1. Valuations of Rural Leasehold and Licensed land in Victoria Australia Simon A. de Garis Senior Lecturer School of Property Construction and Project Management, RMIT University Melbourne, Victoria, Australia

2. Where are we?

3. Victoria Melbourne RMIT Hume Dam Study Area 4 Hour Drive NE of City

6. Valuation of less than freehold Little Research Paper seeks a dialogue with some practical outcomes Paper Key areas Market rental valuations of rural land Valuation of land held under lease Native Title issues

7. Area of leased and licensed land in Victoria is small. 43,689 government tenants occupy 1,064,000 ha Private leases numbers are unknown Number to increase due to demographics and economics

8. Rural Settlement Post 1825 Landed squatters held large tracts Power of squatters gained by wool boom Victorian legislation of 1869 freed up land Settlers gain leasehold & freehold

9. Native Title Crown Land Extinguished by Freehold Grant Basis - Traditional Laws & Customs Native Title Act 1993 Mabo v State of Queensland

10. North East Victoria

11. Lake Hume Study Area Upstream of Albury/Wodonga Rainfall 715mm Average Maximum Temperatures –Summer 31.8 o C –Winter 12.6 o C Valleys - Murray, Kiewa & Mitta Diverse Soils - Vertosols & Shallow

14. Literature Review Eves Study 2002 NSW 1990-2000 Income & Capital Land Value - Annual Average Weighted Return Rural & Other Investments Rural - 10.75% Shares- 12.72% Bonds -11.3% Property-5.2%

15. Bullivant v Minister 1936 Flooding - Compensation - Hume Dam BFSL 100% Loss Peak Flood Area 33% Loss Higher Level 10 % Loss (blot on title)

16. Case Study Area NE Water Resources - GM Water Operates over 68,000 Ha - Controls 835 licences Hume Dam Capacity 3,035,500 Mgl Surface Area 20,000 Ha Licensed Land around Edge of Lake Hume 84 Licences Area 2-300 Ha 2 Arms Murray / Mitta

21. Rentals - Traditional Methodologies Percentage of Market Rental Agistment Rates Productive Value Gross Margin / Income Approach Analysis of Productive Value is Preferred Little Market Evidence No Organised Leasing Market

22. Analysis of Recent Sales & Transactions Freehold Land $2,030 - $6,200 per Ha Freehold Leases District Leases $67 - $284 per Ha Study Area Average $93 Rental Returns Historically 6% of M.V. Agistment Rates Cow & Calf $5 / head / wk - Up to $9 G.I. per Year Cow & Calf $500 1 Cow & Calf = 15 DSE G.M. Per Ha $ 140

23. Application of Methodologies - Data Rental Returns 6% = $370 / Ha 3% = $185 / Ha Agistment $130 / Ha Productive Value $500 = $250 / Ha @ Rental of 50% = $125/Ha Gross Margin $140 / Ha @ 50% Rental = $70 / Ha Land Value of $6,200 / Ha 1 Cow & Calf = 2 Ha

24. Methodologies Summary Significant Variation Land Value - Lifestyle Options - Rural Use Capital Gains - Value Agistment - Seasonal / Short Term: –Owner Responsible for Maintenance, Capital Expenditure & Overhead Costs Productive Method Favoured by Farmers Over G.M. Approach Productive Method Ignores Lessor Overhead Costs

25. Farmer Interviews Agistment Not Realistic Production or G.I. Approach Cow & Calf Gross Income - $440-$500 / Year 1 Cow & Calf to 2 Ha Rentals $110 - $125 / Ha G.M. Approach too General - Data Not Available Alternative Approach - Assess DSE / Ha 7.5 x $16 DSE = $120 / Ha

26. Crown Land Rentals - Methodology Productive Capacity - DSE / Ha Multiplied $ Rate / DSE Equals $ / Ha Rent (Forest Leases $/Head) 33% of Total Productive Capacity Used as Basis for $ Rate / DSE. This is due to the following factors –No Exclusive Possession –Lessees Pay Rates & Provide Benefit to Crown –Lessee Has to Manage Pests Etc. & Non-Productive Areas

27. Goulburn Murray Water Some Conditions - Crown Leases Also Present Conditions of Licence Include: –Restricted to Grazing –Flooding & Weed Infestation –No Fertiliser –No Exclusive Possession Requires Reduction in Rental Rate / Ha

28. Leases Other Issues Terms & Conditions Rental Review Impact of Terms on Rental Valuation of Leasehold Interest - Capitalisation of Profit Rental

29. Conclusions Uncertainty for Practitioners as to Correct Approach to Assess Market Rental Impact of Terms & Conditions Significant Market Place Indicates the Productive Capacity Multiplied by a $ Rate per Unit Lessees Reluctant to a Lease Agreement Indicating a Commercial Return to Capital Return on Capital is Low Compared to Other Investments Further Research Needed.

30. Valuations of Rural Leasehold and Licensed land in Victoria Australia Simon A. de Garis Senior Lecturer School of Property Construction and Project Management, RMIT University Melbourne, Victoria, Australia