CBD retail landlords are being hit with land tax increases of up to 1400 per cent, with critics alleging that the city council has "grossly" over-estimated commercial land values in the city's core.
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.