Council-issued valuations are confusing and can scare off first-time commercial property investors, a sales director says.
Every three years, councils around New Zealand undertake capital value (CV) assessments to set the rates for residential, commercial and rural properties.
Colliers International investment sales Auckland director Gareth Fraser said entry-level investors often expected commercial property CVs to be indicative of the market price.
However, in some recent sales the capital value has exceeded the sale price by 30 to 70 per cent, he said.
"In some instances, inflated CVs are causing interested buyers to think properties are out of their reach," Fraser said.
"[Meanwhile], less sophisticated vendors can have price expectations well beyond what could be achieved in the current market due to an inflated CV."
Confusion arose because many entry-level commercial property investors had previously invested in residential property, he said.
"Capital values are sometimes included in the marketing for residential properties, depending on whether it is favourable to the sale or not.
"As a result, many residential investors regard CVs as a good indication of market value," Fraser said.
Ad Feedback"However, commercial property is vastly more complex than residential property, so the differences between CVs and market values can be huge."
Factors which could influence the value of commercial property, but which were not taken into consideration when setting CVs, included vacancy rates, rental income, leasing length, seismic strength, fit out, repair works, and specialised property use, he said.
QV general manager David Nagel agreed commercial property valuations were more complex, than residential valuations, and could lead to confusion.
The three-yearly council rating cycle would naturally create some variance between CVs and sales prices, he said.
"For example, in Wellington City the last revaluation occurred in 2015, so we expect notable differences between the two values, whereas we'd expect less in Auckland as their revaluation took place as recently as July last year."
Councils, or a valuation service provider, surveyed property owners when completing revaluations of a city or district, Nagel said.
"This information is used to help determine market rental levels, vacancy rates and operating expenses at the time of the revaluation.
"Discussions with local property professionals help complete the picture."
A Wellington City Council spokesman said anyone entering the commercial property market should seek professional advice, preferably from a valuer.
Source: Stuff By: Chloe Winter