rating 1 introduction

EMT611: Valuation for Rating (1)

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Center of Studies for Real Estate Management, Faculty of Architecture, Planning and Surveying, University of Technology Mara40450 Shah Alam, Selangor Darul Ehsan, Malaysia.Email: [email protected]

TOPIC:VALUATION FOR RATING

(1)(INTRO)

Sep 2013 - Jan2014


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INTRODUCTION

WHAT IS AN ASSESSMENT

EXEMPTIONS FROM RATES (Sec. 134 & 135)

POWER TO IMPOSE RATES (Sec. 127, 137, 164)

THE NEED TO IMPOSE ASSESSMENT

BASIS OF RATE

CONTENTS

Sep 2013 - Jan2014

1.0 INTRODUCTION

• Property taxes in Malaysia levied by the 3 level of government include the following:-

Federal: Income tax, stamp duty, estate duty, real property gain tax, share (land based company) transfer tax.

State : Quit rent, premium, permit.

Local : Rates, development charge.

• Payment of taxes:-* by yearly eg. quit rent.

• According to the present system, LA are very much under the control of their State Governments.

• The member of LA are appointed by the respective SA.3


Sep 2013 - Jan2014

Introduction……..

• The 9th Schedule of the Federal Constitution provides that

- LA shall be a State matter and therefore al LA with the exception of the City Council of KL come under the direct jurisdiction of State Government.

• Local Government, - being the third and last tier of Gov. in the country, its sources of revenue are limited.

• The main source of LA revenue is from property assessment.

• Beside property assessment, LA also derive revenue from other sources such as development charges, license fees, rent on premises, fees for specific services, return from investment, grafts from the State Gov and Contribution in aids of rates.

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Sep 2013 - Jan2014

2.0 WHAT IS AN ASSESSMENT

• Form of taxation payable by the real estate owners on their holdings.

• Imposed on real estate holdings such as:a. Residential – terrace, bungalow etc.b. Commercial – shop house, office building etc.c. Industrial – light and heavy industry.d. Agriculture - rubber estate.e. Special properties

– airport, equestrian park, team park etc.

• Governed by the Local Government Act 1976 (Act 171).• Also known as “Cukai Taksiran” or “Cukai Pintu”.

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3.0 EXEMPTIONS FROM RATES (Sec. 134 & 135)

• Empowers the State Authority to exempt as its discretion any holding or part of holding from the payment of any rate if such holding or part thereof is used exclusively:-

a. as public place of religious worship.b. as licensed public burial ground or crematoria.c. for public school.d. as public place for charitable purposes or for the purposes of

science, literature or the fine arts.

and not for pecuniary profit.6


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4.0 POWER TO IMPOSE RATES (Sec. 127, 137, 164)

• Part XV of the Local Government Act, 1976 (Act 171) deals with Rating and Valuation.

• The law as contained in Part XV can be divided into two sections:-

a. that portion which concerns the valuer

(i.e Sec. 2,127, 130, 135, 137-145, 159-164).

b. That portion which concerns the section that is responsible for the collection of rates

(i.e Sec. 127-133, 136, 146-158, 162).

• Power to impose rates is given by Sec. 127 (LGA 1976).

Existing Assessment List shall be the List on which the rates shall be imposed until such time a Valuation List is drawn up.

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Sep 2013 - Jan2014

Cont..Power To Impose Rates (Sec. 127, 137, 164)

• Who imposed the rates?Local Authority – City Council, Municipal Council or District Council.Example: Dewan Bandaraya Kuala Lumpur (DBKL), Majlis Perbandaran Kelang (MPK), Majlis Daerah Kuala Selangor (MDKS).

• LA has to prepare a new Valuation List once every 5 years or within such extended time as the State Authority may determine.

• Former law LA had a choice of either preparing Assessment List every year.

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Sep 2013 - Jan2014

5.0 THE NEED TO IMPOSE ASSESSMENT

• Construction / development and maintenance of public utilities.

• Maintenance and management of infrastructure.

• For most local authorities in Malaysia property tax or rates remain the main source of income; in some cases exceeding 65% of their revenue.

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Services Provided By LAServices• Street lighting• Garbage disposal• Cleaning of drain

Facilities• Market• Hall• Surau

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6.0 BASIS OF RATE

• There are two basis (Sec. 130):-

Annual Value

all states of Malaysia except

Johor.

Improve Value

Johor

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In general it refer to rate able value of land & buildingDerived from its yearly letting value

However in Malaysia- Also apply the other method

Sep 2013 - Jan2014

Estimated Gross Annual Rent

The first part of the definition states that annual value means the estimated gross annual rent……

Valuations are in fact expressions of opinion and are therefore “estimated”.

This also means that the rent actually paid for the property under consideration need not be the rent to be accepted as the annual value because it may not conform to the rent the standard of which is set by the definition.

Adjustment are required where necessary.

This phrase also goes on to state that it should be the annual rent.

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Cont….–Basis Of Rate .. Annual Value Sep 2013 - Jan2014

Reasonably Be Expected To LetThe estimated annual rent to be assessed has to be a reasonable one. Valuer does not select the highest rent passing that conforms to the norm as the rent required. Neither does he select the lowest; nor the average. -

What he should select is one that could be regarded as fair.

From Year to YearThe phrase means that the tenancy to be assessed should be a yearly one and the tenant regarded as a tenant from year to year

Payment for Outgoings and Taxes

The landlord is the person who should be responsible for the payment of the expenses of repair, insurance, maintenance or upkeep and all public rates and taxes.

The definition shows that the rent to be assessed is a gross one. 12


Sep 2013 - Jan2014

a) No account shall be taken of any restrictions or control of rent.

b) Any machineries used for any or all of these purposes i.e:

i. The making of any article or part of an article.

ii. The altering, repairing, ornamenting or finishing of any article.

iii. The adapting for sale of any article,

The enhanced value shall not be taken into consideration.

c) In the case of land which is; 13


“ the estimated gross annual rent at which holding might reasonably be expected to let from year to year the landlord paying the expenses of repair, insurance, maintenance or un keep and all public rates and taxes”.

Annual Value : Sec. 2 (LGA 1976) Sep 2013 - Jan2014

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c) In the case of land which is;

• As for (ii) & (iv), it were vacant land with no buildings.

• In all cases, the LA may with the approval of the State Authority to reduce to a minimum 5%.

d) Any particular holding, in the opinion of VO, insufficient evidence to base a valuation annual value, the VO may apply such methods of valuation as in his opinion appears appropriate to arrive at the annual value.

Status on land The annual valuei.i. Partially occupied or partially built upon. AV as defined OR

10% of MV, discretion of VO

ii.ii. Vacant, unoccupied or not built upon. 10% of MV

iii.iii. With incomplete building. 10% of MV

iv.iv. With building certified by the LA to be abandoned or dilapidated or unfit for human habitation.

10% of MV

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• Sec. 2 (LGA 1976)

“. the price that the owner willing and not obliged to sell might reasonable expect to obtain from a willing purchaser with whom he was bargaining for sale and purchase of the holding

• Mainly used in the state of Johore as a basis of valuation.

• The definition of improve value is identical to the definition of market value.

• The state of Johor has the rare distinction of being the only state which continues to use the improve value as alternative basis of rating.

• The power to impose rates under the Johor Town Board Enactment (Johor Laws Enac. No 118) was provided for under section 28(1) as follows:“ Any rate or rates imposed under this part shall be assed upon the improved value of holdings”

Cont….– Basis Of Rate….. Improve Value

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Sep 2013 - Jan2014

Principles Of Market ValueCase: Ng Tiou Hong v Collector of Land Revenue, Gombak @MLJ

1984.

1. Compensation – a wiling seller and a willing buyer.

2. Market price – measured by a consideration of the price of sales of similar lands in the neighborhood or locality and similar quality and position.

3. Potential - must be take into account.

4. Nature of the land - refer whether the locality is within or near a developed area, its distance to or from a town, availability of access road etc.

5. Estimated of value by experts – undoubtedly.

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Market Value The nature and extent of the interest; usually this is

the interest that is effected, e.g encumbered or short leased etc.

Potential- there is an abundance of case which required potentialities to be taken into consideration.

Improved value Valuation of special properties Treatment of leaseholds Potential as against existing use. Encumbered lands

abundance a very large quantity of something

Problem in Improve value basis:

• A lot of potentialities need to consider

encumber restrict or burden (someone or something) in such a way that free action or movement is difficult

Problem associated with improve value basis Sep 2013 - Jan2014

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Type of holding Rate of assessment Residential 5.5% Commercial 6.6% Industrial 7.15% Agriculture 1.1% Malay reservation 2.2% Non-malay reservation 1.1%

Rate Imposed by MPAJRate Imposed by MPAJ

Annual Value : RM120,000 Type of Holding : Residential

Rate of Assessment : 5.5%

Amount payable : RM120,000

x 5.5% = RM6,600 per year

Example calculation of Annual Value ;

Example Sep 2013 - Jan2014EM

T611: Valuation for Rating (1)

RATE IMPOSED BY MBJB

EMT611

: Valuation for Rating (1)

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Type of Holding Rate of Assessment Residential 0.14%Malay reserved 0.10%Commercials 0.25%Industrials 0.28%Agricultural 0.07%Low cost house (<RM50,000)

Improved Value : RM192,000

Type of Holding : Residential

Rate of Assessment : 0.14%

Amount payable : RM192,000 x 0.14% = RM 26,800

per year

Example calculation of Improved Value ;

ExampleSep 2013 - Jan2014

COMPARISON AV & IV

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Tutorial Question 1?

Please find out what is the differences between Annual value and improve value. List down the - criteria- impact for property valuation

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Annual ValueAnnual Value Improved ValueImproved ValueExisting use value (rebus sic stantibus)

Not always

Potential is not considered Potential must be accounted

No distinction between freehold and leasehold

There exist distinction

Assumption on vacant and to let Valued subject to encumbrances

Hypothetical tenancy Hypothetical sale?

Not very sensitive to changes or fluctuation

Susceptible to fluctuation and changes

No speculation is allowed Certain amount of speculation inherent in the market value allowed

Answer: Tutorial Question 1 Sep 2013 - Jan2014

rating 1 introduction

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