Draft Commerce Act (Specified Airport Services Input Methodologies)
Determination 2010: Schedule A
24 June 2010
DRAFT COMMERCE ACT (SPECIFIED AIRPORT
SERVICES INPUT METHODOLOGIES)
DETERMINATION 2010: SCHEDULE A
Pursuant to Part 4 of the Commerce Act 1986 the Commerce Commission makes
the following determination:
DRAFT DECISION NO. [ ]
Draft input methodologies determination applicable to specified airport services
pursuant to Part 4 of the Commerce Act 1986 (the Act).
The Commission:
Dr M Berry
PJM Taylor
S Begg
P Duignan
Summary of the Determination: Pursuant to section 52V(2) of the Act, the
Commerce Commission hereby publishes draft input methodologies applicable to
specified airport services (as defined in section 56A of the Act). The input
methodologies apply to information disclosure requirements on Auckland
International Airport Limited, Christchurch International Airport Limited and
Wellington International Airport Limited that the Commission may make under
section 52P of the Act.
Date of Decision: 24 June 2010
This Draft Land Valuation Schedule is Schedule A to the Draft Commerce Act (Specified
Airport Services Input Methodologies) Determination 2010, which the Commerce
Commission released for consultation on 31 May 2010. This Draft Schedule is for
consultation purposes only.
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24 June 2010
DRAFT COMMERCE ACT (SPECIFIED AIRPORT
SERVICES INPUT METHODOLOGIES)
DETERMINATION 2010: SCHEDULE A
Pursuant to Part 4 of the Commerce Act 1986 the Commerce Commission makes
the following determination:
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Determination 2010: Schedule A
24 June 2010
SCHEDULE A AIRPORT LAND VALUATION
A1
Interpretation and Definitions
In this Schedule, words in bold type bear the following meanings:
MVAU means market value alternative use;
Highest and Best Alternative Use - The most probable use of a property (in this
case land and other than specified airport services) which is physically possible,
appropriately justified, legally permissible, financially feasible and which results in
the highest value of the property being valued.
Valuation Standards means a ‘Valuation Standard’, ‘Application’ or ‘Guidance
Note’ published in the Valuation and Property Standards;
Valuation and Property Standards means the Valuation and Property Standards
jointly published by the Australian Property Institute and the Property Institute of
New Zealand (‘PINZ’) (effective 1 October 2009) as updated from time to time, or
any equivalent standards that replace those standards, as applicable as at the date an
MVAU valuation is undertaken.
Registered Valuer - means a valuer registered under the Valuers Act 1948 and who
holds a current annual practising certificate.
A2
Overview
(1)
This Schedule sets out the mandatory requirements for a registered valuer to
apply when undertaking a valuation of airport land for the purposes of this
Determination.
(2)
The valuation is required to be performed as if the land were to be put to its
Highest and Best Alternative Use . This valuation approach is termed
MVAU. MVAU is expressed singularly, but the term can be interpreted to
include the potential for a range of different uses (excluding specified airport
services) to co-exist on the land, which is probable given the large size and
location of such land holdings. As an example, it is likely that the Highest
and Best Alternative Use of the land held by Auckland International Airport
Limited would comprise a combination of urban uses - commercial, retail,
industrial, high density residential and potentially low density residential and
heritage/rural.
(3)
The requirements in this Schedule are a practical implementation of MVAU
based on Valuation Standards and valuation industry practices.
(4)
In this Schedule, requirements that must be applied by a registered valuer
are accompanied by explanatory notes which provide interpretative guidance
in applying the requirements.
(5)
This Schedule contains the following clauses:
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Clause
Content
A1
A2
A3
A4
A5
A6
A7
A8
A9
A10
A11
A12
Interpretation
Overview
MVAU Valuation Definition
Professional Valuation Framework
IVS 1—Market Value Basis of Valuation
IVS 3—Valuation Reporting
IVGN 1—Real Property Valuation
ANZVGN 1—Valuation Procedures Real Property
Applicable MVAU Valuation Methods
Practical Valuation Requirements
MVAU Valuation Steps
Data Sources
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A3
24 June 2010
MVAU Valuation Definition
Requirement
Land to be valued in accordance with this Schedule is to be valued to its MVAU.
(1)
An MVAU valuation is the likely market price paid for the land by a
developer, being the post-development value of the land after allowance for
development costs.
(2)
Development costs(a)
include holding costs and the developer’s profit and risk; and
(b)
exclude(i)
the value of costs required to convert the land for the supply of
specified airport services; and
(ii)
any allowance for remediation expenditure.
Explanatory notes
(1)
MVAU is the market value of the land in its Highest and Best Alternative
Use.
(2)
In undertaking an MVAU valuation, the value of land can be conceived of as
the amount that would likely be paid by a developer or investor, i.e. the postdevelopment gross realisations or estimated value less allowances for
development costs, holding costs and the developer’s profit and risk.
(3)
MVAU is best assessed on the basis of the proceeds that would be obtained
on the open market from an orderly sale of the land (in economically
manageable parcels) over such time as would likely be needed to achieve the
Highest and Best Alternative Use value of the land. It should not be based
on the proceeds that would be obtained by the sale of land in a single parcel
tomorrow (this would be akin to 'scrap' value).
(4)
The MVAU valuation must exclude the value of costs required specifically to
convert the land into that suitable for the supply of specified airport services.
However, to the extent that such conversion works enhance the MVAU of the
land, then these works should be reflected in the assessed MVAU (for
example, where land has been levelled, the cost of levelling is likely to be
reflected in a higher value of the levelled land in an alternative use, compared
to land that has not been levelled).
(5)
Any costs that a purchaser would incur in developing the land for an
alternative use i.e. the removal of airport improvements not required
('remediation costs') are to be ignored in undertaking the valuation. Airport
conversion costs and remediation expenditure are addressed further in clause
A10.
(6)
When valuing land in its alternative use, reliable market-based evidence
would be market evidence of land in a similar use, which ideally is located
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adjacent (or in close proximity) to the land being valued. Recent land
purchases or sales by the airport company may also form relevant market
evidence where such transactions are completed on an arm's-length basis and
are in accordance with the market value definition. The registered valuer
will need to make adjustments for physical characteristics such as size, shape,
and contour.
(7)
A4
It is likely that the Highest and Best Alternative Use will be limited to a
predictable set of alternate uses due to zoning and district plan requirements,
contour and land area, surrounding land uses, as well as existing linkages and
current market supply and demand.
Professional Valuation Framework
Requirement
(1)
Subject to clause A4(2) and A4(3), registered valuers must undertake an
MVAU valuation in accordance with the following Valuation Standards:
(a)
IVS 1 Market Value Basis of Valuation:
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's-length transaction after proper marketing wherein the parties
had each acted knowledgeably, prudently and without compulsion."
Basis of Valuation: the land is to be valued to its Market Value, with a
qualification that the proposed use specifically excludes specified
airport services; this is still a market based assessment and accordingly,
IVS 1 is appropriate;
(b)
IVS 3—Valuation Reporting;
(c)
IVGN 1—Real Property Valuation; and
(d)
ANZVGN 1—Valuation Procedures Real Property.
(2)
Valuation Standards with ‘mandatory practice’ status must be adhered to by
registered valuers.
(3)
Valuation Standards with ‘best/good practice’ status must be adhered to by
registered valuers when reasonably practicable.
Explanatory notes
(1)
The relationship between the rules for MVAU valuations in this Schedule and
the professional valuation framework applying to registered valuers in New
Zealand is explained below.
(2)
Registered valuers are those acting in their capacity as members of the PINZ
and/or the New Zealand Institute of Valuers ('NZIV'). Registered valuers
are required to comply at all times with PINZ/NZIV Codes of Ethics, Rules
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of Conduct and (where applicable) the requirements of its Valuation
Standards.
(3)
In October 2009, the Australian Property Institute and PINZ jointly published
the Valuation and Property Standards.
(4)
The Valuation Standards includes all of the International Valuation
Standards, Applications and Guidance Notes (‘International Valuation
Standards’ or ‘IVS’) published by the International Valuation Standards
Council as Valuation Standards. Where there are departures from
International Valuation Standards, an explanatory note is included and
highlighted. Specific Australia and New Zealand Valuation Standards have
also been included for areas of practice not covered by or supplementary to
the International Valuation Standards.
(5)
Some Valuation Standards have ‘mandatory practice’ status for registered
valuers which means that registered valuers must adhere to their
requirements.
(6)
The remainder of the Valuation Standards have ‘best/good practice’ status
which means that their application is voluntary; however, PINZ recognises
that properly applied, they will provide some professional support and can
serve as a comparative measure of the level of performance of a registered
valuer.
(7)
In undertaking an MVAU valuation, the Valuation Standards with
‘best/good practice’ status specified in this Schedule must be applied
wherever possible by a registered valuer.
(8)
The majority of valuations undertaken in New Zealand are done having
regard to the requirements of International Valuation Standard 1 (‘IVS 1’)—
Market Value Basis of Valuation.
(9)
In addition to applying IVS 1, International Valuation Standard 3 (‘IVS 3’)—
Valuation Reporting is applicable to an MVAU valuation and the registered
valuer must therefore comply with IVS 3.
(10) The Valuation Standards also includes Guidance Notes which, as the name
suggests, provide guidance on specific valuation issues and on how other
Valuation Standards are to be applied. A registered valuer must comply
with the following two Guidance Notes as Valuation Standards:
(a)
International Valuation Guidance Note 1 (‘IVGN 1’)—Real Property
Valuation; and
(b)
Australia and New Zealand Valuation Guidance Note 1
(‘ANZVGN 1’)—Valuation Procedures Real Property.
(11) The Valuation Standards mentioned above which are applicable to an
MVAU valuation are further described in clauses A5 to A8.
A5
IVS 1—Market Value Basis of Valuation
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Requirement
(1)
Any MVAU of the land is to be undertaken in accordance with IVS 1—
Market Value Basis of Valuation. MVAU is to be interpreted with the same
meaning as "market value" within IVS 1, but on the assumption that the land
is available for uses other than specified airport services.
(2)
All assumptions made in undertaking such a valuation must be disclosed.
Explanatory notes
(1)
The chief matter to be disregarded in undertaking an MVAU valuation under
IVS 1 is the availability of the land for supplying specified airport services.
The reason for this is explained in clause A9.
(2)
Full disclosure in the valuation of all assumptions made is required under IVS
1. This includes clearly defining the bases of valuation to ensure there is no
misinterpretation of the valuation or the purpose for which it is to be used.
(3)
Under IVS 1, the registered valuer must ensure that-
(4)
A6
(a)
the estimate of value is based on data and circumstances appropriate to
the valuation;
(b)
the estimate of value is undertaken using appropriate methods and
techniques; and
(c)
the valuation is developed on the basis of sufficient information to
support the analyses and conclusions.
This standard has ‘mandatory practice’ status.
IVS 3—Valuation Reporting
Requirement
IVS 3—Valuation Reporting applies for the purpose of reporting an MVAU
valuation.
Explanatory notes
(1)
This standard has ‘mandatory practice’ status and sets out valuation reporting
standards and requirements, including on the requirements in Business
Focus 2, Reports, Content and Compilation.
(2)
The standard requires the registered valuer to make full disclosure of the
regulatory framework and any departures from these standards that may be
required to comply with local legislation, regulation or custom. The
registered valuer must therefore disclose the MVAU basis required in an
airport land valuation.
(3)
Under IVS 3, the registered valuer must(a)
report the valuation in a manner that will not be misleading;
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(b)
(c)
(d)
(e)
(f)
A7
24 June 2010
define the basis or bases of value used and state the purpose and
intended use of the valuation, the effective date of valuation, and the
date of the report;
clearly identify and describe the property and property rights and
interests valued and the scope of work undertaken to develop the
valuation conclusion;
specify all assumptions and limiting conditions upon which the
valuation is based;
clearly distinguish the assumptions that are different from or additional
to those underlying an estimate of Market Value; and
fully explain the valuation approaches and procedures that have been
applied and the reasoning that supports the analyses, opinions and
conclusions in the report.
IVGN 1—Real Property Valuation
Requirement
IVGN 1—Real Property Valuation must be applied wherever reasonably practicable
by a registered valuer in undertaking an MVAU valuation.
Explanatory notes
(1)
The purpose of IVGN 1 is to clarify the fundamental valuation-related
principles (termed ‘Generally Accepted Valuation Principles’) so that they
may be properly understood and applied by registered valuers when valuing
real property.
(2)
This Guidance Note therefore provides assistance when undertaking real
property valuations and includes key terms and definitions, a summary of the
valuation process and rationale, and elaboration on key principles and
concepts.
(3)
This standard has ‘best/good practice’ status and must be applied wherever
possible by a registered valuer in undertaking an MVAU valuation.
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A8
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ANZVGN 1—Valuation Procedures Real Property
Requirement
ANZVGN 1—Valuation Procedure—Real Property must be applied wherever
reasonably practicable by a registered valuer in undertaking an MVAU valuation.
Explanatory notes
A9
(1)
The purpose of this Guidance Note is to provide information, commentary,
opinion, advice and recommendations in relation to valuations of any real
property for any purpose.
(2)
This standard has ‘best/good practice’ status and must be applied wherever
possible by a registered valuer in undertaking an MVAU valuation.
Applicable MVAU Valuation Methods
Requirement
The assessment of MVAU must, wherever reasonably practicable, be determined
by application of the following valuation methods:
(a)
direct sales comparison approach; and
(b)
notional subdivision / residual value approaches.
Explanatory notes
(1)
Land held in single ownership and having an area in excess of the size typical
for that class of land and which is capable of subdivision is generally known
and described as block land. The two principal methods of valuing block
land are:
(a)
the direct sales comparison approach; and
(b)
notional subdivision / residual value approaches.
(2)
The direct sales comparison approach may be analysed and assessed on an
area basis or zonal basis.
(3)
Notional subdivision / residual value approaches may utilise discounted cash
flow techniques given the size of the land holding and likely assumptions
around a staged sell down (or values in the case of an investor) of post
development sections or properties.
(4)
Application of accepted valuation practice will generally require a registered
valuer to apply a number of valuation methodologies as this will improve the
confidence in the valuation.
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A10 Practical Valuation Requirements
Requirement
In undertaking an MVAU valuation the following overall valuation requirements
must be observed by the registered valuer:
(a)
land is to be valued as aggregated and notionally vacant;
(b)
regard should be had to zoning and other district plan and legal
requirements applying to the land;
(c)
conversion to airport costs are to be excluded; and
(d)
allowances for remediation expenditure are to be ignored.
Explanatory notes
Land to be valued as aggregated and notionally vacant
(1)
Land value is to be assessed with reference to market data for the Highest
and Best Alternative Use. Airport land will usually represent a substantial
sized land parcel and should be valued as an aggregated parcel (which may be
made up of multiple titles) and as notionally vacant.
(2)
The value assumes an orderly sale of the land (in economically manageable
parcels) over such time as would likely be needed to achieve the highest and
best alternative use value of the land.
(3)
While the registered valuer should value the land as an aggregated parcel,
consideration should also be given to the physical characteristics of the land
(including contiguity), existing title and easement arrangements, zoning and
adjoining land uses, all of which will likely influence the alternative use/s, so
as to maximise the value in the land’s alternate use/s.
Zoning, district plan and other legal requirements
(4)
The land is likely to be designated or zoned specifically for the aeronautical
activities of the airport owner. However, for the purposes of the MVAU
valuation, the valuer should ignore such airport designation/zoning and
should base the valuation on likely zoning for the alternative use/s.
(5)
Should the land be subject to other restrictions or impediments, e.g.
easements, reserve or endowment status, offer-back obligations etc.,
allowances for items such as these should typically be by way of a deduction
from the assessed ‘unencumbered’ alternative use market land value. Such
deductions should represent the extent to which the registered valuer
considers such memorials/interests would affect the market value of the land
(i.e. be applied in the marketplace). Any material discounts should be
justified by the registered valuer.
(6)
Specialist planning and legal advice may be required to assist the valuer in
the above matters.
Conversion to airport costs
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(7)
Costs incurred in the conversion of land which, while typically required for
the development of an airport are unlikely to be required for the development
of the land for Highest and Best Alternative Use, should be excluded from
the MVAU valuation.
(8)
Airport development requires the formation of a level and stable platform
suitable for the construction of runways, taxiways, terminal and associated
infrastructure. As such, the requirement for earthworks will be greater than
that required for typical commercial, residential and rural alternative uses.
(9)
In addition to those more commonly identified airport land development
works, it is recognised that individual airports may also have unique
development costs.
(10) Airport development costs that should be excluded from an MVAU valuation
include:
(a)
costs of resource consents for airport development (however, costs of
resource consents relating to the alternative use can be included);
(b)
holding costs during airport development (however, holding costs
relating to the alternative use can be included);
(c)
costs of earthworks necessary for the formation of the level airport
platform;
(d)
costs of any land reclamation/dredging;
(e)
costs of sea-wall or other coastal protection systems unless these are
considered to be necessary for the alternative use;
(f)
cost of airport-specific drainage systems including retention ponds if
not required for the alternative use;
(g)
professional fees, e.g. those for surveyors, engineers, and planners with
respect to the above-mentioned activities; and
(h)
any other costs incurred in the conversion of land so as to provide
specified airport services.
(11) Notwithstanding the above, to the extent that such airport conversion or land
development works enhance the MVAU of the land, then such works should
be included in the assessed MVAU.
(12) Notwithstanding 10(d), the Valuation Standards note that while land values
will typically be based on market evidence, in rare circumstances a
replacement (construction) cost approach may be warranted for certain parts
of airport land. NZVGN1 NZ33.13 states:
"The fair value of land would normally be determined from market basedevidence. However, in the rare instances where extensive works have been
carried out in order to prepare land for use in the entity's business, available
market evidence will normally relate to land of the same size and in the same
general vicinity but which is priced for uses that are sub-optimal relative to
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the use for which the works were carried out. In these rare instances the fair
value of the land should be determined by having regard to the replacement
cost of the land. For example, consider the case where an airport or port
company acquires a section of seabed, fills it in and builds a seawall in order
to produce flat land for use in the entity's business. The reclaimed land is in
the precise location where the entity requires land. Market evidence may
exist for other land of the same size and in the same general vicinity as the
reclaimed land, but that other land is not suitable for the use intended by the
entity. Thus, the market evidence on the fair value of that other land is not
relevant to the reclaimed land, and the best indicator of the fair value of the
reclaimed land would be the replacement cost of that land. Land resulting
from extensive works by a local or central government body in constructing
new roading provides a similar example."
Allowance for remediation costs
(13) When assessing the MVAU, the registered valuer must assume that the site
is vacant and unencumbered by any airport related improvements. As such
there must be no deduction made for any remediation or demolition costs,
including the costs of:
(a)
demolition/crushing and removal of concreted and sealed surfaces such
as runways, taxiways, aprons, roading, kerbs, and channels;
(b)
demolition and debris removal of airport specific buildings and
structures such as terminals, hangars, fire rescue buildings, control
tower, and fuel depots;
(c)
removing above- and below-ground utilities, such as pipelines and
cabling required for airport specific activities like fuel pipelines, tanks,
runway drainage and lighting, and approach lighting; and
(d)
clean-up of potential site contamination such as contamination
occurring through aircraft and maintenance operations by spills of
aircraft and vehicle fuels, paints/solvents, fire fighting foams,
underground and above ground storage tanks, radioactive materials,
asbestos, PCBs, pesticides and herbicides or battery acids, or through
the operation of waste disposal facilities, vehicle storage, dredging
operations, building construction and underground and above ground
utility lines/pipes.
A11 MVAU Valuation Steps
Requirement
In undertaking an MVAU valuation the following steps must be undertaken by the
registered valuer:
(a)
establish and compile a schedule of the land parcels that are to be
included in the MVAU valuation;
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(b)
confirm ownership, tenure and aggregated land area;
(c)
determine the existing or underlying zoning of the land, the zoning of
surrounding lands and the likely zoning of the land for highest and best
alternative uses.
(d)
consider and determine the Highest and Best Alternative Use, which
must be physically possible, appropriately justified, legally permissible,
and financial feasible;
(e)
consider resource management (including reserve) requirements,
amenities in the area, and access to services;
(f)
for a notional subdivision / residual value approaches(i)
prepare a land development plan (in conjunction with a planner,
where required) —this should demonstrate the registered
valuer’s view of the likely Highest and Best Alternative Use
development, of the land, and help support the assessment of
inputs into the notional subdivision / residual value approaches;
(ii)
determine market demand for the proposed development and the
time period for the sale/realisation of the developed land in a
notional subdivision or development;
(iii) determine the direct costs of developing the land, including but
not limited to, e.g. roading, supply of services, legal, sales costs
etc.; and
(iv) determine any indirect costs of developing the land e.g. the
developer’s cost of capital/holding costs, local body rates etc.;
(g)
undertake market research and obtain comparable sales information to
support the alternate land uses selected—these will likely include both
block sales and developed land sales if both a direct sales comparison
and notional subdivision/residual value approaches are to be used;
(h)
apply suitable adjusted market evidence to airport land as required, and
taking account of whether a direct sales comparison and/or notional
subdivision/residual value approaches are to be used;
(i)
reconcile the results of the valuation approaches used and determine a
final value for the Highest and Best Alternative Use; and
(j)
prepare a valuation report, incorporating all disclosures required by the
relevant Valuation Standards.
Explanatory notes
The steps outlined in clause A11 are required to achieve comparability between
airport land valuations for the purpose of regulation under Part 4 of the Act and to
allow a valuation to be understood in that context. These steps must be followed by
a registered valuer in undertaking an MVAU valuation when valuing airport land.
A12 Data Sources
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Requirement
The registered valuer should use sufficient and appropriate data to support an
MVAU valuation consistent with the requirements of IVS 1.
Explanatory notes
(1)
There are a variety of data sources available to the registered valuer when
making the assessment of value for airport land in an alternate use.
(2)
Some of these sources will be formal valuation data and information offered
by third party suppliers. Other sources may be relevant, particularly when
obtaining direct cost information such as surveying, engineering, and
construction data. The registered valuer should clearly identify and support
all primary sales/market/cost information obtained.
Regulation Branch
Commerce Commission
Wellington
NEW ZEALAND
24 June 2010
ISBN: 978-1-869450-74-8
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