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SAIV Comments on the Draft Regulations in terms of the Property Valuation Act 17 of 2014

20 June 2017   (0 Comments)
Posted by: Kara Van den Heever
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Please click here to view the SAIV's submission in pdf format

 

19 June 2017 

Valuer General: Office of the Valuer General

Private Bag X812

Pretoria

0001

Electronic Submission     : vg@ovg.org.za

                                            : Thapelo.motsoeneng@ovg.org.za 

 

Sir/Madam

INVITATION TO COMMENT ON THE DRAFT REGULATIONS IN TERMS OF THE PROPERTY VALUATION ACT 17 OF 2014.

PREAMBLE:

The South African Institute of Valuers (SAIV) categorically states that it cannot support any method or principle proposed in these Regulations that would result in value and/or compensation that is not just and equitable. 

All definitions and principals contained in the Regulations must be aligned with the International Valuation Standards (IVS) as these Standards were adopted by the Statutory Body, The South African Council for the Property Valuers Profession and the SAIV.

 

1.   Definitions

Acquisition Benefits

This definition should be removed as it does not reflect the principle of just and equitable.

The owner whose property is acquired will not be in the position to replace the subject property in the open market if he does not receive market value.

 

Current Use Value

The addition of the word “value” in the definition of “current use value” in the Regulations is a clear departure from the definitions of the Constitution and of the Property Valuation Act. The addition of the word “value” could have a fundamental adverse effect to the intention of the legislator.

Current literature e.g. Dr A Gildenhuys on page 172 in the second edition of his book “Onteieningsreg” with reference to other authors including Chaskalson, Lewis, Budlender and Southwood, when referring to “current use” in the Constitution, makes no reference to the “value” of the “current use”.

It appears that they view the current use as a “social value” that may play a role in the determination of compensation e.g. the illegal or speculative use of a property could have a punitive effect on compensation. Therefore the term in Section 25 (3)(a) of the Constitution speaks to “use” and not “value”.

The absurdity of the “current use value” concept is illustrated by the fact that if a property is not used, it will have a zero or negative value if highest and best use is disregarded.

In terms of Regulation 6 the owner of the subject property will receive only 50% of the market value which cannot be just and equitable. 

To disregard the principle of highest and best use is not just and equitable.

 

Departure

Regulation 8(i) compels the authorised valuer to specify any “departures” (special circumstances where the mandatory application of valuation standards may be inappropriate or impractical) in his valuation report.

The Regulations do not contain any directives on and under which circumstances the authorised valuer may “depart” from the prescribed valuation process.

Special circumstances under which the authorised valuer may “depart” should be specified.

 

Net Present Value

The principle of determining Net Present Value (NPV) is normally applied in the valuation of Income Producing Properties i.e. shops, offices, etc. and is not applied in the agricultural market.

 

Valuation Basis

This definition should be aligned with the IVS104 that reads “Basis of Valuation”

“10.1.  Bases of value (sometimes called standards of value) describe the fundamental premises on which the reported values will be based. It is critical that the basis (or bases) of value be appropriate to the terms and purpose of the valuation assignment, as a basis of value may influence or dictate a valuer’s selection of methods, inputs and assumptions, and the ultimate opinion of value.”

  

2.   Powers of the Valuer-General

Information required could be private information and subject to various statutes including the POPI Act.

Regulation 2(1)(e) should have a timeframe within which the owner must supply the required information. We would suggest 30 days as being a more reasonable timeframe.

 

3.   Protection of Information

No comments.

 

4.   Valuation Practices, Methods, Standards and Procedures

The heading should be changed to read “Valuation Approaches, Methods, Standards and Procedures when Requesting Valuations”

 “Practices” must be replaced with “Approaches” to be aligned with the IVS105 that reads:

“10.1 Consideration must be given to the relevant and appropriate valuation approaches. The three approaches described and defined below are the main approaches used in valuation. They are all based on the economic principles of price equilibrium, anticipation of benefits or substitution.

The principal valuation approaches are:

(a) market approach,

(b) income approach, and

(c) cost approach.” 

Each of the above approaches includes different detailed methods of application.

“Approach” and “method” is not synonym to each other and cannot be used interchangeable.

 

4(1)

This regulation to be changed to read as follows:

All valuations in terms of the Act and these regulations must be conducted in accordance with generally recognised valuation approaches and methods.

It is important to note that various regulations and/or requirements in the Draft Regulations do not conform to the principles laid down in Regulation 4(1).

 

4(2) and 4(3)

Regulations 4 (2) and 4 (3) can be combined as the information to be provided by the instructing authority is the same.

 

5.   Procedures for Valuations of Property Identified for Purposes of Land Reform

Registered valuers are trained in the valuation of immovable property. Registration in terms of the Property Valuers Profession Act 47, 2000 is based on the scope, nature and variety of the experience in the valuation of immovable property only.

In the case of Agricultural property registered valuers are not trained and are not qualified to scrutinise, analyse and/or interpret financial statements of the specific owner of the property for the determination of the NPV, as required in the definition of “current use value”.

If the NPV is intended to reflect the productive value of Agricultural property registered valuers are not qualified to determine productive value as this function is normally performed by Agricultural Economists. 

Comments on the specific proposed Regulations are as follows:

5 (1)(b):

Is there a reason why the extent of the direct state investment and subsidy in the acquisition and beneficial capital improvement of the property as defined in the definition of “value” in the Act, was omitted?

5 (1)(d)(i):

This regulation is in contradiction of the definition of value as contemplated in the Act and Section 25(3)(e) of the Constitution. The word “expropriation” should be replaced with “acquisition”.

5 (1)(d)(ii):

Second last word to be changed from “opening” to “open”.
 

5 (1)(e)(iii):

The state must provide the authorised valuer with the appropriate information to comply with section 5(1)(e).

5 (1)(f):

This requirement contradicts the intention of Regulation 5(1)(e) that the authorised valuer may only under specific conditions make use of prices paid by the state.

5 (1)(g)(i):

Any historical direct state investment and subsidy and beneficial capital improvement should only be applicable if the subject property is still registered in the name of the person who received these benefits.

5 (1)(g)(ii):

a.  It is not clear what “sufficient information” refers to. Does it refer to sufficient information of the historical direct state investment and subsidy and beneficial capital improvement, or does it refer to sufficient information on the current cost of such improvement, etc.

 

b.  The problem with these 2 proposals is that it equates cost to value. The cost of an improvement does not necessarily equate to the contributory value it has to the market. It could be more, it could be less. In addition these calculations are considered problematic and difficult.

We propose that a much simpler and equitable method would be to value the property at the current date on a “before-and-after method”. The property is valued in its current state taking into consideration the improvement as a result of direct state investment or subsidy as an “after value”.  There after it is valued by disregarding the same improvements. The value derived at will be the “before value”. The difference in the 2 values would therefore represent the contributory value of the direct state investment or subsidy.

 

c.  The Regulations at this stage would require the use of other professionals in the determination of historic value. The proposed method referred to in paragraph b would be more cost efficient, less time consuming and will produce a more reliable result.


5(1)(h):

This regulation should be moved and incorporated under Regulation 8.

 

6.   Determination of the Value of the Subject Property

The SAIV cannot support this Regulation for reasons mentioned before.

In addition to previous comments provision 6(b) describes the valuation of an asset that can change on a daily basis.

The date of valuation and date of acquisition will never be the same and the value of the movable property (e.g. annual crops) will have changed.

6(a):

The word “diving” should be replaced with “dividing”.

The overall inclusive requirement for compensation in terms of expropriation is that it should be “just and equitable reflecting an equitable balance between the public interest and the interests of those affected”.

This means that an individual who has to part from his property for a public purpose or public interest (to whose advantage the property is acquired for) needs to be compensated by means of tax money.

The 5 factors listed according to section 25(3) of the Constitution that need to be considered are subject to the eventual compensation amount to be “just and equitable”.

The individual cannot be expected to “pay” for the benefits the community will receive as a result of the expropriation by receiving or accepting less than what is just and equitable.

This principle is internationally known as the “equality principle” or the “sacrifice theory” which originated in France as “égalité devant les charges publiques".

The determination of compensation in terms of Regulation 6 will in most cases not adhere to the “equality principle” as per the introduction to Article 25(3) of the Constitution and would therefore be unconstitutional.

 

7.   Directives for the Valuation of Subject Property

No comments.

 

8.   Valuation Reports

As discussed before, we cannot agree with the requirements of Regulation 8(p), 8(q) and 8(t).

 

9.   Representations by Owner of Persons in Charge of Property

9(2)

30 days are considered an unreasonable period. We proposed a minimum of 60 days with an option to extend, with permission of the Valuer General as circumstances deem necessary, and which permission shall not be unreasonably withheld.

9(5)

This regulation should have a timeframe coupled to it.

 

CLOSURE:

The SAIV was informed by the Valuer General (VG) that only persons, who have attended the course offered jointly by the University of Cape Town and the Office of the Valuer General, will be considered to serve on the VG’s panel of valuers to perform valuations in terms of the Property Valuation Act and the new Expropriation Act.

We must express our concern with regards to the content of the course after some of our senior members have attended the course.  Their experience was that the course was biased towards obtaining values that in their opinion cannot be regarded as “just and equitable”.

This course has been offered as early as in 2016 whilst the invitation to comment on the Draft Regulations was only published on 21 April 2017. The advertisement of the course also refers to the new Expropriation Act whereas to date it is still a Bill.

Thank you for the opportunity to make a submission. We are also available to orally present our comments.

Please do not hesitate to contact me should you have any enquiries in the above respect.

 

MELANIE VALLUN

GENERAL SECRETARY


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