by Paul Butler
Money, politics and religion are often cited as three topics not to talk about at a dinner party. I’d be inclined to add land valuations to that mix.
With the state government recently releasing new land valuations across 24 Queensland local government areas (LGAs), rising land tax rates is a controversial topic of conversation among commercial investors, vendors and homeowners alike.
Add soaring property values and the cost of living into the mix and you have an after-dinner conversation starter that’s sure to get temperatures rising higher than a coronation fruitcake.
HOW LAND VALUATION AND LAND TAX IN QUEENSLAND WORK
Land valuations in Queensland are determined for each local government area by the Valuer-General based on values of freehold land across residential and commercial properties.
A single figure is released for each LGA, along with background information including the number of properties valued, the estimated total value and the overall percentage increase (or decrease) since the last valuation. The overall figure is also broken down into land use types, offering commercial investors insights into changes in land values for commercial, industrial and agricultural land.
Land value and land tax are closely related. Land tax is assessed and calculated on the total taxable value of freehold land owned by a land owner (the person or corporation registered as the owner with the Department of Resources).
If you own land jointly with other people, the taxable value of the land is based on the proportion of your respective shares.
Under Queensland’s Local Government Act, councils also calculate rates as a percentage of land value.[1]
When land values increase, it falls back to local councils and the State Government to determine how, and indeed if, they will pass it on through land tax and rate increases. That means there’s a lot at stake when land values rise.
THE RELATIONSHIP BETWEEN LAND VALUES AND MARKET MOVEMENT
After any major market movement, land values shift. They always have. Commercial land values increased substantially in 2007/2008, followed by a decline on the back of the GFC.
The land tax system also changed at that time. The Queensland government of the day removed the word “unimproved” from the calculation to include the added value of some structural improvements. This further increased values.
With soaring residential and commercial property prices across the region between 2021 and 2022, land valuations were always going to rise. They’re playing catch up to some extent, although property value increases have settled since the highs of 2022.
CHALLENGES WITH THE CURRENT SYSTEM
Currently, there is no prescribed frequency for land valuation calculations and regions with similar attributes are not always valued at the same rate. This makes for an arbitrary and unpredictable system.
In March, the Queensland government issued updated land valuations for many regions, including Noosa, Gympie and Brisbane but not the Sunshine Coast.
Land values for Noosa Shire have been updated in three out of the last five years, Gympie has had three updates in three years, and the Sunshine Coast has only had two updates in five years. It’s an inconsistency that’s getting a lot of attention.
Noosa Council has indicated it will lobby the state government for a review of the rating system to lessen the financial impact of dramatic land value increases.
Noosa Mayor Clare Stewart said the new valuations, which are based on market conditions from October last year, and take effect in July this year, did not reflect a recent softening of the market.
The current somewhat random system also leaves it open for the state government to roll out additional valuations to raise revenues. A failed attempt by the state government to start charging land tax on interstate land holdings which was scrapped late last year potentially resulted in a revenue shortfall that could be filled in part by rises in land tax.
NEW NOOSA SHIRE LAND VALUATIONS
Valuations of a mixed bag of 22,203 commercial and residential properties across the Noosa Shire showed a 62% increase in value. By comparison, the last increase in land value across the Sunshine Coast LGA in 2022 was 28.4%.[2]
Total commercial land value in Noosa climbed by 40.8% based on values of 337 properties. The previous total land value for commercial property was around the $278m mark, now clocking up more than $392 million in value.
This cause of this significant increase is a “post-Covid recovery and a more sophisticated property market” according to a state government website.[3]
As expected, based on persistent demand and tight localised supply, industrial land values in Noosa have also soared, recording a 68.9% change across 288 properties.
Figures in Gympie were comparatively lower, partly due to the impact of flooding on some commercial property values. Commercial land in Gympie recorded moderate increases, with a 26.9% average change in total land value based on 742 properties, while Gympie industrial recorded a whopping 40.6% across 197 properties.
THE IMPACT OF LAND VALUATIONS ON THE COMMERCIAL PROPERTY MARKET
Unlike housing, every owner in the commercial property market is somewhat affected. Even if you own a small investment with a valuation under the threshold, you just got one (fairly large) step closer to paying it. Owners already above the threshold have seen themselves go to higher charging brackets and pay substantially more in land tax. The effect is a direct charge to businesses and consumers which will eventually get passed on, whether through higher rents or increased cost of production in the case of owner occupiers.
The Retail Shop Leases Act protects retail tenants against wearing the costs of land tax adjustments via rental increases.
However, in non-retail leasing, including office and industrial, owners can legally charge land tax to tenants.
It it is fairly typical for lawyers representing lessees to negotiate that out during the lease preparation phase.
Land tax provisions will now be more heavily scrutinised and calculated by ingoing tenants. At the same time, lessors will be more likely to “stick to their guns” during lease negotiations to ensure they can recoup additional land tax charges, so it will be interesting.
For owners, land valuations change calculations on the value of the property. It is a cost that cannot be avoided and, for investment properties, will reset in a lower net return and subsequently a decrease in value.
DISAGREE WITH YOUR COMMERCIAL LAND TAX ASSESSMENT?
Many commercial owners are exploring ways to appeal the latest round of valuations and I have previously represented clients and landlords on this issue. How you approach the appeal process has a considerable impact on the outcome.
My strongest recommendation is to ditch the DIY appeal and appoint a practising valuer who deals with these issues to make a representation on your behalf.
Objections need to be followed up with providing information and meetings. Valuers are best positioned to manage the process and negotiate a successful result.
For a chat about the commercial market or for any enquiries, contact our team on:
Noosa and Maroochydore offices: +617 5474 7600
Caloundra office: +617 5491 4600
[1] Noosa Council, Council tales steps to reduce impact on land valuations on rates, 30 March 2023.
[2] Queensland Government, Historical trends in land valuations, 31 March 2022.
[3] Queensland Government, Overview of 2023 land valuation – Noosa, 17 March 2023.
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