Academic journal article Management Dynamics

The Accuracy of the Johannesburg Provisional Valuation Roll, 2001

Academic journal article Management Dynamics

The Accuracy of the Johannesburg Provisional Valuation Roll, 2001

Article excerpt

ABSTRACT

The accuracy of property valuations is of concern worldwide. The past decade has seen an escalation in studies that seek to verify valuation accuracy. The literature broadly agrees on what the accuracy standard should be, and the International Association of Assessing Officers (IAAO) has set formal standards for accuracy studies.

Across South Africa, municipal valuations are currently under way for the purpose of levying assessment rates under the new Local Government: Municipal Property Rates Act 6 of 2004. This study attempts to assess the accuracy of the Johannesburg provisional valuation for 2001, as an indicator of what to expect in the new valuation roll. The study applies the standard IAAO tests, as well as the t-test and Wilcoxon signed ranks test to assess accuracy and make management recommendations. The Johannesburg provisional valuation roll achieves the required international accuracy standard. However, lowerpriced properties are overvalued and higher-priced properties are undervalued.

INTRODUCTION

Across South Africa, property valuations are currently being carried out to implement the new Local Government: Municipal Property Rates Act (South Africa, 2004). This Act prescribes, for the first time, a unified approach to valuation for municipal rates purposes for all provinces. In the past, the various provinces adopted different approaches to such valuation.

For homeowners, the recent increase in property values across the country has already had a significant impact on rates payable. Valuation for the new tax basis will include land and improvements, and most property values will increase even further. Press reports that dramatise the expected increases in house values and the potential increase in property taxes have drawn widespread attention and invited public comment (see, for example, Cox, 2007 and Strauss, 2007). Homeowners would wish to know whether the valuation roll is accurate. For business enterprises, rates and taxes form a large part of the operating expenditure of commercial properties and it is therefore important that property valuations be accurate. The viability of the property taxation system also depends on the accuracy of municipal valuations, because they are the legal underpinning of the taxes levied (IAAO, 1999:23).

Property values have wider implications than property taxes, as they also influence investment decisions. Geho (2004: 4) has reported complaints by the banking sector and the accounting profession in Tanzania arising from unacceptable valuation accuracy. Valuations are decisionmaking tools, which provide the basis for property performance measurement and other investment advice (Addae-Dapaah, 2001: 2). Recent studies of valuation accuracy have been driven principally by fears that real estate indices and portfolio management practices by investors maybe adversely affected (Gallimore, 2002: 45).

This study focuses on the municipal valuation roll of Johannesburg, a city of more than three million people (City of Johannesburg, 2007). The current valuation roll was drawn up in 2001 and the new roll will be implemented in July 2008 (Strauss, 2007). The time is perhaps right to reflect on how accurate the current valuation roll is. Accordingly, the purpose of this study is to evaluate the accuracy of the valuation process by examining the provisional municipal valuation roll of Johannesburg for 2001.

LITERATURE

Valuation definitions

The formal definition of market value adopted by the International Valuation Standards Committee (IVSC, 2003) follows: "Market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm'slength transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."

Market value is determined through an appraisal or valuation. …

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