Valuation and Assessment MVV182K Property-related Taxation: Issues and Trends Masaryk University Brno, Czech Republic November 2019 Prof William McCluskey African Tax Institute University of Pretoria South Africa ATILogo2 What will be covered •Valuation of real property • •Valuation methods • •Traditional and ‘new’ methodologies • •Data issues/GIS Elements to consider •Tax base and property discovery •Taxpayer •Valuation and/or assessment •Tax rates •Tax relief •Billing •Collection •Enforcement • •Taxpayer communication •Overall system management Revenue Mobilization Model • • • Policy variables Administration variables • • CR: Coverage ratio • VR: Valuation ratio • Col R: Collection ratio • • •Source: Kelly (2000) Revenue = Tax base Tax rate CR VR Col R x x x x Introduction •Value-based systems –Why use value as tax base? –What property value must be used? • •Who is responsible for property valuations? –Land only; buildings only; land and buildings (separately/collectively)? –National government; municipalities; agency; private sector; taxpayer? –Advantages and disadvantages regarding the above – •What methods/techniques are used to value property? –Land? Buildings? ‘Banded’ values? –CAMA and GIS? – •Valuation –How often are properties valued? Prescribed cycles? During cycles? –External quality control? • •Objection and appeal processes •Should the property be assessed on: –Property unit (i.e., each property regardless of size or location would pay an equal proportion of the tax burden)(Ireland) –Property size (i.e., each property regardless of location would pay an equal per sq. m. rate) –Property value (i.e., each property would pay the tax based on their relative property value) – What is assessment basis? Value •Advantages: –Relatively good proxy for ability to pay –Relationship between value and public services –Data sharing in respect of other property-related taxes – •Disadvantages: –Requires skills and good market data –Could be complex –Requires credible objection and appeal processes –Costly to implement and to maintain – •E.g. Australia, Singapore and Zambia Capital value v rental value? •Capital value: –Developed capital market –E.g. Canada, Lithuania, New Zealand, Northern Ireland, South Africa, United States – •Annual (i.e. rental) value: –Sufficient rental evidence –E.g. Egypt, France, Hong Kong, Singapore, Uganda, United Kingdom Valuation •Responsibility • •Qualification of valuers • •Nature and scope – what has to be determined? • •Methodologies? • •Objection and appeal process –Payment of tax while case is pending? • •External quality control • •Intellectual property of data Valuation Standard – “Market value” – – Typical definition – – “Subject to any other applicable provisions of this Act, the market value of a property is the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer.” – –South Africa’s Local Government: Municipal Property Rates Act, 2004, Section 46(1) – Valuation service providers –Central or provincial/state government Antigua, Australia, Botswana, Grenada, Hong Kong, Jamaica, Malawi, Slovenia, Uganda, United Kingdom, United States, Zambia – –Government agency or corporation: Canada (British Columbia, Ontario), Moldova, New Zealand – –In-house (i.e. municipality itself): Lesotho, Macedonia, Namibia, South Africa, Tanzania, Turkey, Zambia – –Private sector: Malawi, Namibia, New Zealand, South Africa, Tanzania – –Self-assessment: Georgia, India (some cities), Liberia, Romania, Rwanda Valuation methods •Comparison method –Direct method – comparing the actual sales prices/rentals of comparable properties (e.g. residential) – •Income method –Indirect method –Estimating the potential revenue stream (Hong Kong, UK) – •Cost method –Replacement construction cost –Depreciation to be considered –Cumbersome to determine (Ghana, Philippines, Indonesia, Tanzania) HOTELS https://phgcdn.com/images/uploads/MLAEH/corporatemasthead/grand-hotel-excelsior_masthead.jpg http://dreamatico.com/data_images/hotels/hotels-4.jpg http://hotel-express.uk.com/wp-content/uploads/2015/09/Hotel3.jpg Paris Las Vegas Wynn Las Vegas New Technologies and methodologies •Computer-assisted Mass Appraisal (CAMA) • •Indexation – – •Geographic Information Systems (GIS) • •Property banding • •Drones Valuation Options • NON-VALUE BASED VALUE BASED Degree of complexity Data requirements CAMA techniques - MRA Scale of the problem ....... 2 Hong Kong 2.4m ANNUAL REVALUATIONS Ontario, Canada 4.5m Every 4 years Kuala Lumpur 800,000 2014 Makati City 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 Sales Sample Population Model developed on sales Model applied to all properties The Challenge!! TIME CYCLE Timing of Revaluation???? $ sample_1ft Sample 1 foot resolution sample_6inch Sample 6 inch resolution oblique_neigh_reg_houses Sample neighborhood oblique Property tax valuation concepts •Date of valuation –All properties are valued with reference to the same date - equity – •Effective date –The date the valuation roll becomes operational – •Valuation cycle –Annually; 3-yearly; 5-yearly; 10-yearly? –Extensions of the roll? –Indexation? – •Issues –Capacity? –Objection and appeal • Effective Date 1 July 2020 Valuation Date 1 July 2018 2 YEARS VALUATION ACTIVITY PUBLISH ROLL OBJECTIONS Date of valuation and effective date Valuation roll •Valuation roll must list all properties in the municipality • •Following particulars must be reflected in respect of each property at date of valuation – • –Unique description of the property (e.g. as in deeds register) –The relevant municipal property category –Name of the “owner” (as defined) –Physical address of property –Extent of the property (i.e. size) –Market value (if valued) –Any other prescribed particulars, use, exempt – Supplementary valuations •Incorrectly omitted from the valuation roll • •Included in a municipality after the last general valuation • •New property – e.g. subdivided or consolidated • •Value has substantially increased or decreased for any reason after the last general valuation • •Substantially incorrectly valued during the last general valuation • •Revalued for any other exceptional reason (e.g. change in category) • •Clerical error • P:\Lesedi pres\Boudary.jpg General valuation process •Process (for valuer) –Inventory –Data Collection –Market research –Modelling –Quality control • Huis penta.jpg Objections and appeals •Advertising of valuation roll – minimum number of days –Official Gazette; local newspaper; web page –Individual notices? –Owners and other interested parties have right to inspect • •Objection – minimum number of days –Formal legal process –Possible changes to original value –Reasons –Costs? – •Appeal – minimum number of days –Relevant tribunal – •Payment whilst objection/appeal is pending? • Valuation - oversight •To review the quality (accuracy, consistency, comprehensiveness, etc.) of the total valuation roll • •South Africa – “The Minister may monitor, and from time to time investigate and issue a public report on, the effectiveness, consistency, uniformity and application of municipal valuations for rating purposes.” • •Valuers General in Australia and New Zealand Valuation - data •Valuation (ownership of data) • • South Africa’s Local Government: Municipal Property Rates Act, 2004: • • Copyright of valuation rolls and other data • • “Section 85 – Copyright of valuation rolls and other documents produced by municipal valuers, assistant municipal valuers or data-collectors in the performance of their functions, and data collected by municipal valuers, assistant municipal valuers or data-collectors for the purpose of preparing valuation rolls, vests in the municipality concerned.” • • New Zealand – councils own the data 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 • •Uniform & accurate valuation of property requires correct, complete and current property data. Discernible trends? • •Recent changes in respect of valuation services – •Central government to in-house: Lesotho • •Government to local government: Macedonia • •Government to private sector: Botswana, Malawi, Uganda • •Increased utilisation of computer-assisted mass appraisal (CAMA): Cameroon, Malaysia, Slovenia, South Africa • •Increased consideration of self-assessment as an option: Georgia, Liberia, Rwanda Examples •British Columbia, Canada –Crown agency (BC Assessment) –Annual valuations of all properties in the province – •United Kingdom –Valuation Office Agency (VOA – Great Britain; Northern Ireland) –Non-residential: annual value –Residential: capital value (England, Wales, Scotland = banded values; Northern Ireland = discrete capital values) – •Western Australia –Valuer General Office and Landgate –Urban property: 3 to 5 yearly valuation cycles (rental values) –Rural property: annual determination of unimproved land values – •South Africa –‘Municipal valuers’ –‘Market value’ – prescribed valuation cycles (4 + 1 and 5 + 2) Conclusions •Valuation is not an exact science • •Assessments are estimates of value and as such elements of subjectivity are difficult to remove completely • •Having sound and reliable assessments of value can contribute positively to equity and fairness of the property tax • •A credible objection and appeal process is an integral part of a modern value-based system 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\300PX-~1.JPG £4.4m RV Twickenham 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