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Recent decision rules the site of Melbourne's iconic GPO building is worth only $1

18 March 2019

#Property & Real Estate

Recent decision rules the site of Melbourne's iconic GPO building is worth only $1

Melbourne’s iconic GPO building, situated in the heart of the CBD’s shopping district and recognised for its historical, architectural and social significance has been valued at just $1 for the purposes of assessing land tax and council rates.

The heritage registered property has become the focal point of a recent decision by the Victorian Civil and Administrative Tribunal (Tribunal).

The Tribunal ruled in favour of the GPO’s owner, Australia’s largest industry super property fund ISPT, overruling a Valuer-General assessment of $29 million in favour of the nominal valuation and delivering ISPT a $650,000-a-year windfall in averted land tax.

The decision has sparked concern that owners of multimillion dollar heritage buildings will use the legal loophole to significantly reduce land tax by having their sites valued at $1.

Proceedings were brought before the Tribunal after ISPT objected to a rate notice from Melbourne City Council that valued the GPO site at $14.8 million. ISPT argued that due to the heritage status and developmental restrictions the actual site value was only $1. This nominal valuation was based on a hypothetical development approach.

The Valuer-General intervened contending that both valuations were flawed and instead the site should be valued at $29.1 million. This valuation was based on a rent differential method which focused on the earning capacity of the land despite its heritage status. 

The wide disparity in the assessments, and the commercially successful use of the heritage registered building – Swedish fashion giant H&M is the anchor tenant and reportedly pays $7.2 million dollars in rent annually – brought into question how section 2(8) of the Valuation of Land Act 1960 (Vic) (“the Act’) should be interpreted.

The Tribunal acknowledged that section 2(8) of the Act requires the site value of heritage registered buildings to be assessed on a series of assumptions which seemingly allow for an artificially reduced site value compared to the unaffected market value that would otherwise arise if the land was free of heritage restrictions. As demonstrated by this decision, this leads to a significant reduction in land tax to owners of heritage affected properties, regardless of their commercial return.

The Tribunal noted that section 2(8) of the Act is justified on the basis that heritage registration places a potential impediment on land owners who as result of that registration face higher maintenance costs and usage restrictions. 

Despite ruling in favour of the $1 valuation, the Tribunal considered the use of the hypothetical development method in the proceeding to be acceptable, albeit not ideal, and should not be relied upon as a general statement of principle as to how a heritage registered property is valued.

It is expected that this loophole will be closed by legislative changes given the potential impact on State revenue.

Author: Mara Norton

Contacts:
Melbourne
Richard Skopal, Partner
T: +61 3 9321 9866
E: richard.skopal@holdingredlich.com

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