torsdag 6 september 2007

Measuring land values

There is a massive rental market in both residential and commercial sectors. This makes it easy to calculate land rental values by the residual method.

eg a 100 sq metre flat in Hove lets for £12000 a year. This has been the case for the past five years at least. Council tax is another £1000. ie Gross value is £13000. Maintenance is £2000. Administration et is £2000 a year. So AV is £9000. Building value is £90000 at a building cost of £90 per square metre. To convert this into an annual figure, say 5% (OK, it might be between 4% and 6%) of that is £4500 ie within the range £3600 and £5400. The balance is the annual value of the land AV (land), £4500 (land rental value range is £5400 to £3600).

At the £4500 figure, if the initial rate of land rent charge is 22%, they will be paying the same and will not complain. In fact, they are used to increases of up to £150 a year and would probably only grumble a bit if the initial rate was 25%, which would come to £1250. However, because there are some very high land value properties within the administrative area, as well as some vacant sites with planning consent, this rate of tax, which is probably what the median resident pays, will yield substantially more revenue. Which is sorely needed. Obviously the well-heeled of Withdean are going to complain. And if it came with a tax cut somewhere else, eg income tax allowances, then it would sugar the pill nicely.

And with 40 flats in the block, this gives a site value of £180,000 per year. And with the area known - say 1000 square metres, an annual value of £180 per square metre is established. Now do the whole street and even them out. In any case it matters not at all if they are up to 10% wrong as what counts are the relativities, which is why the choice depreciated interest rate for the building value is not critical.

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Cardinal Cormac Murphy O'Connor

Please pray for the repose of the soul of Cardinal Cormac Murphy O'Connor Bishop of the Diocese of Arundel and Brighton for 23 years ...