Valuing the land component of improved investment property

Abstract

Purpose

Many taxing authorities use unimproved land (site) values as a tax base. In highly developed urban areas this may require the use of indirect valuation methods, such as an extraction technique to arrive at the land value. The purpose of this paper is to propose that the land extraction (residual) valuation calculation of an investment property should incorporate productivity variables, rather than cost based figures, in order to simulate market value principles.

Design/methodology/approach

This paper examines the assessment of the land component of investment property as an ad valorem tax base. It justifies a valuation methodology using the market comparison approach before developing a model to meet specified criteria. The model incorporates productivity based benchmarks and differentials appropriate for shopping centre properties. The model is then tested on an Australian shopping centre.

Findings

This paper found that the land value component of a major shopping centre in Australia could be derived from comparable vacant and improved sales using the variables of moving annual turnover (MAT) and gross lettable area (GLA) as key value determinants.

Research limitations/implications

This exploratory research identified a model that is appropriate for major shopping centres in Queensland, Australia. The model could form the framework for other types of investment property but the key productivity determinants would require re‐examination.

Practical implications

This study provides a practical solution to an ongoing valuation problem arising from the rating legislation in Australia, which requires the determination of site value for all property types.

Originality/value

This paper uses productivity variables to assess the site value of investment property. This innovative methodology can provide a more accurate appraisal of site values.

Citation

Boyd, T. and Boyd, S. (2012), "Valuing the land component of improved investment property", Journal of Property Investment & Finance, Vol. 30 No. 4, pp. 338-353. https://doi.org/10.1108/14635781211241752