the technology of mass appraisal theory and practice by · 2018-02-15 · the technology of mass...

The Technology of Mass Appraisal – Theory and Practice

byDzurllkanian @ Zulkarnain Daud

Norhaya KamarudinUTM, Skudai, Johor.

International Conference on Urban Development Management 2010, PWTC, KL

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The Technology of Mass Appraisal – Theory and Practice

byDzurllkanian @ Zulkarnain Daud,

Norhaya bt. Kamarudin

UTM, Skudai, Johor.

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DEFINITION:

MASS APPRAISAL

CAMA

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CAMA – Computer Assisted Mass Appraisal:

• IAAO (International Association of Assessing Officers) defines Mass Appraisal as

“..the valuation of many properties as of a given date.” (Eckert, 1990).

• Overall, CAMA is an automated computer assisted appraisal system which allows mass calculation in a stipulated time with high degree of accuracy.

• In contrast, the conventional manual assessment is very time consuming and low degree of accuracy.

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COMPONENTS OF CAMA SYSTEM:

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CAMA

Data Management Sales Analysis Valuation Administration

Sales CollectionSales Comparison Approach Budgeting, Scheduling and

PlanningData Collection

Data Entry and Editing Data Screening and

Processing Cost Approach Query, Analysis, Reporting

Data Conversion Ratio Study Income Approach Valuation List and Tax Notice

Data Storage and Security Transaction Report Review and ReconciliationAppeals, Forms and Notices

Introduction to Mass AppraisalData Base Development

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CAMA:

Data Management

Market Analysis

Valuation

Administration

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Data Management:

Data Collection

Data Entry

Editing

Data Conversion

Storage & Security

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Data CollectionInspection/Survey Form

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Editing

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Data Entry

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Data Editing/ Data Conversion

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Building Plans in AutoCAD

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Data Storage - Manual

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Data Storage - Manual

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Data Storage - Computers

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Market Analysis:

Sales Collection

Income/Expense Collection

Screening & Processing

Sales Reports

Ratio Studies

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Valuation:

Market Approach

Cost Approach

Income Approach

Model Development

Review & Reconciliation

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Administration:

Planning & Scheduling

Inquiry, Analysis & Reporting

Notices, Tax Roll

Appeals

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Reporting

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Valuation List / Tax Roll

(Revaluation and Amendment Valuation)

Tax Notices,

Letter of Appeals

Meeting Agenda (on Valuation)

Report on Decision on Appeals

User Administration

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Add new user

Delete existing user

Control User Accessibility

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BRCKO Sample

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BRCKO Sample

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BRCKO Sample

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BRCKO Sample

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BRCKO Sample

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BRCKO Sample

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BRCKO Sample

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EGYPT Sample

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MASS APPRAISAL

TECHNIQUESW.J. McCluskey

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Traditional Approaches Mass Appraisal:

MRA,

CSA,

AEP, and

Indexation

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Contemporary Techniques:

GIS

e.g. Spatial / Surface Analysis

Artificial Intelligence System

e.g. Artificial Neural Networks, Expert Systems

W.J. McCluskey, et. al (1997)

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Prof. Abdul Hadi bin Nawawi (Uitm)

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Expert System

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PROPERTY TAX IN AFRICAN COUNTRIES

• (Kelly, 2002):

– Administration Reform is required before focusing on the property tax base and the valuation process.

• (Franzsen and McCluskey, 2004):

– Too much efforts put on finding new properties and valuation process, but the main problem faced is administration capacity

• (McCluskey, Plimmer dan Connellan, 2002):-

– Introduced “Value Banding” or area-based or flat-rate system

– Successfully implemented in Temeke, Dar es Salaam,Tanzania,

• (Franzsen dan McCluskey, 2004):

– Simple, Cheap and Fair Valuation System should be used.

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PROPERTY TAX IN CENTRAL AND EASTERN EUROPEAN (CEE) COUNTRIES

• (McCluskey and Plimmer, 2007):-

– Estonia, Latvia and Lithuania introduced GIS mappings and CAMA

• (Balas and Kovacs, 1999); (IAAO, 1997)

– EEC countries are determined to use ad valorem property tax system

• (Michael, et. al., 2003):

– Capacities to govern must be developed

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PROPERTY TAX IN ASIAN COUNTRIES

• (MacFarlane, 2003) Australia:

– Regular valuations are required to maintain relativities

– Individual valuations are not feasible

– Mass appraisal methods are therefore the only real possibility

• (World Bank, 2004) India:-

– In India, income from property tax is only 50%

– Conflicts between open market value, annual value and Rent Control Act

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PROPERTY TAX IN ASIAN COUNTRIES (cont’d)

• (Kim, 1996):-

– Problems in administration caused losses of 30-50% from the total assessed property tax

• (World Bank, 2004):-

– Earlier reform steps focused on:

• Updating property valuation list

• Computerised billings, tax collection

• Enforcement

• (Bagchi, 1997)

– Unit Area Value Method is used in Bangalore

– New Tax Payment System

– Determination of Tax burden

– 5% rebate given to self-assessment

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PROPERTY TAX IN ASIAN COUNTRIES (cont’d)

• (Bagchi, 1997)

– Patna Municipal Corporation had introduced new guidelines for property valuation i.e. according to; CATEGORIES:-

– LOCATION, LANDUSES, BUILDING MATERIALS,

– Recognised by Supreme Court

– Followed by other Local Authorities in Bihar and other States in India,

– The use of computer in valuation

Joyce Yanyun Man (2010) - Peking University(Application of International Taxation Models on China

Taxation Reform)

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1. Proposed valuation based property tax reform

in China is very important.

2. The proper assessment system and the

efficient data collection are critical for the

success.

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PROPERTY TAX IN ASIAN COUNTRIES (cont’d)

• (Kelly; 2003, 2004):

– Indonesia introduced SISTEP (Places for payment of property tax) in 1988 as part of Tax Reform. (Increased the tax collection from 65% to 79%)

– Mass Valuation based on Zoning Method

– SISMIOP (Property Tax Information Management System) was introduced in 1991, is a comprehensive system for operational and administrative. Manages 78 million units of properties in 2004.

– 1999, Payment Online System (POS) was introduced to enhance the payment of property tax through banks.

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PROPERTY TAX ELSEWHERE

• Ivanov dan McCullough (1998), in Bulgaria:

– Tax rate is very low,

– Losses in collection

– Requires Management Information System for property tax administration

• Ruhling, (2006), in Peru:

– Inefficiency in property tax administration and requires MIS

• (McCluskey et al., 2002), in U.K.:-

– Introduced property tax banding

– Introduced Mass Appraisal in Northern Ireland, U.K.

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WHY CAMA IS NEEDED BY LOCAL

AUTHORITIES IN MALAYSIA?

Property Tax Reform and Capacity Building in Malaysia

• Do Malaysia Need Tax Reform? NO

• Reasons:

– Overall Property Tax system is Good

– Strong LG Law and Policy

– Tax Collection is almost good

• Do we need Capacity Building? YES

• Reasons:

– We are still using traditional and manual methods

– Most LG’s in Malaysia requires CAMA, training, procedural and technological advantage55

SWOT ANALYSIS

• SWOT ANALYSIS FOR ICUDM PWTC OCT 2010.doc

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Table 1: The Frequence of Revaluation Exercise Carried Out by Local Governments in Malaysia. (Source: Raja Nor Wafiah (2009))

Frequence of Revaluation Exercise Frequency Percentage (%)

1-5 years after 5-year end of

previous revaluation

1 5.26

5-10 years 4 21.05

10-15 years 2 10.53

More than 15 years 12 63.16

Total 19 100

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Table 2: The Needs for Computer Assisted Mass Appraisal (CAMA) by Local Governments in Malaysia. (Source: Raja Nor Wafiah (2009))

Need CAMA? LG’s %

Yes 11 68.75

No 3 18.75

Not Sure 2 12.5

Total 16 100

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Table 3: Reasons For Not Capable to Carry Out Revaluation Exercise Every 5 Years by Local Governments in Malaysia.

(Source: Raja Nor Wafiah (2009))

No.s Main Reasons

1 Difficult to get approval from State Govt.

2 High Revaluation Cost

3 Staff Shortage

4 Too many properties to Handle

5 Revaluation Process takes too much time

6 Unskilled staff

7 Data/information are out-of-date

8 Valuation process is complicated

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THE ISSUES:MAJOR PROBLEMS IN PROPERTY TAX

ADMINISTRATION IN MALAYSIA

1. Incapable to carry out revaluation every 5 years as stipulated by LGA1976.

2. Valuation are out-of-date

3. Undervalued – Caused losses of million of dollars in LG’S revenue

4. Other Administrative Problems:-

– Data management/retrieval

– Slow respond to appeals/enquiries by taxpayers

– Difficult to update data

MAJOR PROBLEMS IN PROPERTY TAX ADMINISTRATION IN MALAYSIA (CONT’D.)

• THE VALUATION OF NEW PROPERTY

Should use the present TONE OF THE LEASE, but many valuers value new property according to the current market value

• The valuation should not take into account anyencumbrance on a property e.g. LEASEHOLD and should be valued as FREEHOLD

(But this is not practiced in all LG’S in Malaysia-where the market value is the basis of tax i.e. in State of Johor)

• Too many properties to manage – Create inefficiency

• Requires large storage spaces. Unpractical61

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ADVANTAGES OF CAMAWith the help of CAMA system, the local government can obtain a fair and efficient tax assessment system.

The advantages of CAMA system are as follows:

• Less manpower and time consumption

• More consistent (seragam)

• Quality assurance

• Cost effective

• Data management system

• Fair valuation and revaluation

• Good administrative system

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UTM-CAMA Model• Model Used: Cost Model (Simplest Model)

• MV = IV + LV (1)

where;

MV is market value,

IV is improvement value, and

LV is land value.

• MV = P1 x ISIZE + PL x LSIZE + PLE x LESIZE . (2)

where;

P1 is price for Improvement (I) and PL is price for Land (L)

P LE is price for ExtraLand (LE) 64

CAMA Model (cont’d)

• BV = (PB1 x BSIZE1)+ (PB2 x BSIZE2)+ ...+ (PBn x BSIZEn) (3)

• BV = BQ1 x BQ2 x . . . x BQn x (PB1 x BSIZE1 + PB2 x BSIZE2 + . . . + PBn x BSIZEn),

(4)

• Where,

– BSIZE1, BSIZE2,…, BSIZEn are unit in meter (e.g. sq.m. of main floor area, ancillary floor area)

– PB1, PB2,…, PBn are the cost per unit,

• BQ1, BQ2,…, BQn are qualititative factors e.g. building quality, building type, condition, age65

Variables Used In Valuation Model • Table of Land Value:-

– according to location and for what type of building (e.g. 1/T, 2/T)

– (Based on analysis of market data)

• Table of Building (MFA & AFA) Cost/Value:-

– according to type of bldg (e.g. 1/T, 2/T) and bldg material (e.g. marble)

– (Based on Valuation Department Guidelines)

• Table of Rates of Tax

– According to zone/area/location, type of property

– (Based on approved rates by Local Government)66

Tables of Cost/Value:

• Table of Land Value:-

– according to location and for what type of building (e.g. 1/T, 2/T)

– (Based on analysis of market data)

• Table of Building (MFA & AFA) Cost/Value:-

– according to type of bldg (e.g. 1/T, 2/T) and bldg material (e.g. marble)

– (Based on Valuation Department Guidelines)

• Table of Rates of Tax

– According to zone/area/location, type of property

– (Based on approved rates by Local Government)67

CAMA System Interfaces

• Refer to Appendix 1 – CAMA System User-Interfaces

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CAPACITY BUILDING IN FOREIGN COUNTRIES:• Armenia – Local Government

• Denmark – Land Administration

• Bolivia – Simplification of Property Tax System

• Chile & Colombia – Reform in Administration and Simplification in Tax Policy

• Jordan – Property Tax Admin and Collection

• Vietnam – Local Government

• India – Taxation

• South Africa – Property Taxation

• Indonesia – SISTEP, SISMIOP, POS – Computerized system

• Philippines – Property Taxation

• Thailand – GIS maps for property tax administration

• Malaysia – Began using CAMA in 2000’s

CONCLUSION:

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1. Choices of Valuation Models – MRA, CSA are most popular

2. Data must be complete, correct3. Most developing countries has embarked on property

tax reform especially on technology in valuation to increase their capacity in property tax administration

4. In Malaysia, Researches on CAMA since 1990’s. Malaysia has applied CAMA in property tax valuation since 2001.

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THANK YOU FOR YOUR ATTENTION

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QUESTIONS AND RECOMMENDATIONS: