Valuation and Assessment MVV182K Property-related Taxation: Issues and Trends Masaryk University Brno, Czech Republic May 2-3rd 2023 Prof William McCluskey African Tax Institute University of Pretoria South Africa ATILogo2 •Valuation is the estimation of prices for properties that have not been sold •In a market place it is assumed that buyers and sellers adopt a rational economic approach •So valuers analyse prices/rents that buyers/tenants have paid recently • •Valuation paradox: • –No two properties are the same (heterogeneous) yet valuation relies on the comparison of properties to give an indication of value –Solution: the valuer must identify and quantify differences in type, location, legal interest, quality and the state of the market What is valuation all about? Valuation methods Main methods of valuation include: Sales Comparison method Income method: receipts and expenditure Cost method CAMA – Computer Assisted Mass Appraisal Issues with all methods! Art or Science? • the value of real estate can be decomposed into explanatory variables • subjectivity or objectivity? • Models need to replicate the dynamics and characteristics of the property market or sub-market Valuation Options NON-VALUE BASED VALUE BASED Degree of complexity Data requirements CAMA techniques - MRA ADVANCED BASIC TO Origins and Evolution - CAMA • Property tax assessment • • Manual v. automated • • resources • IT developments • • Application of new methodologies • When resources are an issue • When timing is an issue • When objectivity and uniformity are issues • When scale is an issue When should Mass Appraisal be considered? ITS ALL ABOUT REAL ESTATE: How it should be valued? Scale of the problem Hong Kong 2.4m ANNUAL REVALUATIONS Ontario, Canada 4.5m Every 4 years Kuala Lumpur, Malaysia 750,000 2014 Makati City, Philippines 135,000 1993 Australia Canada Denmark Egypt Finland Latvia Lithuania Mauritius Netherlands Russia South Africa Sweden United Kingdom Northern Ireland United States Canada Slovenia Moldova Hong Kong Thailand Brazil Columbia Some countries that actively use CAMA Three revolutions in CAMA Development The First - Computing power and the development of valuation methodologies and spatial integration The Second - Development of high level data collection systems The Third - Mapping and GIS The First Revolution – Valuation Methodology Techniques •Multiple Regression Analysis Statistical –Linear, non-linear and GWR •Adaptive Estimation Procedure Feedback •Artificial Neural Networks Black box •Genetic Algorithms Black box •Expert Systems Rules/what if …? •Comparable Sales Analysis •GIS based Response Surface •Fuzzy Logic •See Kauko and d’Amato Mass Appraisal Methods (2008) Wiley-Blackwell VALUATION MODEL – Automated or “Hand Crafted” The Valuation Process MODEL The quality of each stage determines the accuracy and reliability of the next. Advocates of IT suggest an AVP can provide an end-to-end valuation process, removing the human element, thus eliminating subjective judgment and inaccuracy. The valuation profession and often clients on the receiving end of an automated appraisal disagree at the final stage, suggesting it is the human judgments applied to the evidence during analysis which gives the subsequent valuation figure integrity and accuracy. In certain cases the third stage of the process should be seen as comprising two elements, application of the analysis to a scheme of valuation and then the valuation itself. This is often the case in property taxation where, rather than individual valuations being undertaken, a scheme for a class of property e.g.: industrial units, in a locality is prepared, on the basis of value per square metre or per square foot, and this scheme is then applied to a large number of properties, producing mass valuations based on the individual property attributes. Quality in valuation is obviously important to clients. Governments too have a substantial interest in the accuracy of valuations not just for property taxes but also as underpinning financial agreements that lie behind modern economies. The integrity of the valuation process is a matter for public concern. Ensuring consistency and transparency is not just the responsibility of valuers' professional bodies but governments as well. The public who use valuation services expect valuers to meet fundamental standards and demonstrate independence, integrity and objectivity. Sales Sample Population Model developed on sales Model applied to all properties The Challenge!! Number of parcels Residential Commercial Revenue Residential Commercial Valuation Date Present Past Future What Sales to Use? Time Period Time Period Valuation Date Estimate of Market Value PAST FUTURE SALES/PRICES HISTORIC!!! Anticipated Value TIME CYCLE Timing of Revaluation???? $ The Second Revolution – Data Collection ON-SITE DATA COLLECTION desktop_review_final[1] Handheld Data Collection Desktop Data Review Street View Image • ImageCollection_InVan[1] sample_1ft Sample 1 foot resolution sample_6inch Sample 6 inch resolution Ft Sample 4 inch resolution oblique_neigh_reg_houses Sample neighborhood oblique ortho In Addition To This… Providence, Rhode Island Building is in Providence RI. Review that ortho imagery is useful but it takes a trained eye to analyze it and it has limitations. north You Get This… Providence, Rhode Island Pictometry Measuring Tools • Pictometry Commercial Streetview and Oblique • Commercial1 The Third Revolution: Enter GIS • A computer-based tool for holding, displaying, and manipulating huge amounts of spatial data. What Does GIS Do? •It locates: –Physical infrastructure infrastructure What Does GIS Do? It identifies: parcels Besides locating things, GIS can also describe things because GIS is a map with an associated database. BUT THIS IS ONLY HALF THE STORY We know the built environment exists but if there are no or few transactions: what can be done? foto13 http://digitaljournal.com/img/8/7/3/i/4/9/0/o/RioDeJaneiro-Slums.jpg http://cache.boston.com/universal/site_graphics/blogs/bigpicture/rio_08_27/rio3.jpg Image of townships (travel / south africa / townships / sa01) Khayelitsha Township, Cape Town, South Africa DATA is the Issue Data Collection •One of most expensive activities •Many diverse sources •Government, utilities; all have constraints •Two broad types of collection –Data capture (direct collection) –Data transfer Advertising Rights £1.85M RV C:\Users\David\Pictures\ULSTER\Heathrow-Airport-002.jpg Heathrow £319m RV C:\Photos 2005 No.2\Jem's visit to London 21Oct 05\DSCF0051b.JPG Gherkin – 30 St Mary Axe £16.7M RV C:\Users\David\Pictures\ULSTER\london_eye.jpg LONDON EYE £4.37m RV C:\Photos 2005 No.2\Jem's visit to London 21Oct 05\Tower Bridge.JPG HMS Belfast £112,500 RV C:\Users\David\Pictures\ULSTER\1898.jpg £7.62m RV C:\Users\David\Pictures\ULSTER\TheStadium_Arial.jpg £6.2m RV Wembley Stadium C:\Users\David\Pictures\ULSTER\1111814830_WimboMuseum2.jpg £6.22m RV Wimbledon http://homesandtravel.co.uk/wp-content/uploads/2011/02/Wentworth_Golf-photographer-David-Cannon-LR. jpg WENTWORTH GOLF CLUB - £750,000 http://www.f1fanatic.co.uk/wp-content/uploads/2010/03/silverstone_arena_2010-2.jpg SILVERSTONE RACE TRACK - £2,650,000 Each facade of the building forms a glass "shards", all gently sloping towards the top but never actually touching. SHANGRI LA HOTEL - £4,135,000 C:\Users\e50725\Documents\PAPERS\LAND_LINES\TOWER.jpg TOWER OF LONDON - £1.79m http://www.london-attractions.info/images/attractions/houses-of-parliament.jpeg HOUSES OF PARLIAMENT - £14.7m http://www.beembee.com/wp-content/uploads/2011/06/buckingham-palace.jpg BUCKINGHAM PALACE - £1.3m http://upload.wikimedia.org/wikipedia/commons/thumb/3/3c/Stonehenge2007_07_30.jpg/300px-Stonehenge2 007_07_30.jpg STONEHENGE – £700,000