to affect the ability of people to run their buildings."
City councils have valuations every two years, with the State Revenue Office using the assessment to calculate what investors will pay in land tax over the following two years. The 2013 bills based on valuations conducted in 2012 were sent out earlier this year.
"For some owners the increase will be unbelievably high - or even seem crazy," said Kliger Wood director Barry Novy, whose firm controls one of the largest commercial rental portfolios in the metropolitan area.
Kliger Wood found site-value assessments generally rose between 30 per cent and 100 per cent in the prime retail precincts of the CBD and Southbank. As a result, land tax bills rose 80 per cent to 250 per cent.
"The system is out of order. It will become too expensive for people to hold properties and it will force people to sell or redevelop," Mr Novy said.
Industry operators argue that the sharp rise in land values is difficult to reconcile with CBD retailing's recent "difficult" conditions.
Grant Jackson of valuation firm m3property said there had been no significant change in planning or use in these retail areas that could account for the rise in land values since the 2010 assessment period.
"There could be some serious flow-on effects to the value of an overall asset. The land tax is coming straight off the net return of the property and these properties are bought on their net return," Mr Jackson said. "They can't just slug the tenant with a large rental increase if the tenant can't afford it."
The tax rise is expected to cause a surge in objections to the SRO, which have been rising since the 2008 financial crisis. Objections spiked 65 per cent in financial year 2011-12, which was before the latest assessments were issued.
"From 2008 to 2010 was a very tough time and a lot of property owners were shocked not to see their underlying land value drop, given the difficulties of the market. To see those increases in a relatively difficult market environment since 2010 is very surprising," Mr Jackson said.
Melbourne City Council said valuations were based on current rents and sale prices.
Frequently Asked Questions about this Article…
According to a Kliger Wood survey cited in the article, some CBD retail landlords are seeing very large land tax increases — the story mentions rises of up to 1,400% in extreme cases, and gives an example of a Swanston Street owner whose bill reportedly rose from $4,600 to $68,900 after a council valuation.
City councils carry out site valuations every two years, and the State Revenue Office (SRO) uses those assessments to calculate what investors will pay in land tax over the following two years; the 2013 bills referenced in the article were based on 2012 valuations.
Owners and industry commentators quoted in the article say valuations look 'outrageous' or 'grossly' over-estimated because some properties appear to have doubled or tripled in value in a short period despite difficult CBD retail conditions, prompting concerns the system is out of order.
Kliger Wood found site-value assessments in prime CBD and Southbank retail precincts generally rose between about 30% and 100%, which translated to land tax bill increases in the order of around 80% to 250% for many owners.
Valuation experts in the article warn higher land tax comes straight off a property's net return and could reduce overall asset value; owners say it may make holding properties unaffordable, potentially forcing sales or redevelopment and limiting the ability to impose large rent increases on tenants.
Yes — the article says the tax rise is expected to trigger a surge in objections to the SRO. Objections have been rising since the 2008 financial crisis, with a 65% spike in objections in financial year 2011–12 before the most recent assessments were issued.
Valuation firm m3property's Grant Jackson told the article there had been no significant change in planning or use in these retail areas since the 2010 assessment period that would explain the recent increases, suggesting other factors are driving the higher valuations.
Investors should be aware that recent council valuations can sharply increase land tax bills for two-year periods, that higher land tax reduces net returns and can affect asset values, and that many owners are lodging objections with the SRO — all factors that could influence holding, selling or redevelopment decisions in CBD retail property.
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