Confusion rife as valuers come to grips with compulsory acquisition
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Christchurch inner-city commercial landowners remain confused and suspicious about compulsory acquisition of their properties.
The Central City Development Unit of the Canterbury Earthquake Recovery Authority has received back less than a third of the questionnaires it sent to 850 property owners, according to unconfirmed reports.
The CCDU is charged with taking control of the redevelopment of the central city.
CBRE valuer Marius Ogg spoke at a Lane Neave forum last week where several hundred property owners attended.
Although he sought to allay concerns, it became apparent city valuers did not have all the answers. He talked about equivalence – being able to reinvest to buy another property from the proceeds of the CERA compulsory acquisitions.
He also spoke about the uncertainty of payouts. Since February 2011 land sales ranged from $600/m2 to $2500/m2 within the CBD and fringe. Valuers must decide how much the market would pay, taking into account a large number of hypothetical variables and assumptions.
“It’s very difficult to get accurate conclusions given the level of assumptions required.”
He asked about partly completed feasibilities (for a new build) where there was a tenant with a lease in place and plans completed and costed but where onsite work was not started.
“It needs to be reflected in value if the market will pay for it.”
Insurance issues played a big part in valuations.
If a building was a repairable building and insurance was settled the valuer used residual methodology “as if repaired”, then deducts costs and profit and a risk margin.
If the building was repairable but insurance was not settled the valuer would need to assume insurance would be for reinstatement value and therefore value the property as if it were repaired.
Lane Neave partner Duncan Webb said the problem was that landowners were being expected to be paid out on the state of the market today, when they would be required to buy at tomorrow’s market prices, which were likely to be much higher.
There was a question from the floor about the valuation effect of precincts that have been zoned for the Christchurch Earthquake Authority’s anchor civic projects compared with other land.
Cera has designated certain areas as precincts for health, entertainment, retailing, convention centres but these have not formally been incorporated in a legal district plan.
Mr Webb said there was effectively a planning vacuum as far as valuation is concerned.
The other big area of concern remains insurance delays and the effect of landowner entitlements after compulsory acquisition.
For example, David Wallace, who manages the Devonia portfolio of about 10 buildings or cleared sites, has fears insurers will refuse to pay the remainder of payouts that would normally become available when owners rebuild. He anticipates a legal battle.
The negotiation period with Cera ends on December 1 and land not acquired by agreement will be taken compulsorily between December 2012 and March 2013.
After the land has been publicised in the Gazette, the Gazette notice must be lodged with the Registrar General of Land, who will then register the notice against the title for the property.
Fourteen days after publication the land becomes vested in the Crown free and discharged from all mortgages, charges claims or interests of whatever kind. The Crown succeeds to all rights, entitlements and benefits that the owner has or may have against insurer of land or buildings.
The CER Act excludes the right of objection enshrined in the Public Works Act.
That means landowners need to enter discussions with mortgagees as early as possible in the process because banks will lose registered security and may foreclose. Some landowners with mortgages may find themselves in a difficult position.
Claims for compensation must be lodged within two years of the exercise of compulsory acquisition and the earthquake recovery minister must determine how much compensation is payable.
The Canterbury Earthquake Recovery Act 2011 expressly excludes compensation for various insurance losses, cancellation of resource consents, cancellation of an existing use right, economic or consequential loss, loss of personal property exceeding $20,000 in value, business interruption or any other loss the minister reasonably considers is unwarranted and unjustified.