Valuing the land component of improved investment property for tax purposes

Steven Boyd; Terry Boyd

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Conference paper

Valuing the land component of improved investment property for tax purposes

Steven Boyd and Terry Boyd

Proceedings from the 17th Annual Pacific Rim Real Estate Society Conference, pp.1-16

Annual Pacific Rim Real Estate Society (PRRES) Conference, 17th (Gold Coast, Australia, 16-Jan-2011–19-Jan-2011)

Pacific Rim Real Estate Society (P R R E S)

2011

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Abstract

Commercial Services

unimproved capital value

replacement cost

productivity value

mass appraisal

residual method

value benchmarks

This paper proposes that a land residual valuation calculation that assesses the value of the improvements of an investment property on a cost base, is, in principle, wrong and should not be used as an accepted valuation technique. This practice is undertaken widely in Australia where the ad valorem tax base is site value. The paper recommends an alternative model to value the land component of improved investment property. Initially the paper describes the importance of land value as a tax base and its current application in Queensland, Australia. It then considers mass appraisal systems and the reliance on the comparative valuation method for mass appraisal. Thereafter the paper examines the complexities of valuing the land residual of improved investment property when standardised, and possibly automated, procedures are necessary. The paper recommends at the current practice of incorporating a cost based value of the improvements is flawed and explains alternate techniques when a residual or extraction technique is required. These techniques acknowledge that the market value of the improved property is based on its productivity and consequently each component of the property value should be assessed on a productivity basis. Finally the paper demonstrates the application of the proposed technique on developed shopping centre properties in Australia.

Details

Title: Valuing the land component of improved investment property for tax purposes
Authors: Steven Boyd (Author) - University of the Sunshine Coast - Faculty of Business
Terry Boyd (Author) - University of the Sunshine Coast - Faculty of Business
Publication details: Proceedings from the 17th Annual Pacific Rim Real Estate Society Conference, pp.1-16
Conference details: Annual Pacific Rim Real Estate Society (PRRES) Conference, 17th (Gold Coast, Australia, 16-Jan-2011–19-Jan-2011)
Publisher: Pacific Rim Real Estate Society (P R R E S)
Date published: 2011
Organisation Unit: University of the Sunshine Coast, Queensland; USC Business School - Legacy
Language: English
Record Identifier: 99450155202621
Output Type: Conference paper

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