property quarterly (october 2011)

In this issueProperty issues following Christchurch earthquakes

Unit Titles Act and Unit Titles Regulations

Transmission line easements – a valuation conundrum

Issue 3 • October 2011

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Vol 1, Issue 3, October 2011 Property Quarterly 1

Publication Committee

Iain Gribble Donn Armstrong Peter O’Brien Ah-Lek Tay

Contact details

Jacklyn Hensch Property Institute of New Zealand PO Box 11 380 Manners Street Central Wellington 6142

Phone: 04 384 7094 DDI: 04 382 7622 Email: [email protected]

Editor

Julian Bateson

Assitant Editor

Helen Greatrex

Bateson Publishing Limited PO Box 2002 Wellington Phone: 04 385 9705 Email: [email protected]

Publisher

Property Institute of New Zealand

Issue 3 • October 2011

ContentsPresident’s comment Phil Hinton ...................................................................................................................... 2

Christchurch featureInsurance valuations – a changed world Gary Sellars ..................................................................................................................... 4Property issues following Christchurch earthquakes Gary Sellars ..................................................................................................................... 7Property valuation is a difficult business in an economy recovering from disaster Chris Stanley and Mark Leadbetter ........................................................................ 10Surveying the red zone NZ Institute of Surveyors...........................................................................................13Reflections on the Christchurch property situation Jamie Gough .................................................................................................................18

GeneralNZ IFRS 13 fair value measurement Professor Tony van Zijl ...............................................................................................20Unit Titles Act 2010 and Unit Titles Regulations 2011 Stephen Sampson ........................................................................................................24How to get prepared for your long term maintenance plan Dean Ward ....................................................................................................................28Providing safety and peace of mind with off-site data back-up Steve McNamara .........................................................................................................30Apple versus Android Which mobile device do you choose? Steve Tucker .................................................................................................................. 31Transmission line easements – a valuation conundrum Peter Graham ................................................................................................................34Cross leases Neighbour consent to structural alterations and the right to park on common property Song v Chai Niven Prasad .................................................................................................................40International Valuation and Appraisal Week Ian Campbell .................................................................................................................42Labour and capital gains tax ...................................................................................43

ProfileMartin Winder .............................................................................................................45

President’s comment A busy few monthsSince the last AGM staff, committees and others involved with the Property Institute have been involved in a wide range of topics and issues which have taken a great deal of time. I am pleased to say that we are making good progress on all of these fronts, both from representing the Property Institute’s brand to the public in general, as well as dealing with and progressing a number of internal strategies and educational initiatives.

On 1 September an outline of a number of these initiatives was sent by email to members. It is pleasing to see the extent of support and involvement we have had from you in tackling the range of issues we have been dealing with.

Quality Assurance Accreditation SchemeOne of the main talking points to date has been the Quality Assurance Accreditation Scheme (QAAS), which has been developed by the Property Institute as a model for business improvement throughout all of our professional groups. First, it is being rolled out to the valuation community after formation of a working group and a clear understanding of the issues that the valuation profession is facing in the future. The major trading banks and insurance companies have also been involved in its formation and they both see it as a very positive step forward for any member who comes on board.

As a reasonably holistic business development tool, there is no doubt that the processes and structure that QAAS will bring to participating members will improve standards throughout the industry. They will also raise the profile of Property Institute members when it comes to quality output and business standards.

Valuation ordering systemMany valuation members will see QAAS as a response to the valuation ordering system that is being currently trialled by the ANZ Bank. While the Property Institute can monitor these arrangements, and consider professional issues relating to a valuation ordering system, it is important that members remember that this is a commercial relationship between Property IQ as the valuation ordering system provider and the ANZ Bank. As in Australia, it is possible over a period of time that all the major trading banks within New Zealand will adopt the same system, this being a commercial response to the current market circumstances within the valuation industry.

President’s Comment

2 Property Quarterly Vol 1, Issue 3, October 2011

One of the main areas of concern to valuation members has been that the valuation ordering system may lead to reduced fees to valuers. Our initial discussion with the banks has indicated that this is not the intended outcome, and as a response to shore up members’ concerns in this area we have instigated a proposal for a fee guideline. The use of a fee guideline is already notable in the architectural profession, with such a guideline freely available on their website.

Our discussions with the Commerce Commission have indicated that a guideline is acceptable, as long as the information collected to create the guideline is done independently and without any degree of collusion by members. We believe that the implication of a fee guideline for the valuation profession is an appropriate addition to QAAS, as it will signal to users of valuation services that a range of likely costs exist for professional advice. The fee guideline initiative is something that the Property Institute will continue to work on over the next few months.

Christchurch CBD redevelopmentProperty Institute members in Canterbury have been heavily involved in a working group reviewing the recently released proposed Christchurch Central City Plan. One of the Property Institute’s concerns with the plan was to ensure that it fully considered the land economics aspects of redeveloping a CBD area following such major devastation. As an institute, we believe it is imperative that good interface between tenant demand requirements, and the extent and nature of space being constructed for business users, are carefully surveyed and considered.

Those involved in the property profession fully appreciate the fact that without tenant demand, the development and financing of building construction will not be a feasible option for land owners and investors. This is an area in which I believe the Property Institute has unique experience and understanding of with many of its members operating throughout the development, financing, feasibility, agency and valuation sectors of our property economy.

Professional pathwaysThe professional pathways launch was undertaken very successfully in Auckland and Wellington, and I was pleased

to be able to speak at these two launches. One of the interesting aspects to come out of the development of professional pathways is that it will provide the ability for the Property Institute to transition its graduates and general membership through to full registration as a property manager or property consultant. In addition it will be useful to valuation-based members seeking to move through to their own registration qualification.

Other sectors of the market have also shown strong interest in using these modules for their own membership development. We see this as being an application which will have wider benefits for the Property Institute and associated property-related groups.

Independence of valuersOne of the other focal areas we have been working on has been the independence of valuers from questions raised at this year’s AGM. There is little doubt that, as an institute, we need to reinforce with members the clear distinction between independence as a registered valuer and the role of an advocate. There has been media criticism of valuers who have blurred these roles in the past, which has tended to reduce the public’s confidence in the profession. Registered valuers have a difficult mantle to assume as one of the few fully independent professions, and unless they clearly act in this capacity when required to do so, they run the risk of loss of integrity in the market.

Proposed changes include reviewing the Property Institute code of ethics to exclude registered valuers when acting in a capacity that requires independence from being covered by that code. Instead, independently acting registered valuers would solely be covered by the NZIV code of ethics. The working party considered that this was the best way to signal the clear distinction in behaviour required from registered valuers. The proposed Property Institute code of ethics changes will be widely circulated to members for comment before being put forward for amendment at next year’s AGM. In addition, the NZIV Council are currently looking at ways to enhance registered valuer education and bring these messages out to the membership.

Phil Hinton

President’s Comment



Gary Sellars

Insurance valuations – a changed world

The impetus for this article was provided by the new valuation guidance note ‘Valuations for Insurance Purposes’ and recent events in Christchurch. Here three major earthquakes in a space of nine months have had a significant effect on the valuation profession. The Australian Property Institute (API) and the Property Institute of New Zealand (PINZ) are in the process of releasing this new valuation guidance note which replaces and combines the existing API and PINZ guidance notes on this valuation discipline.

Christchurch feature

Insurance valuations provide a regular source of work and income for many New Zealand valuation companies, and have in the past been undertaken for a relatively modest fee. It is fair to say that in most cases an insurance valuation was unlikely to be tested by a destructive event. For valuers who had completed insurance valuations in Christchurch, this situation changed dramatically following the series of major earthquakes in the city.

Christchurch and Canterbury suffered a 7.1 magnitude earthquake on 4 September 2010 and a series of aftershocks. On 22 February 2011, Christchurch was hit by a second major earthquake of 6.3 magnitude, with loss of life and unprecedented property destruction in the CBD. A third major earthquake of 6.3 magnitude occurred on 13 June 2011, which caused further significant property damage. The earthquake damage has placed the focus on the adequacy of insurance valuations, in particular reinstatement costs and demolition cost estimates.


Reinstatement costThe new guidance note states that reinstatement cost is typically defined as follows −

Where property is lost or destroyed, in the case of a building, the rebuilding thereof, or in the case of property other than a building, the replacement thereof by similar property in either case in a condition equal to, but not better or more extensive than its condition when new.

Where property is damaged, the repair of the damage and restoration of the damaged portion of the building to a condition substantially the same as, but not better or more extensive than its condition when new.

Reinstatement cost is sometimes referred to as the cost of reinstating an asset to an as new condition or new for old. The reinstatement cost notionally assumes a total loss.

The new guidance note refers to two methods of providing an estimate of reinstatement cost for buildings, structures and site improvements, being either an estimate based on building cost guides or an elemental cost estimate. The former is the estimate of reinstatement cost based on construction cost rates typically calculated on a rate per square metre. Valuers typically find this information from published building cost guides or

skills of a quantity surveyor.In general, reinstatement cost estimates are completed

on a modern equivalent basis. However, it is important that the valuer and the client have a clear understanding of what is intended and the valuation report should state that basis. In some cases the insurance basis for heritage assets may require a reproduction or replication-based assessment. In other cases, the client may require a functional basis where it is intended the asset would be replaced with a functional structure which would cost less.

Completion of a reinstatement cost estimate for a heritage asset on the basis of reproduction or replication may require skills which are beyond the valuer’s capability. It is recommended that where a valuer is uncomfortable with the level of skill required, they should seek help from another professional, most probably a quantity surveyor.

Demolition costWhen assessing the demolition estimate, the new guidance note recommends that the valuer should assume all assets would be destroyed in a loss and would require removal before reinstatement. In a normal market where there has not been a catastrophe, there is likely to be a paucity of market evidence of demolition costs. In most cases available demolition cost information will relate to the demolition of undamaged building structures where the site is required for redevelopment. In these cases,

analysis of actual building costs for similar building structures.

Elemental building cost estimates are a more specialised technique and determine the construction costs of the building, structure or site improvements by reference to the estimated cost of the individual components or elements of that building, structure or site improvement. The application of this technique requires specific training and knowledge as it is more akin to the

the demolition cost will almost inevitably incorporate a salvage component.

Demolition costs in Christchurch following the earthquakes have varied wildly, and it is extremely difficult to place any science on the analysis of these costs. Clearly there is a significant cost differential between a total loss where there is no salvage possible and the situation involving a controlled demolition where salvage is possible. In some cases where buildings were deemed to



be in a condition threatening public safety, demolition was carried under emergency powers with no opportunity to complete controlled deconstruction and salvage. However, in other cases it was possible to complete demolition in a controlled manner and salvage materials.

It is important that the valuer, in completing the demolition cost estimate, has in mind the total loss as this is potentially the worst-case scenario in the event of a fire or major earthquake. In Christchurch, for example, dumping forms a significant cost element of demolition and this varies depending on the type of material disposed. For example, in a fire any asbestos or other contaminated or toxic substances is generally unable to be removed. The cost to dump all material from the site is therefore at the higher contaminated rate.

Indemnity valueIn recent times in New Zealand there has been debate within the valuation industry on the appropriate method for assessing indemnity value. The new guidance note states that the common definition of indemnity established by case law is −

The loss that would be suffered by the insured in the event the asset was destroyed.

This can be, but is not necessarily, the market value of the asset destroyed or damaged. The measure of loss in the event an asset is destroyed can be estimated using either a market comparison approach or a depreciated replacement cost, depending on the nature of the asset, client instructions and the circumstances. The indemnity value assessment should take into consideration the age, condition and remaining useful life of the asset.

In the case of insurance, the useful life is not synonymous with economic life, but rather only

reflects physical life. The insured is entitled to insure the remaining physical life of an asset, even though the economic life may have expired. The determination of indemnity value using a depreciated replacement cost approach therefore requires, in the first instance, the assessment of reinstatement cost, and then an assessment of the likely physical life of the asset and the life expired. The expected physical life of an asset is assessed on the basis that reasonable maintenance is carried out to preserve the existing use.

The new guidance note recommends valuers should include reference within their report or covering letter that a depreciated replacement cost-based indemnity value may not be the same as one determined using a market comparison approach and that, in some cases, the difference may be material. What has become clear in the aftermath of the Christchurch earthquakes is that not all insurance policy wording is the same, in particular with reference to indemnity value. It is recommended practice to discuss the exact requirements of the client in terms of the insurance policy for each individual property, particularly in completing post-event indemnity valuations.

The experience in Christchurch is that in a number of instances, the loss adjusters and insurance brokers do not understand indemnity value, so their instructions are less than clear in many cases. The release of a new guidance note to Australian and New Zealand valuers, and the experiences following the Christchurch earthquakes, serve to reinforce the importance of taking care and time in completing insurance valuations.

Gary Sellars is the Director of Christchurch Valuation and Advisory Services for Colliers New Zealand



Gary Sellars

Property issues following Christchurch earthquakes

Christchurch and Canterbury have earthquakes and a series of aftershocks causing significant property damage. Liquefaction was largely responsible for extensive damage to residential properties in the eastern suburbs and the satellite townships of Christchurch. Many unreinforced brick and stone masonry buildings were also damaged.


In February, Christchurch was hit by a second major earthquake with loss of life and significant property destruction in the CBD. This earthquake was centered close to the CBD and produced unprecedented ground accelerations. Virtually all CBD buildings suffered damage of varying degrees. Liquefaction again damaged large parts of residential suburbs, mainly in the east and around waterways. The hillside suburbs were also badly affected in this earthquake. Within the CBD major building failures occurred, where two reinforced concrete mid-rise buildings collapsed, accounting for most of the total death toll of 182. A third major earthquake in June caused further property damage to buildings, liquefaction in suburban areas, and further damaged hillside suburbs.

The earthquakes have affected the Christchurch property market in many ways, which all property professionals have had to deal with. This article briefly touches on some of the issues which may be expanded in later articles.

Land damageOne of the major contributing factors too much of the earthquake damage in both the residential and commercial areas is soil liquefaction. This is a phenomenon where saturated soil substantially loses strength and stiffness in response to an applied stress, usually earthquake shaking or other sudden change in stress conditions, causing it to behave like a liquid.

Large areas of the eastern suburbs of Christchurch are built on sand or silt soil types. During the earthquakes, liquefaction was widespread causing significant building damage and damage to roads and underground infrastructure.


Liquefaction also affected the Christchurch CBD, with a number of large high-rise buildings suffering uneven foundation, settlement resulting in many buildings left on a lean.

In the hillside suburbs, which are predominantly built on volcanic rock, the severe shaking during the February and June earthquakes produced considerable damage and resulted in large rock falls. In some cases, significant cliff faces collapsed.

Residential market

and a re-think of commercial centres. Large shopping centres in the eastern suburbs

including The Palms and Eastgate were significantly damaged, but more importantly in the long term will lose a significant component of their catchment. Shopping centres located on the western side of the city will benefit, and planning is already underway on extensions or new development.

Christchurch CBD

The Canterbury Earthquake Recovery Authority (CERA) has zoned the residential areas of Christchurch City into various zones.• Propertiesintheredzone,whereapproximately5,100

homes have been identified, will be purchased by the government and the residents will be re-housed. The red zone is located predominantly around the River Avon in the eastern suburbs.

• Afurther10,000homeshavebeenidentifiedintheorange zone, where further information is required before a final decision is made whether or not to include these properties in the red zone.

• Approximately3,700propertieshavebeenidentifiedin the white zone. This defines those in the hillside suburbs. Again further information is required before a final decision is made whether or not to include these properties in the red zone.

The implications of re-settlement of large residential areas of Christchurch have far-reaching consequences on the residential and commercial markets. Potentially this will result in a demographic shift from the eastern suburbs probably to the northern and western suburbs and out into satellite townships. This has stimulated the residential land development market, with a number of subdivisions brought forward in terms of planning and development

A significant component of the Christchurch CBD has been extensively damaged with estimates of up to 1,500 buildings to be demolished. The Christchurch CBD has been cordoned off since 22 February 2011, with only very limited access available. The city now faces an extensive period of uncertainty caused by demolition and reconstruction activities that are likely to last a number of years. Already almost entire blocks have been demolished.

The Christchurch City Council has recently released a draft central city plan which will act as the blueprint for a new compact city centre. The plan sets height limits, restricts car parking, establishes new activity precincts, and alters the city layout in terms of green spaces and reorganises the transport network. Development of this plan was completed in a very short timeframe with the aim for it to be operative by the end of 2011.

Office marketThe devastation caused in the Christchurch CBD resulted in up to 50,000 workers having to relocate immediately outside the city centre. Previous relatively high vacancies in suburban office locations were filled within days and a number of new office developments have been commenced to meet demand. In many cases, companies temporarily occupied residential properties or converted


industrial properties into office use. Rent levels for good quality office accommodation increased by as much as 20 per cent overnight.

The effects of the earthquakes on office tenants have been far-reaching and are not limited solely to relocation. There is now an acute awareness of building safety and tolerance of building height.

Insurance

further risk in Christchurch. Currently it is extremely difficult to get insurance on residential and commercial buildings, and this is preventing any significant construction from starting.

Insurance companies are generally not accepting any further risk in terms of increased cover for existing policies. It has been possible to assign insurance policies from the vendor to purchaser in sale transactions, which has allowed the market to function to a degree.

Insurance premiums for renewed cover have rocketed upwards. In addition, the earthquake excess component has increased from 2.5 per cent of loss to between 5 per cent and 10 per cent of the insured value. For a $10 million asset with a $2 million loss, this could mean an increase in contingent liability for excess from $50,000 to between $500,000 and $1 million.

PINZ members practising in Christchurch now have a wide range of problems when dealing with any type of property. Awareness of the market and regulatory framework is imperative, together with close monitoring of market trends and evidence. The property community in Christchurch is grateful for the support received from around the New Zealand and Australia during these difficult times.

Gary Sellars is a Director for Christchurch Valuation and Advisory Services for Colliers New Zealand

Obtaining insurance has proved to be a headache for the property market. With the continuing aftershocks, insurance companies have been reluctant to take on any




Chris Stanley and Mark Leadbetter

Property valuation is a difficult business in an economy recovering from disaster

Accountants and valuers are grappling with the effect on real estate values used in financial reporting after the Canterbury earthquakes. For valuers the valuation of real estate assets in New Zealand for financial reporting must comply with international valuation standards and specific New Zealand guidance notes as detailed in the Australian and New Zealand Valuation and Property Standards. Principal authority is found in −

• IVS 1 Market value basis of value • IVS 3 Valuation reporting • IVA 1 Valuation for financial reporting • NZVGN 1 Valuation for use in New Zealand financial reporting.


The vast majority of valuations for financial reporting are required by either NZIAS 16 Property Plant and Equipment/FRS-3 Accounting for Property, Plant and Equipment or NZIAS 40 Investment Property/ SSAP-17 Accounting for Investment Properties and Properties Intended for Sale. These accounting standards require real estate assets to be recorded at fair value, which is broadly similar to the valuation concept of market value.

Valuation uncertaintyA valuation is not a fact. It is an estimate of the most probable of a range of possible results based on assumptions made in the valuation process. Market

valuations are estimates of the probable price that would be paid in a transaction on the valuation date. In some cases the degree of uncertainty is negligible. However, in Christchurch after the earthquakes the uncertainty due to a range of factors is significant and outside any range that might normally be expected and accepted. It is this abnormal uncertainty that needs to be recognised by valuers and properly communicated to valuation users.

Valuation uncertainty should not be confused with market risk. In the context of market value, valuation uncertainty relates to the probability that the valuation estimate would differ from the price in an actual transaction on the same terms on the valuation date. Valuation uncertainty normally increases due to a lack of market activity, a lack of liquidity or a combination of both. In Christchurch, the principal sources of uncertainty include the fact that valuers are required to rely extensively on judgement, market uncertainty and the lack of market observables.

Major valuation issuesEstablishing market values in Christchurch after the earthquakes presents unique challenges to the valuer. In certain locations and property sectors there are few, if any, market transactions. In other areas and property types there has been some activity, but providing quite conflicting results in terms of rental levels and investment returns. Do the new leasings represent a fair sustainable market level or do they simply reflect a short-term spike

due to a supply and demand imbalance? Valuers are also grappling with establishing values for

buildings which have been damaged but can be repaired. At valuation date the repair cost may be unknown – should they make an allowance for risk or profit? How do valuers establish the value of a property where the building has been damaged beyond repair? The insurance pay out may or may not cover the cost of demolition and removal of debris. However, the challenge is calculating the land value when valuers have no certainty that the land has retained its bearing capacity. How is land value assessed when it is not known what form or functions will be permitted in the specific location?

Increased building costs due to increased building codes may significantly affect land values. With investment property located in the red zone tenants cannot access their premises. Will they return once the buildings are repaired and access is available? Can tenants be forced to continue to pay rent for premises they cannot occupy or when do the premises become untenantable? These issues affect the short and long-term risk profile of the property and must be reflected in market values.

We are already seeing significant increases in insurance premiums on renewal. Can the tenant or owner-occupier absorb these costs? If the new premium costs cannot be passed on to the tenant, the net cashflow from the property will reduce, and this will flow through to the value of the assets. Increased insurance excesses may affect loan value ratios and liquidity. This must be



considered when establishing values – current market value represents the present day expectation of all future benefits from ownership. If there is greater uncertainty, the specific property risk increases and impacts on today’s market value.

Disclosure and dialogueThere is no easy, simple solution to the significant problems faced. In an ideal world a valuation method would be developed which would provide certainty and clarity to valuers and accountants. Unfortunately every property has its own individual set of challenges that require specific consideration. There is no easy fix. What is required from valuers is greater clarity and commentary on the main assumptions supporting the valuation conclusions.

The valuer must make specific reference to the mix of issues associated with each individual property and explain the treatment in the valuation process. Open and transparent dialogue is required to give the users of the valuation an explanation on the effect of assumptions and the basis of valuation. This may not give the degree of certainty that applied before the earthquakes. However it will help accountants and auditors when considering the level of reliance that can be placed on the reported values.

Financial reportingThis clarity and communication must extend to financial reporting via the values used and the disclosures made in financial statements by accountants. Accounting standards have required greater disclosures in recent years. It is arguable whether in some cases this extra disclosure has provided useful information and, more importantly, is even understood by the users of those financial statements. In the current situation we must revert to the objectives of financial reporting.

Accountants must disclose information which will provide relevant information to the users of those financial statements, one of the main objectives of financial reporting. The disclosure must be in plain English and easy to understand. Accountants need to think beyond a check

box in their disclosure checklist and meeting minimum disclosure requirements. Consider the stand back test − have the financial statements achieved a fair presentation?

Effect on auditorsThe level of uncertainty after the earthquakes will also clearly affect the audit. Auditors can no longer flick to the page in the valuation report where the valuer has disclosed the valuation and tie the amount into the financial statements. They have to read the valuation report. Auditors must work alongside the client and valuer, and they must talk to them and discuss the assumptions they have used.

The auditor must make an assessment as to whether they agree with those assumptions, and ultimately ensure that values and the disclosures made in the financial statements present a true and fair view. As the auditor goes through this process they will also be considering the effect on their audit report.

ConclusionValuers are being put in a difficult situation having to ascribe values to real estate in the current economic environment in Christchurch. Financial reporting is the mechanism through which these values are presented to the wider business community and how they have been calculated.

We must avoid a ‘tick the box’ approach to disclosure checklists and stand back and consider the values used and disclosures made. Accountants and auditors, like valuers, are going to have a difficult time. They will have to perform extra work, and will need to make additional disclosures in their respective reports and financial statements. The earthquakes will give accountants a chance to strengthen their ties with valuers and their clients so that together they can provide the financial information needed by the wider business community.

Chris Stanley is a valuer at Telfer Young and Mark Leadbetter is the National Director – Professional Services for BDO




Surveying in the red zone

This article was first published in Survey Quarterly the magazine for the New Zealand Institute of Surveyors. The aim of the article is to recognise the the commitment made by a group of surveyors towards the rescue operation in Christchurch’s CBD Red Zone immediately following the February earth-quake. Other surveyors facing natural disasters in the future may be better prepared both mentally and physically to help their communities.


Our local response to the emergency in the CBD was of direct urban search and rescue support along with that of supporting Civil Defence. Aurecon NZ Ltd and Clark Land Surveyors helped both groups over the first few weeks with a combination of technical support, advice and interpretation of information. In a developing emergency where information was lacking, they provided clear and concise data to help make informed decisions.

The date 22 February 2011 will be etched into Christchurch’s history for not only the loss of life, but also for the destruction of the CBD and the damage to the eastern suburbs. This is a time of times which we never thought would occur in Canterbury, let alone two events within six months of each other, namely September’s 7.1 magnitude earthquake and February’s 6.3 earthquake.

Aurecon response Alistair GreigThe initial shockwave sounded like a large train rumbling through our CBD office and then it hit. The full energy of the earthquake sent us diving under the desks. It was a natural reaction after experiencing so many aftershocks. Some say it was a violent horizontal shaking, others say it was vertical movement. But this time it was serious.

I saw the brick walls of buildings opposite the office crumble and fall. Then dust clouds from the collapsing Christchurch Cathedral spire drifted past the window, obscuring the view. The office ceiling had fallen, with panels, insulation and files spread over the floor. The office was badly damaged.

Staff quickly made their way outside on to the street, still surrounded by

tall buildings with broken glass and debris covering the footpaths. Other people were sitting on the road, some in shock, some in tears and many calling out. Another large aftershock shook the ground so we quickly moved to a local park and safety.

Many staff walked home taking several hours, some drove and some stopped to help victims in buildings. The ground liquefied with water and silt covering streets. Parked cars were stuck up to their axles, traffic jams and chaos was everywhere. At home our possessions were spread over the floor. There was no electricity or water, and texting the only means of communication with others. We found loved ones, and checked on neighbours, friends and staff.

Urban Search and Rescue surveysThe next morning a text from an Urban Search and Rescue (USAR) engineer requested survey monitoring of the Pyne Gould Corporation and CTV buildings. The scenes on television were horrific. However the reality on site was twice as bad.

We first had to convince the police and army manning cordons that surveyors are part of the emergency services – the flashing lights, hi-viz jackets and hard hats convinced them. At the PGC building fire service people, their trucks and command units set up, were undertaking the search for survivors. International media were held back behind barriers, helicopters circling overhead, making a noisy and congested environment.

Towering above the pancaked building, the main core containing the lift shaft and stairs was leaning significantly, threatening to fall. USAR teams were crawling through the building, often on their stomachs in confined spaces, supporting fallen concrete beams with timber to create safer working spaces.

We set up a reflectorless total station on the opposite footpath and selected points on the building to

monitor. We established control and began monitoring by continuous observations using the stake out function to detect change. Identifiable points were also observed to quantify movement, looking for sudden change as well as trends over periods of time.

The USAR crews spread their rescue equipment over the ground beside us – tools for all purposes, cutting equipment, hydraulic pumps and generators. As they came out of the building they regularly asked us ‘how much has it moved?’ They were convinced the structure was moving, some said gradually others said with every aftershock.

The structure had not moved. We quickly realised the purpose of our survey was to make a clear and definitive statement that the structure was stable. The look of relief on their faces was sobering as they turned and headed back into the building. Their bravery is to be respected.

The surveyors were their early warning system. If the structure moved or if there was a significant aftershock we were to blast the air horn. Three short blasts is the international signal to evacuate as quickly as possible. Following an aftershock it took a few seconds for an instrument to stop shaking. We checked the instrument, backsights and the points on the structure before issuing one long blast as the all clear signal.

A community of volunteersThe NZ USAR crews worked through the night and needed rest. A USAR crew from NSW Australia arrived and took over control of the site. They brought their own truck load of equipment and bottled water. Australian water never tasted so good.

There was excitement as reports of a survivor circulated. A fire truck ladder was extended under a collapsed floor into a small opening that had been the third floor. Media and politicians arrived as a lady was helped out of the building wrapped in a blanket. There

Monitoring the PGC building Searching for survivors in the PGC building



was applause as she was taken away to hospital. More aftershocks rumbled through like a reality check.

We were requested to continue monitoring through the night so I contacted more survey staff. Some still had no water or electricity. Some families were scared, especially those with young children. However all staff offered to help.

As evening approached a community church group set up a barbeque. Their cooked food was delicious and very much appreciated by everyone. Lighting trailers arrived, noisy generators started and portaloos placed on the road beside the surveyors. The night was long, although adrenalin and energy drinks kept everyone going.

A few days later we received a request for additional round-the-clock monitoring at the collapsed CTV building near USAR central command, which had set up in tents on Latimer Square. We assembled additional staff and equipment and commenced an independent monitoring programme.

A unique working environmentMonitoring at both sites continued for over a week, 24 hours a day. Shifts were set up with four surveyors undertaking six hour shifts each. Due to extended travel time through damaged streets and a lack of sleep due to aftershocks, six hours on site proved to be the maximum time in terms of staff health and safety. They worked in extremely stressful conditions and bearing witness to some sad and horrific scenes. Many were then going home to their own realities of the earthquake with no water, power or wastewater.

At both building sites the surveying was repetitive and technically straight forward, but nobody was complacent as lives were at risk. The local survey equipment supplier provided a new total station with remote controller, which enabled the surveyor to sit in more comfort, and out of the rain.

Importantly, sitting down also helped the surveyor to feel the aftershocks and alert USAR personnel less able to feel them while they were climbing over the buildings or working next to excavators. Each site was controlled by USAR teams from Australia, United Kingdom, Japan and Korea, each with their own site safety requirements.

The management of resources, to obtain staff and equipment and to maintain safe working conditions was a significant challenge. The days were extremely long and the only management tool was a mobile phone. Our work continued, including land stability monitoring on the Port Hills and assisting with monitoring other CBD buildings.

Clark Land Surveyors’ response Todd AireyThe day of 22 February started off just like any normal day, but shortly after lunch that changed. Our office is located 10 km outside the CBD and once the quake

struck we thankfully suffered limited damage. Decisions were made to leave work and attempt to contact family and friends and get home to whatever we may find.

Early the next morning we were aware of the extent of damage and the horrific collapses which had occurred. We were then contacted by engineers assisting with the response within the CBD, and we were soon to become very aware of some very significant and chilling damage scenes which the television and radio could not prepare us for.

Hotel Grand ChancellorInitially we were asked to come inside the cordons to help monitor the Hotel Grand Chancellor which had suffered significant damage. Cordons had been moved out further due to the concern of collapse of the building, along with subsequent domino effect of collapses which could also occur. After negotiating our way in to the CBD past the outer cordons, we were able to get to the closest safe location which coincided with the CTV site and the emergency response occurring there.

At first, we were observing over 375 metres to the Hotel Grand Chancellor, reflectorlessly, in conditions which were trying. Smoke and dust being generated from the CTV site was at times obscuring the building. Horizontal and vertical angles were continuously observed to detect any change to the building with slope distances

Monitoring the Hotel Grand Chancellor



measured when possible. While we were at the CTV site we were able

to provide professional assistance and an additional instrument to the Queensland USAR team, which had their own 10” theodolite but without confident operators. During this time we had aftershocks and USAR paused the activity to the CTV site as the surveying team monitored the structure. We provided a quick back-up and confirmation of no movement to the overall structure. However once night fell we were unable to continue monitoring the Hotel Grand Chancellor.

On the second day we obtained a one second instrument from a local equipment supplier which also had the additional reflectorless range to monitor the building from such a distance. This help, along with equipment support from other suppliers and other surveying companies, proved invaluable over the next couple of weeks.

Critical Buildings TeamWe returned on the third day to continue monitoring and it was at this time we were able to meet with members of the Critical Buildings Team within the Civil Defence Headquarters at the Art Gallery.

Monitoring of the CTV site was still being undertaken by the Queensland USAR group. After this the New Zealand USAR team attended the site with Aurecon helping them. By this time Aurecon and ourselves had been in communication and teamed up to assist each other where needed.

On meeting the Critical Buildings Team it was quite apparent that the lack of information about building verticality and stability was hampering decision-making, especially in recovery efforts and assessments. As buildings were assessed by engineering teams, buildings were stickered with either a green − safe to occupy, yellow − short duration visits requiring remedial repair, or red − do not enter, dangerous.

The buildings which were red stickered and over four stories tall were added to the critical building list. The building was then reassessed from the available information from the first assessment or a team would revisit the site. Verticality and monitoring surveying were then requested.

The Hotel Grand Chancellor needed further assessment and survey monitoring was undertaken on the building somewhat closer at a distance of 175 metres. During this initial assessment the survey team first experienced the completely deserted and destroyed CBD.

Monitoring the CTV building



Eerie stillness in the CBD

The city was completely deserted, cars and buses were abandoned, fire alarms and security systems were still sounding. Doors to businesses were left open and many shops and banks had no glass left in their windows. Access was easy as stepping through what were walls, windows and doors. The eerie silence around what were very busy pedestrian areas and vehicle intersections made us stop and stare. It was unbelievable.

Surveying on roads and at intersections which would have required traffic management, but now provided a quiet place for pigeons and gulls was surreal. We became accustomed to walking or driving down roads straddling the centreline, dodging abandoned cars, buses and various collapses. The smell of an abandoned city was mixed into the warm air.

The Hotel Grand Chancellor was assessed over the course of a day. Control traversing was limited to using common features on surrounding stable buildings as the amount of fall hazards, where traditional traversing would normally have been carried out, was too high. What would normally have taken a day of control traversing, network adjustments, reductions, plans and reporting was reduced and simplified to what could be reported on a white board and in clear concise terms.

Our field-book became our office. Normal everyday reporting was relegated to ‘if we have time’ and a lot of quick hand drawn reporting was undertaken over what was to become several weeks.

Assessment work

It was interesting to find out that the members of the Critical Buildings Team had modelled the Hotel Grand Chancellor from structural plans. Using an engineering simulation programme and their observations of failures within the building, they were able to provide simulation results to within 0.1 metres of our survey assessment results.

Back at the Civil Defence headquarters, it became very apparent that the lack of information on an ever growing list about other buildings was becoming a concern. Having completed the initial assessment of the Hotel Grand Chancellor, we were available for the Critical Buildings Team to provide surveying services and to assist in coordinating any surveying response which may be needed. We and Aurecon helped the Critical Buildings Team with monitoring and assessing up to a further 20 buildings over the course of a week and a half. Eight of these buildings would later require more constant monitoring.

Assessment surveys over the next couple of weeks were interspersed with the need to constantly monitor the Hotel Grand Chancellor while USAR teams were undertaking remedial repairs. This work continued for four days.

Looking forward

Stabilisation of the Hotel Grand Chancellor has been completed and monitoring is carried out twice daily. We operate to alert tolerances which USAR specify, in conjunction with tighter surveying alert tolerances whereby the on duty surveyor can alert the project surveyor if changes to the building are noticed.

The CBD is still in relative lock-down and the daily population remains a tiny fraction of what was before. Between us and Aurecon six buildings are still being monitored. There is still no electricity in the CBD, high viz vests and hard hats are the fashion and media roam occasionally. Each week more damaged buildings disappear. Soon navigation around the city by recognising buildings and features will be difficult. Orientation will need to rely on memories of what has been.

Combined conclusion

Looking back at the initial emergency response many of us helped the effort with 12 hour or more days, one day off in nine and constant cell phone use organising personnel, equipment and assessment requirements. No one complained, many of us were just happy to be able to lend a hand and help in a professional capacity working with many different professions and nationalities.

The technical aspects of the survey work were neither innovative nor difficult. However the working environment was the most challenging that could be expected for any surveyor in their career. In addition surveyors undertook around the clock monitoring of several buildings in the CBD at a time when many had limited sleep and families lived in damaged homes without basic services.

Surveyors operated as an early warning system for emergency services, and were very much relied upon and at the front line of the rescue operation. As such they experienced first hand the horrific scenes associated with locating and recovering of bodies.

The survey work started as support for rescue of survivors, quickly turning to support for recovery of victims. While some teams were helping USAR, others were discovering a city with extensive damage attempting to assess buildings to assist Civil Defence with planning everything from urgent demolitions through to exclusion zones and remedial work for building strengthening. Three months later this work continues, measuring and monitoring buildings as part of the marathon process of deciding whether a building should be demolished or reconstructed.

Surveying for the rescue and recovery operations has very much been a team exercise. We acknowledge the 16 Aurecon survey staff from Christchurch and from other cities, and the five staff from Clark Land Surveyors. We have been helped by other Canterbury members of the NZIS and we received support and equipment from Global Survey Ltd and Geosystems Ltd.




Jamie Gough

Reflections on the Christchurch property situation

Anything before the time currently displayed on your wristwatch is not worth distressing over. The murmurings of ‘pre 22 February’ or ‘if the earthquake had never occurred’ are still heard from time-to-time in Christchurch. What has happened, undeniably devastating on so many levels, has happened. We can do nothing about that. Eight months have passed since the February event which changed our lives for ever. Christchurch is a very different place.


Never in our great city’s 163-year history have we been required to reinvigorate and reinvent ourselves like we do now. The Canterbury Earthquake Recovery Authority (CERA) presence is essential. Its powers are immense, although its lifetime is finite. Business as usual will be aimed for, but not recognised any time soon. The comfort zone of old Christchurch will fade to a distant memory, with the new normal assuming pride of place and ‘business as unusual’ begins to sit as the more familiar norm.

Councillors working togetherAll around the Christchurch City Council table may not continuously agree on every matter, but I see all councillors constructively challenging to raise the bar in the best interests of the city we all call home. Apart from the more regular and rudimentary matters, the Council is progressing effectively in the infrastructure repair it is leading. In contrast to CERA, the Council will exist for as long as Christchurch itself giving voice to its greatest asset, the proud and passionate citizens of the city.

The new Central City Plan for Christchurch is a big challenge and the timeframes are tight, but it gives Christchurch a unique opportunity to repair the metaphorical cracks which existed long before any of the CBD’s literal ones appeared. On the whole, the draft plan has been favourably received by the wider community.

Around 106,000 ideas were received through the ‘Share an Idea’ phase, where residents were asked what they wanted their new Christchurch central city to be like. Each idea was read and is being processed by a sophisticated system where they will be categorised into the theme each belongs in. Ultimately if practical or possible the ideas will be incorporated into the Central City Plan.

Joint effortWhat is obvious is that our rebuild is far too large to rely on any one party. By calculating some simple sums on the injection of public capital already earmarked for Christchurch versus current rebuild estimates, the divide is clear. This illustrates that a probable 70 per cent of our rebuild will come from the private sector. However what should be equally apparent is that for there to be confidence in the investment opportunities, the investment community will need to have ownership in what these opportunities are.

The wider local community has deemed what is important to them and now it is time for the business sector to refine an idea, to help create something which is a financially attractive investment proposition. In other words, without commercial buy-in there is no rebuild. A significant number of the 106,000 ideas which were shared contained the suggestion of a low-rise city. I cannot help but wonder if that could in fact be translated into people actually wanting a seismically safe and visually attractive city?

Take for example HSBC/Club Tower on Worcester Boulevard in Christchurch. This is a five star, green rated, 12-storey building, which has held up exceptionally well in the earthquakes. It is a modern building which fits almost into the Christchurch cityscape, yet would be prohibited with the low-rise city restrictions of the draft plan. Perhaps the dynamics of how a building interacts with its surrounding environment is the question, ensuring large shadows are not inappropriately cast over public spaces or that inhospitable wind tunnels are not created.

Balance neededPlaying to the strengths of our city’s landscape by highlighting the Avon River, enhancing our garden city image, and creating world-class public spaces are all visionary and wise notions. In my view, however, the most vital cog of all if we want people to commit to the central city is that it must simply be more economically feasible to do so than somewhere else. The inability to rebuild a building to produce a viable return is something we do not need as a city.

As with most things, it is about finding that balance. Without doubt there will be devil in the detail at this draft stage of the plan – identifying it is both inevitable, yet invaluable. With the talented people we have in Christchurch, ‘Refining an Idea’ from the consultation phase, submissions and involvement with the business community will be important if we are to ensure the final cut of the plan is up to the high standards we deserve. While we cannot change what has happened in the past, we do have a unique opportunity to set the course for the future. Although possessing a human element of trepidation, I for one am undeniably excited to be a part of this new chapter.

Jamie Gough is a Christchurch City Councillor




Professor Tony van Zijl

NZ IFRS 13 fair value measurement

Assessment of fair value for financial reporting by New Zealand profit-oriented entities is now subject to a new financial reporting standard NZ IFRS 13 Fair Value Measurement approved by the Accounting Standards Review Board in June 2011. The standard is a direct adoption of the international financial reporting standard IFRS 13 Fair Value Measurement issued by the International Accounting Standards Board (IASB) in May 2011.

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The Accounting Standards Review Board was replaced by the External Reporting Board (XRB) from 1 July 2011. Information about the XRB, including accounting standards and auditing and assurance standards, can be found at www.xrb.govt.nz. The IASB began work on this project alone in 2005, but from late 2009, as part of the convergence project with US GAAP, worked jointly with the US Financial Accounting Standards Board (FASB) who had begun a similar project in 2003 and issued a standard in 2006 − FAS 157: Fair Value Measurements

The issue of IFRS 13 was accompanied by the FASB issuing an update on

The acronym NZ IFRS means New Zealand Equivalent of International Financial Reporting Standard. The term IFRS is also used to refer collectively to the IASB’s standards and the Conceptual Framework for Financial Reporting. The standards comprise − (a) International Financial Reporting Standards – the standards (and

interpretations thereof) developed and issued by the IASB, and also International Accounting Standards (IASs).

(b) The standards and interpretations thereof inherited by the IASB from its predecessor body, the International Accounting Standards Committee.

its earlier standard. The result was that the requirements on fair value measurement and disclosure are now generally the same across IFRS and US GAAP. This article summarises the main requirements of the standard, covering the definition of fair value, the framework for measuring fair value, and the required disclosures about fair value measurements. A future article will discuss the correlation of NZ IFRS 13 to the guidance in the current Australia/New Zealand and IVSC valuation standards.

Objective and date of application NZ IFRS 13 explains how to measure fair value for financial reporting. However it does not specify when to apply fair value measurement or require fair value measurements in addition to those already permitted or required under the existing financial reporting standards. Therefore the objective of the new standard is to ensure consistency in the requirements for fair value measurement and disclosure, rather than extend the application of fair value measurement.

Nevertheless, there has been increasing resort by the IASB to fair value in financial reporting standards. NZ IFRS 13 is therefore not only relevant now, but will have increasing relevance for valuers in New Zealand involved in valuation for financial reporting purposes.

The new standard is to be applied for annual periods starting after 1 January 2013, but earlier application is permitted.

ScopeNZ IFRS 13 applies to profit-oriented entities, but not to public benefit entities. The only scope limitations for profit-oriented entities are that − • Themeasurementanddisclosurerequirementsof

the standard do not apply in respect of share-based payment transactions that are within the scope of NZ IFRS 2 share-based payment or transactions within the scope of NZ IAS 17 leases.

• Thedisclosurerequirementsdonotapplytoprofit-oriented entities in respect of plan assets measured at fair value under NZ IAS 19 Employee benefits, retirement benefit plan investments measured at fair value under NZ IAS 26 Accounting and reporting by retirement benefit plans, and assets for which recoverable amount is fair value less costs of disposal under NZ IAS 36 Impairment of assets.

Measurement of fair valueDefinition of fair value The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The definition focuses on assets and liabilities as they are the normal subject of accounting measurement. However, NZ

IFRS 13 also applies to an entity’s own equity instruments measured at fair value, for example, issued as consideration in a business combination.

Hypothetical and orderly transaction Fair value is an exit price based on a hypothetical and orderly transaction, it is not necessarily an actual sale or a forced transaction or a distress sale. Even if there is no observable market, a fair value measurement assumes that a transaction takes place at the transaction date, considered from the perspective of a market participant holding the asset or owing a liability.

The asset or liability A fair value measurement is of a particular asset or liability. Measurement of fair value must therefore take into account the characteristics that market participants would take into account. Such characteristics could include the condition and location of an asset or restrictions on the sale or use of an asset.

Unit of account Whether the asset or liability being fair valued is a stand-alone asset or liability, a group of assets, a group of liabilities, or a group of assets and liabilities depends on its unit of account as specified in the NZ IFRS which requires or permits the fair value measurement.

Market participants Market participants are assumed to be independent, knowledgeable about the asset or liability, able and willing to enter into a transaction for the asset or liability, and to act in their own economic best interests.

Market Fair value is a market-based measurement, not an entity specific measurement. The transaction is assumed to take place in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The entity must have access to the principal or most advantageous market. Therefore, to the extent that different entities with the same asset or liability may have access to different markets, the fair value measurement may be entity specific. However, in all other respects fair value is a market-based measurement rather than being entity-specific.

Transaction costs and transport costs The price used to measure fair value should not be adjusted for transaction costs as these are considered to be specific to a transaction and not a characteristic of the asset or liability. However, location is a characteristic of an asset and therefore the price in the principal or most advantageous market should be adjusted for the costs that would be incurred to transport the asset from its current location to that market.

Fair value at initial recognition If an NZ IFRS requires or permits an entity to measure an asset or a liability initially at fair value, and the transaction price − which is the price paid to acquire the asset or received to assume the liability − differs from fair value, the entity

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recognises the resulting gain or loss in profit or loss. This is unless the NZ IFRS specifies otherwise.

Non-financial assetsHighest and best use The fair value measurement of a non-financial asset takes into account a market participant’s economic benefits from using the asset in its highest and best use or by selling it to another market participant who would use the asset in its highest and best use. This use must be physically possible, legally permissible and financially feasible. Highest and best use is determined from the perspective of market participants, even if the entity in focus intends a different use. However, an entity’s current use is presumed to be the highest and best use of the asset unless market or other factors suggest that a different use would maximise the value of the asset.

Valuation premise The highest and best use of a non-financial asset determines the valuation premise used to measure the fair value of the asset. If the highest and best use is in combination with other assets or liabilities, the fair value is the price that would be received in a transaction that reflects use of the asset in that combination. The liabilities associated with the asset and complementary assets would include liabilities to fund working capital, but would exclude liabilities associated with the funding of assets outside the group. If the highest and best use is on a stand-alone basis, the fair value is the price that reflects that use. Fair value measurement assumes that assets are sold consistent with the unit of account specified in other NZ IFRS, which may be a single asset. However, that would still be consistent with the highest and best use being the use in a combination, as the fair value measurement would assume that the market participants would already hold the associated assets or liabilities.

Liabilities and own equity instrumentsFair value measurement of liabilities, or an entity’s own equity instruments, assumes that they are transferred to a market participant at the measurement date but remain outstanding. They are measured at quoted prices. However, if a quoted price for an identical or similar liability or entity’s own equity instrument is not available and

The identical item held by another party Fair value is measured from the perspective of the participant holding the item as an asset. In such cases fair value is measured (a) using the quoted price in an active market for the identical item, (b) if that price is not available, then using other observable inputs such as the quoted price in a market for the identical item that is not active, or (c) if the prices in (a) and (b) are not available. In this case using a valuation technique such as present value measurement or a market approach such as using quoted prices for similar liabilities or equity instruments held by other parties as assets or

The identical item not held by another party Fair value is measured by using a valuation technique from the perspective of a market participant who owes the liability or has issued the claim on equity.

Non-performance risk The fair value of a liability reflects the effect of non-performance risk which includes, but may not be limited to, an entity’s own credit risk.

Financial assets and liabilities with offsetting positions An entity which holds a group of financial assets and liabilities is exposed to market risks and to the credit risk of each of the counterparties. If the entity manages the group on the basis of its net exposure to either market risks or credit risk then the entity is, under certain conditions, permitted to measure the fair value of the group. This is on the basis of the price that would be received to sell a net long position, an asset, for a particular risk exposure, or transfer a net short position, a liability, for a particular risk exposure.

Valuation techniquesConsistent with the definition of fair value, the objective of using a valuation technique is to estimate the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date under current market conditions. The valuation technique used should maximise the use of relevant observable inputs and minimise unobservable inputs. These should be consistent with the inputs that market participants would use when pricing the asset or liability. The standard describes the following three widely used valuation techniques −• Marketapproachwhichusespricesandotherrelevant

information generated by market transactions involving identical or comparable assets, liabilities or groups of assets and liabilities such as a business such as an approach that uses market multiples derived from a set of comparables.

• Costapproachwhichreflectstheamountthatwouldbe required to replace the service capacity of an asset. From the perspective of a market participant seller, the price that would be received for the asset is based on the cost to a market participant buyer to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence. In accounting this is often referred to as current replacement cost and in utility regulation as optimised depreciated replacement cost.

• Incomeapproachwhichconvertsfutureamountssuch as cash flows or income and expenses to a single current amount. The fair value reflects current market expectations about those future amounts such as present value techniques and option pricing models.

In some cases, use of a single valuation technique would be appropriate but in others multiple techniques might be used. Where multiple techniques are used and


the result is a range estimate, fair value should be chosen as the point in the range that is most representative of fair value in the circumstances.

Fair value hierarchyTo increase consistency and comparability in fair value measurement, NZ IFRS 13 establishes a fair value hierarchy that ranks the inputs to valuation techniques into three levels.• Level 1 highest priority. The inputs are quoted

prices unadjusted in active markets for identical assets or liabilities such as for a financial asset or quoted prices on a major stock exchange.

• Level 2 middle priority. Inputs other than the quoted prices included in Level 1 which are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets and relevant interest rates or market volatilities.

• Level 3 lowest priority. These are unobservable inputs and can be used to measure fair value to the extent that relevant observable inputs are not available. This deals with the case where there is little or no market activity. However, the fair value measurement objective remains the same. Therefore unobservable inputs should reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. In developing unobservable inputs, an entity might begin with its own data but then make adjustments for features, such as synergies unique to the entity, as a result of which other market participants could be expected to use different data. The set of projected cash flows on which valuation of a private firm might be based is an example of a Level 3 input.

Disclosure NZ IFRS 13 requires extensive disclosures, the objectives of which are to help users of the financial statements assess. For assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement of financial position after initial recognition, the valuation techniques and inputs used to develop those measurements.

For recurring fair value measurements using significant unobservable inputs as in Level 3, the effect of the measurements on profit or loss or other comprehensive

income for the period. To meet these objectives, the entity is required to consider each of the following –• Thelevelofdetailnecessarytosatisfythedisclosure

requirements • Howmuchemphasistoplaceoneachrequirement• Howmuchaggregationordisaggregationtoundertake• Whetherusersoffinancialstatementsneedadditional

information to evaluate the quantitative information disclosed.

Disclosure of fair value at initial recognition is left to the individual NZ IFRS which permits or requires use of fair value measurement. The standard specifies the minimum disclosures for each class of assets and liabilities, measured at fair value in the statement of financial position after initial recognition, necessary to meet the disclosure objectives. If these specified disclosures are insufficient to meet the objectives, the entity is required to disclose additional information necessary to meet them.

NZ IFRS 13 includes 14 examples to illustrate the application of the fair value measurement requirements, and a further five to illustrate the disclosure requirements. The examples carry the caution that they are not intended to provide interpretative guidance to the standard.

SummaryNZ IFRS 13 is intended to provide consistency in fair value measurement and disclosure. However, it does not extend the application of fair value measurement beyond that already permitted or required in existing NZ IFRS. The standard explains that fair value measurement requires an entity to determine −• Theparticularassetorliabilitybeingmeasured• Themarketinwhichanorderlytransactionforthe

asset or liability would take place• Foranon-financialasset,thehighestandbestuseof

the asset whether used on a stand-alone basis or in combination with other assets

• Theappropriatevaluationtechniquetousewhenmeasuring fair value.

Tony van Zijl is Professor of Accounting & Financial Management and Director of the Centre for Accounting, Governance and Taxation Research at Victoria University of Wellington. He is also a member of the PINZ Valuation and Property Standards Board.

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Stephen Sampson

Unit Titles Act 2010 and Unit Titles Regulations 2011

The Unit Titles Act 2010 became effective on 20 June 2011 and repeals and replaces the Unit Titles Act 1972. The 2010 Act is supported by the Unit Titles Regulations 2011. The explicit purpose of the Act is ‘to provide a modern legal framework for the joint ownership and management of land, buildings and facilities on a socially and economically sustainable basis by communities of individual owners’.

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As at June 2010, there were 18,449 residential unit title developments consisting of 122,874 units. There are also over 3,000 commercial and 2,000 industrial unit title developments throughout New Zealand. The Department of Housing and Building predict that in Auckland alone that there could be up to half a million people living in multiple unit-titled developments within 40 years.

With increasing numbers of retirement villages, apartments, retail, commercial and mixed-use developments being unit title developments, the shortcomings of the original Unit Titles Act was becoming increasingly apparent as developers, solicitors and surveyors stretched the boundaries of the 1972 Act to accommodate these more complex developments.

Need for changeThe reality in dealing with a number of vexed issues in this area has resulted in the need to revise the 39-year old Unit Titles Act to meet the needs of modern joint ownership requirements. These issues include apportioning body corporate levies under the constraints of the 1972 Act, body corporate governance issues compounded by leaking buildings and absentee owners, along with ineffective provisioning for maintenance coupled with a significant increase in residential unit title developments.

Most valuers will have had an involvement in providing professional valuation services for unit titled properties since the inception of the Act in 1972.

These professional services would usually include the usual range of mortgage and market valuations, insurance valuation certificates, and assessment of unit entitlements under section 6 of the 1972 Act on new developments and redevelopment plans.

It is important for all valuers to have a working understanding of the Unit Titles Act 2010 and the Unit Titles Regulations 2011, as there are significant changes affecting the registered valuer’s input. The role of the valuer will not change in respect of providing mortgage and market valuations and insurance valuation certificates. However, there is a fundamental change in the unit entitlement concept under the old Act and the new concept of assessing ownership and utility interests under the new Act. There is also the ability for bodies corporate to review the ownership and utility interests at no less than three-yearly intervals under the new Act.

Improvements and responsibilitiesThe Unit Titles Act 2010 improves on the Unit Titles Act 1972 in a number of ways. The most significant of these are that it −• Clarifiesthedefinitionofaprincipalunitwhichmust

contain or be contained in a building or be in a car park

• Streamlinestheprocessunderwhichadevelopmentisbuilt in stages

• Createsacontrolperiodfordevelopersandahandoverprocess on new developments

• Createsasensibleandmoreflexiblesystemforcalculating how the unit owner should contribute to body corporate common funds, the introduction of ownership and utility interests

• Statesthatthebodycorporateownsthecommon

property• Clarifiesandarticulatestherightsandresponsibilities

of unit owners and body corporates• Createsmoreefficientandtransparentgovernanceand

management structures• Lowersthevotingthresholdformostbodycorporate

decisions • Requireslocalrepresentationifanownerisoverseas

provides a comprehensive disclosure regime for buyers and sellers, developers and bodies corporate, including specific disclosure requirements for developers on new developments

• Providesacost-effectivedisputeresolutionserviceforunit title disputes by the Tenancy Tribunal

• Introducesacompulsory10-yearmaintenanceandfunding plan

• Providesfortheownershipandutilityintereststobe reassessed at no less than three-yearly intervals by special resolution of the bodies corporate

• Introduceslayeredbodycorporatestructures• Providesforstandardisedfinancialreportingandaudits• Providesforcontrolandauditproceduresbythe

Department of Housing and Building.The Unit Titles Act is administered by Land

Information New Zealand, the Department of Housing and Building and the Ministry of Justice, who all have different responsibilities under the legislation. • LandInformationNewZealandwillhavethe

responsibility of creating new titles, recording changes of ownership and interests in land, and providing access to these records. They will also be implementing the changes to survey and title regulatory requirements.

• DepartmentofHousingandBuildingwillprovideadvice and information services to the unit title sector.

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The department will provide a mediation service as well as administering cases to the Tenancy Tribunal. The Chief Executive has audit and governance powers.

• MinistryofJustice via the Tenancy Tribunal, supported by the Ministry, will hear disputes between parties who have not been able to reach agreement in the mediation service provided by the Department of Housing and Building. The Tenancy Tribunal will hear disputes up to $50,000 and hearings are heard by independent tenancy adjudicators. Most adjudicators will be lawyers appointed by the Governor-General on the recommendation of the Ministers of Justice and Housing.

For existing bodies corporate, the new Act provides for a 15-month transitional period where the Body Corporate Rules under Schedule 2 of the 1972 Act remain effective until 20 September 2012. There is a requirement for the bodies corporate to either adopt the existing rules or lodge new rules by that date. If a body corporate does neither, then the default rules under the Unit Titles Act 2010 will apply.

There are further administrative functions for bodies corporate to put in place before 20 December 2011. One of the main factors is a requirement for all bodies corporate to have in place a 10-year maintenance plan with funding arrangements by 20 September 2012.

Ownership interests and utility interestsOwnership interests and utility interests are set out in sections 38, 39, 40 and 41. This is am important area for valuers to understand. Under the new Act, the unit entitlement is replaced by two new concepts – the ownership interest and the utility interest.

Ownership interest For existing bodies corporate, at the commencement date the ownership and utility interest is equal to and the same as the ownership interest. In concept ownership interest is the same as unit entitlement, that is relative value. Ownership interest for any new bodies corporate is assessed under section 38(2)(a) by a registered valuer. The ownership interest or proposed ownership interest is fixed as follows −

In the case of a unit plan deposited under Section 17(1) or 21(1), the ownership interest is that fixed by a registered valuer on the basis of the relative value of the unit in relation to each of the other units and shown on any documentation required to be lodged with the unit plan. So the ownership interest is assessed in the same manner as the unit entitlement under Section 6 of the 1972 Act.

Under sections 38(3)(a), (b) and (c), ownership interest is used to determine a range of matters including, but not limited to −

• Beneficialinterestincommonproperty• Shareoftheownerofprincipalunitsinthevalueof

any buildings, fixtures and improvements on leasehold land

• Votingrightsoftheprincipalunitwhenapollisrequested

• Shareundersection99ofthelandvalueiftheunitplan is cancelled

• Shareofcontributionsifanycapitalleviesareraisedforcapital or improvement works

• Distributionofanymoniesfromcapitalfunds• Shareofgroundrentsforleaseholdland• Shareofliabilitiesfordamagesandlegalcosts.

Utility interestUnder section 39(1), the Act states before a unit plan is deposited under section 17(1), 21(1) or 24(2)(a) ‘every principal unit and every accessory unit must be assigned a utility interest’. The utility interest is the same as the ownership interest fixed under section 38(2), unless otherwise shown on any documentation required to be lodged with a unit plan.

Utility interest is used to determine under section 39(3)(a) and (b) −• Contributionstoleviesforlong-termmaintenance

funds, contingency funds and the operating account• distributiontotheunitownerofanysurplusmoney

in the long-term maintenance fund, contingency fund, operating account or personal property of the body corporate.

Both the ownership and utility interests can be reassessed by special resolution of the body corporate at no more than three-yearly intervals.

Disclosure of informationThere is now a requirement, under sections 144 to 150, requiring the seller of a unit to disclose information to a purchaser. The format of the required information is set out in the Unit Titles Regulations 2011, section 33 pre-contract disclosure statement −a) The amount of the contribution levied by the Body

Corporate under Section 121 of the Act in respect of the unit being sold

b) The period covered by such contributionc) Details of maintenance that the body corporate

proposes to carry out in the unit title development in the year following the date of the disclosure statement, and how the body corporate proposes to meet the cost of that maintenance

d) The balance of every fund or bank account held and operated by the body corporate at the date of the last financial statement

e) Whether the unit or the common property is or has been the subject of a claim under the Weathertight Homes Resolution Services Act 2006 or other civil

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the last review. Also, from a governance point of view, the Department of Housing and Building Chief Executive has audit and review powers over bodies corporate.

Implications for valuersValuers assessing ownership and utility interests will need to have an in-depth understanding of the workings of the Act, the operating functions of the body corporate, the benefits and ownership costs to each unit in respect of the services and facilities provided, and the costs for long-term maintenance plans. For those bodies corporate which are not already operating comprehensive maintenance programmes and maintenance reserve funding, there will be increased ownership costs for unit proprietors. As the market comes to terms with the provisions of the Unit Titles Act 2010, there will be an increasing differentiation in the market place between units based on ownership costs, effective maintenance plans and a clear, precise and equitable methodology of application of ownership and utility interests.

Informed buyers will no doubt be assessing and comparing factors such as body corporate levies, maintenance plans, maintenance reserve accounts, and the quality of body corporate governance in their purchase decisions. With this new legislation allowing for layered unit title developments, there will be an increased use of this legislation to allow for multi-use developments where apportionment of body corporate fees on the original unit entitlement basis has significantly disadvantaged the higher valuer units in the past. Valuers will need to become familiar with the Unit Titles Act 2010 and the Unit Titles Regulations 2011, and the flow-on cost efficiencies for unit owners.

There are a number of industry seminars on the Unit Titles Act 2010, including branch PINZ seminars, and the Department of Housing and Building website provides the usual background information. See www.legislation.govt.nz/act/public/2010/002 and 0122 and www.dbh.govt.nz/unit-titles-review-index.

Stephen Sampson is the Managing Director of Commercial Property Managers Ltd

proceeding, with further disclosure including an explanation of the unit title ownership, unit plans, ownership and utility interests, body corporate operational rules, the computer register, the land information report, easements and covenants and details as to where to obtain further information about the matters and the estimate of the cost of providing additional disclosure statements.

Pre-settlement disclosure statement In effect, this is the statement that replaces the section 36 certificate. This would normally be issued to solicitors before settlement setting out −• Theunitdetails• Bodycorporatenumber• Bodycorporatelevies• Periodoflevypayments• Mannerandpaymentofthelevy• Anybodycorporatefeearrears• Whetheranylegalproceedingshavebeeninstigatedin

relation to any unpaid levies • Anyothercostsassociatedwiththeunit,including

details of whether there is any litigation pending against the body corporate or being carried out by the body corporate.

OverviewThe intention of the Unit Titles Act 2010 and the Unit Titles Regulations 2011 is to provide a more robust legislation to meet the needs of multi-unit ownership across all manner of unit titled development. It requires a more regulated approach to the governance of bodies corporate, lowers the threshold for passing resolutions of bodies corporate, and provides for the problem area of absentee owners having to have a local representative.

In addition it is now compulsory to have a 10-year maintenance plan along with funding arrangements, there is an increased and compulsory disclosure statement regime by vendors including notification of any weathertight claims or litigation, and it allows for a review of ownership and utility interests after three years of the initial unit plan being deposited or after three years of

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Dean Ward

How to get prepared for your long-term maintenance plan

As part of the obligations under the Unit Titles Act 2010, Bodies Corporate must have a long-term maintenance plan (LTMP) for their development. An LTMP is the long-term view of the maintenance, renewal and replacement needs of the building and property components of the development. The plan details the expected maintenance and renewal activity associated with the property and building assets and provides an estimate of cost to perform the works in the future.

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Applying the value of a ‘remaining useful life’ to each asset component, a schedule of works can be created whereby repair and replacement activities are anticipated year by year. This allows bodies corporate plenty of time to prepare for the work and plan for the expected costs, rather than have to react when they occur. Provision for long-term maintenance should be included in the annual levies, and bodies corporate have the option of maintaining a fund for the exclusive purpose of long-term maintenance as identified in the plan.

An LTMP covers the assets managed by the body corporate and which are collectively owned by the unit owners. These items usually serve more than one unit and include the repair or replacement of building elements such as roof cladding, exterior cladding and exterior joinery items as an example.

Other items such as car parking areas and plant and equipment servicing the complex are also often included. Items in an LTMP will generally be greater in value than $1,000 for a single item and the repeat cycle longer than a year. It does not cover the day-to-day repairs and maintenance, such as an annual building wash, clearing gutters, changing light bulbs or removal of graffiti, which in most instances will be covered by the repairs and maintenance or operational budget.

A number of bodies corporate may already have a plan and a ‘sinking fund’ for the provision of items outlined, but in many cases the plan is not

comprehensive enough and may not meet the guidelines for the new Act. The Act states that an LTMP must −• Coveraperiodofatleast10yearsfromthedateofthe

plan or the last review• Identifyfuturemaintenancerequirementsandestimate

the costs involved • Supporttheestablishmentandmanagementofthe

funds • Provideabasisforthelevyingofownersofprincipal

units • Providecontinuingguidancetothebodycorporateto

help it in making its annual maintenance decisions. • Theplanneedstobeupdatedeverythreeyears.

A base for the levyA professionally prepared plan will achieve all of the above requirements and bodies corporate are encouraged to engage a suitably qualified, impartial person to assess the maintenance and renewal needs of the development. This should include a physical survey and condition assessment of the building and property elements, and the estimated expenditure and repeat cycles for undertaking work.

A good plan will identify the expected costs of maintaining the development over the duration of the life of the asset and be the basis for setting the levy figure. Levy amounts are then apportioned equitably according to the ownership interest, formerly unit entitlement, schedule. By knowing what expenditure is expected, this powerful tool helps bodies corporate provision the funds needed to undertake the work and maintain the function and value of the asset and minimises the requirement for special levies.

Set a budgetHow do you prepare for undertaking an LTMP? Firstly you will need to set an amount in the annual budget for a professional facilities and asset management consultant. This will probably involve obtaining a quote from a suitable service provider. Select someone you trust and talk to your preferred consultant to discuss your development’s unique requirements. A good service provider will have a range of service offerings that should suit the size and budget of your development.

For a consultant to assess and comment upon your development a fair amount of information is required. First you need to understand what the body corporate is responsible for, where the responsibilities as a body corporate reside and what the owner’s responsibilities are. Generally speaking this information can be obtained from the unit title plan and body corporate rules. For most developments, body corporate responsibilities will be the common areas and amenities, which will usually include building exterior, grounds and car park along with plant and equipment which services all the development. Individual apartments are normally excluded.

Look at the pastYou also need details of existing maintenance plans and schedules, renewal work carried out and recent expenditure. This provides a history of the development and helps to assess cyclical maintenance and expenses. The service providers and contractors who maintain the various systems and perform the work on the development are an invaluable source of information also, and the consultant will certainly want to speak with them.

Arrange for a list of main contractors including contact details to be compiled. Building plans and ‘as built’ drawings are also required to enable the consultant to determine the quantities and areas of the building’s features and components, which is essential for producing cost estimates. If you do not have a copy of these plans, a quick search at the local authority archives may developed them. Finally, any details of warranty information, specifications, service contracts or any other maintenance details all help get an overview of the development.

Be preparedWhen it comes time for the property survey, be prepared by having access to all areas pre-arranged and authorised. The consultant will want to check all safe accessible spaces and service areas. Assign a committee member or other person whom is familiar with the development to assist if at all possible. Your consultant will appreciate it.

Hopefully the information provided above will help you to prepare and plan for undertaking an LTMP for your development. Remember, a plan is only as good as the information that goes into it, so be pro-active and get involved.

Dean Ward, Upfront Property Maintenance Planning Limited

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Steve McNamara

Providing safety and peace of mind with off-site data back-up

These days there is no excuse for not having all of your computers fully backed up off-site, with an array of ‘cloud’ options now readily available. I would imagine that most valuation and property management companies still keep their entire back-up on site. They are therefore susceptible to the loss of data should servers be stolen or damaged, or because of events such as fire, earthquakes or other disasters. This could mean they no longer have access to their premises where back-up devices are commonly kept.

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With many businesses now operating mobile technology, such as tablets and laptops, they are even more susceptible to losing data. An easy but comprehensive back-up procedure is therefore even more important than ever before.

At Property InDepth we store all our intranet data, such as field notes, reports and photographs, on a remote server, which is housed in a specialist server farm in Albany. This farm has the servers maintained at a constant temperature and humidity. An uninterrupted power supply ensuring continuous service also provides us with comprehensive back-up ability.

Back up in the cloudWith our intranet data suitably housed and backed-up, the next most susceptible data is stored on our tablets, including emails, worksheets and other business information. This is where we use the services of a cloud-based back-up system called Dropbox. Continued on page 33



Steve Tucker

Apple versus AndroidWhich mobile device do you choose?

I have an iPhone, and when I purchased it I was the ultimate consumer. I needed a new phone, I had seen the long line down the street when I was in San Francisco when the iPhone 4 was released, and to be honest I did not even consider other options. The Apple phenomena got me and I was hooked. But recently I was looking into tablets and decided to do some research. It came down to a tablet such as the iPad or others that run off the Google Android operating system.

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Current providers The focus across these providers is on the application market. Applications are programmes that you download either for a small cost or free. These give you added functionality on your mobile device. It is software which has been made extremely affordable due to its ability to be sold in great numbers. Approximately 1.6 billion apps are downloaded each month. As these devices are not full computers you cannot run software such as Word or Excel, but you can purchase apps which allow you to operate in a similar manner.

The number and variety of apps is endless – they have to be seen to be believed. Not only does my iPhone operate as a phone, but I have downloaded the Tom Tom app which means the phone can operate as a full in-car navigation device. I also have a full set of marine charts and the ability to plot my course when on the water.

Two main playersI have access to real estate apps which show me houses on the market, asking prices, photographs and so on. When exercising I can plot and review my cycle

vrs

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or running route, and when I receive a business card I can take a photograph and it automatically enters all the data into my contacts list in the correct fields. You name it, there is an app that can do it. As for my children, they cannot go past the games.

The app market is predominantly split between −• ApplewiththeiPhoneoriPadwhichoperatestheiOS

operating system• DevicesthatrunontheGoogleAndroidoperating

system. There are other operators in the market such as

BlackBerry, Nokia, HP and Microsoft. However, these companies all seem to have missed the boat in the mobile market and it appears they will be reduced to the status of challengers rather than competitors. So let us have a closer look at Apple and Android.

AppleThe Apple has now had several releases of its operating software and it appears to have continually improved. The advantage with Apple is that, due to the similarities across the hardware, most apps are compatible across all devices. This is a problem for the Android. Apple has also made the use of its devices extremely easy, and again due to the consistency in hardware, it is easy to move from each device.

The purchasing of apps at the Apples iTunes store is simple. Your account is linked to your credit card and with a few clicks you are done. However, if you have children, make sure you keep the phone away from them immediately after buying in iTunes or they will be able to go and purchase freely without having to re-enter your password.

Some weaknessesThere are some weaknesses with Apple from the user perspective. The biggest weakness for me is the tablet market and the use of the iPad as a business tool. This is where it hits some real limitations. It is not designed for creating presentations or worksheets or editing existing files. The transfer of data from PC to iPad is not the easiest process and there are difficulties editing, which for me is a big problem.

The keyboard is fine for a short period. For my business I wanted a device which would allow me to access the internet as well as store and edit the files that I hold on my PC. Apple’s iPad is not the machine for this, and to me it appears to be a toy rather than a tool when it comes to business. This is where Android is far more flexible.

For the iPhone this lack of productivity benefit is

not a problem. The phone is a portable device that you can have anywhere. The ability to view files and data is great. You can access email and send brief messages, but you are not looking to the phone to be a tool for editing documents.

Many also see the lack of hardware options as an issue for Apple. You have the iPhone and the iPad. The only choice you have to make is the storage capacity and wi-fi options. When it comes to what you may want or need within your business you have no option with screen size, camera resolution or keyboard. With Apple, you just have to take what they give.

Reception has been an issue previously and I am not certain the iPhone has sorted this out yet. My partner and I both operate iPhone 4 and we have very different levels of phone reception. Mine is great, but I just hope I do not drop it in the lake and have to replace it or I could get a model with poor reception.

Apple have captured the market with the iPhone which is still the most used smart phone in the world, and the iPad is well and truly out-selling the alternatives. But is the iPad’s success due to existing iPhone users simply sticking with the status quo rather than investigating the alternatives when buying a tablet?

AndroidLike Apple, Android has had a number of software versions released. However, while the Apple software has improved this does not appear to be true for Android. In the research I have done it appears that, due to the nature of the operating system and the number of devices that can freely run Android, Google has lost some control over quality and consistency of the final product.

The Android market, which is effectively the Apple equivalent of iTunes, is not a patch on iTunes. It does not seem user friendly after using iTunes. But despite these issues it is fantastic when it comes to the tablet and the functionality it provides for the creation and editing of documents. With Android the device operates more like a data storage device such as a pen drive or data stick, which makes it easy to use for transferring data.

With the likes of the Dropbox app you can have full access with ease, including editable access to the files on your PC. This is where the Android device becomes a business tool and is now a functional device between your phone and PC.

In addition the variety of devices is a bonus. You have those being manufactured by a number of world leaders such as Sony-Ericsson, Motorola, Dell, Samsung and Acer. Each is different and comes with different specifications


for camera, screen size, storage capacity and so on. With Android you have choice.

A few weaknessesWhat are the weaknesses with Android from the user perspective? One is the fact that you are not certain what you are going to get. Due to the large number of providers and devices that use Android, each device operates differently. Providers have the ability to add their own ideas, which is often a load of rubbish. So before you buy, have a play so you know what you are getting.

Google should look to upgrade the app market. Android is not the easiest to use, and if they want people to buy apps they should do something soon. Android has taken a different approach to the market. Where Apple has maintained full control over the software and hardware, Google has simply provided the software platform which any number of providers can use and alter. It is growing in market share and it certainly offers choice to the consumer.

ConclusionFor phones it will be interesting to see the marketing campaigns of the two providers. There are some weaknesses with either system for the user. Both Google and Apple are fairly solid brands in the consumer’s mind, and for many this will be hard to break. Will people get fed up with the control that Apple has over them with iTunes, or will people get fed up with the lack of consistency across the Android product due to the number of providers?

My call on the phone at this stage is the iPhone. I consider it the complete portable device. It does everything I need it to do and plenty more. I was always a skeptic of smart phones but I love my iPhone. It is extremely easy to use. I think in the case of the phone the

consistency across the iPhone is good and means that as I upgrade due to wear and tear or loss this will be easy to do. In the past losing my phone and switching brands was a major headache.

Android wins a placeThe tablet market is a little different. We have the iPad and new devices running Android, but we also have players such as HP producing tablets which are closer to the laptop market. Apple is out to a large lead, but Android and others will start to take chunks out of this lead. My call on the tablet is Android.

I have friends with the iPad who thought it would be the answer for portability with business, but they are a little disappointed. This disappointment all boils down to the inability to easily access files from the PC and edit them on the iPad. On the Android this is easy. I am running the new Acer tablet and love it. I spend plenty of time on the road and now I run my iPhone and Acer tablet. Both are small and portable and I can leave my laptop in the office.

In saying this, our valuers are using full tablets that are closer to a laptop. The reason for this is the cost to develop an application for the iPad or Android tablet. The mobile data coverage using Telecom or Vodafone is still not good enough in New Zealand to operate our software directly through the internet at all times. For our site data collection we use a piece of software that sits on the device and then synchronises with our main system. Currently we can build this using traditional software programming at a fraction of the cost with Apple or Android. However when we switch, based on the current market, it would be Android.

Steve Tucker is from Property InDepth

The Dropbox system is very simple, effectively providing a folder into which you place files that you want to back-up or share. This information is housed in huge specialist server farms overseas, providing good levels of security, while giving you access to them 24 hours a day.

Dropbox allows you to back up 2Gb of information for free, up to 50Gb for US$9.99 a month, and up to 100Gb for $19.99 a month. These files are available from a secure Dropbox website, even when you are off-line. If new files are added while you are off-line, then as soon as you reconnect to the internet these files are synchronised and your back-up is complete.

One good feature is the ability to have multiple users access the same Dropbox account with your permission. This enables ease of access for documents where one person may want to make changes, and then have these changes instantly available to others without having to

individually email them. Applications are also available for iPhone, Android and Blackberry devices, meaning you can access files from the Dropbox as long as you have internet access. This provides you with access to masses of information without the need to have large storage capacity on your device.

On a more social note, Dropbox can be used very successfully to back-up family photographs. The ability to have multiple users access the same file means family members can also enjoy them.

The very least you can do for yourself, your business and your clients is to make sure you have solid off-site back-up procedures. With options such as Dropbox freely available there is no longer any excuse. For more information go to www.dropbox.com

Steve McNamara is from Property InDepth

Continued from page 30

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Peter Graham

Transmission line easements – a valuation conundrum

New Zealand is currently in the process of a major infrastructure upgrade, the biggest investment in this country’s infrastructure since the 1980s. There is considerable activity in the acquisition of easement rights for transmission lines by both transmission companies active in network extension and upgrades and generators providing new lines associated with their respective generation developments, mainly wind. There has been major publicity over Transpower’s 400 KV line in the Waikato, but this is only one of a number of recent lines projects.

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There is a high degree of variation both in method and market value assessment in valuations being provided for these acquisitions. A variation of assessments and disagreement between valuers as the appropriate method for valuing particular land parcels is not uncommon. However, all valid market valuations must be able to be objectively related to market evidence. Although there may be significant differences between valuers from time-to-time, the valuation figures arrived at in current transmission line easement valuation assessments are consistently so far apart that the validity and credibility of valuation advice is, in my view, questionable.

As someone who works mainly for infrastructure providers, I perhaps question new methods that result in significant increases in valuation assessments more than others. Where those assessments are consistently at least double and frequently up to four times the valuations provided using orthodox valuation methods, they justify careful examination. This article examines the considerations applicable, the differences in methods being applied by valuers, and the resulting wide variation in valuation assessments.

What has changed? The enactment of the Electricity Act 1991 paved the way for privatisation of supply of electricity. The previous wide powers under section 15 of the Electricity Act 1968 that gave power to ‘survey construct, erect, lay down, maintain, renew or repair’ lines were not extended into the 1991 Act, and statutory rights over private land were restricted to existing works.

No powers were given to build over private land without consent, but the government has deliberately preserved powers to apply to the Minister of Lands to have land compulsorily acquired under the Public Works Act. Network utility operators who have requiring authority status can apply to the Minister, using section 186 of the Resource Management Act, for the Minister to exercise powers of acquisition under the Public Works Act. Lines companies, and electricity generators constructing lines to distribute power from generation sites, are able to meet the network utility operator and requiring authority criteria.

Limited powerThe privatisation of supply on its own cannot justify a complete change of the parameters for valuing transmission line easements. Landowners may understandably consider that they are dealing with commercial enterprises determined on maximising profits, and that they are entitled to a piece of the action. However their bargaining power is subject to limits.

Public works powers have a direct effect, if not on value, then on bargaining position. Acquisitions must be dealt with on a willing buyer and willing seller basis. When these powers are applied, no-one can extract a premium because they are unwilling to sell. Also no-one can exert price pressure because of unequal bargaining position. Privatisation has not changed this. In Waugh and Robinson v AG – High Ct AK 2002 – the Court held that calculations of wrongful use damages for trespass are to be assessed as what the defendant would have been prepared to pay to purchase the right to do what they have done by trespass. This is held to apply a methodology which −

Realistically takes into account, as well, the land value of the properties affected, recognising that ultimately the defendant could have exercised powers of compulsory acquisition …

The Courts have clearly and unequivocally recognised although that although a network utility operator is a private commercial entity motivated by profit, it makes no difference to the fact that transmission of electricity is an important public utility – Daroux and Ors v AG and Counties Manukau Power Limited – 1999 Environment Court Auckland A88/99.

The shift to privatisation does not in any way diminish the importance of electricity

as a commodity necessary for many facets of modern day living across the whole spectrum of human endeavour from domestic to industrial. No doubt it is for this reason that Parliament prescribed the right for a Network Utility Operator to apply to the Minister of Lands to take land under Part II of the PWA. What is required is a proper and fair sense of balance between the two interests. Paragraph 57

A proper and fair sense of balance The principles of compensation under the Public Works Act are long-standing and well understood• Propertyistobevaluedintermsofitshighestand

best use. Special suitability for a purpose must be discounted where that purpose has no market other than the special needs relating to the public work.

• Compensationshouldbeequivalenttolossbeingthe objective monetary loss in value of the asset and costs incurred resulting from the acquisition and construction of the work on a ‘no better no worse’ basis.

• Entitlementsshouldbeassessedliberallytotheextentthat landowners are given the benefit of any reasonable, justifiable or genuine doubt.

The rationale behind these principles is clear and has been applied in public works legislation dating back to the industrial revolution. Private owners should not be disadvantaged, but neither should they be advantaged because of a demand created only by a public work. This is because that would provide a barrier and a disincentive to build and operate the work and increase costs to consumers to the windfall benefit of landowners.

It is also important to note that irrespective of any perception to the contrary, assessment of compensation under the Public Works Act cannot be somehow different or less than market value. The words of Archer J in Carlton Heights v Minister of Works in the Land Valuation Tribunal Auckland in 1963 are as relevant now as they were then −

Witnesses giving evidence before this Court appear sometimes to be under the impression that there is room for substantial differences of opinion between a willing seller and a willing purchaser as to the value of a piece of land. It should not be overlooked that the statutory conception of a sale by a willing seller to a willing purchaser presupposes agreement between them upon a cash price which is acceptable and fair to both, and which represents the market value of the land.

The discounting of special suitability or potential use arising solely because of the particular needs of a particular purchaser, and for which there is no general market, could be argued as a limitation on market value. However

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a special one-off requirement for which someone will pay a premium, which is not reflected in the general market, is discounted in normal market valuations. Where a premium is paid for a property because it happens to meet the specific requirements of someone who wishes to build a supermarket or petrol station, valuers will discount that sale as an aberration. Special suitability for a power transmission line is no different.

Above valueThere is no doubt that in the current environment some power companies have been and are prepared to pay over and above orthodox valuation figures, irrespective of the fact that they are the only possible purchasers. If they did not have a requirement there would be no market for the easement. There is a strong argument that the extent to which they are prepared to pay for something that no-one else would pay for must also be discounted in assessing market value.

Valuers may possibly argue that these requirements are so widespread that they form part of a general market requirement and not a one-off requirement for which power companies are prepared to pay a windfall premium. However if they can justify this, they would need to establish why it is different from the supermarket or petrol station example.

If they can, they still must identify how to meaningfully compare evidence relating to acquisitions of rights where –• Thephysicalheight,designandconstructionofpylons

or poles, line spans, configuration and size, access and related infrastructure, line and pylon location and affect environment, views and building locations are all different

• Thepropertiesaffectedandthenatureandextentofeffects are different

• Theextraamountthecompanyispreparedtopaydepends on profitability, affordability and viability of the line and associated projects which is different between companies and projects and may not be known by the valuer

• Inordertounlockthatpotentialthepowercompanyhas, it is necessary to spend a significant sum on the project and which is different for each project and may not be known by the valuer

• Thereare,ormaybe,timeconstraintsorotheruniquefactors such as militant landowner opposition which are completely different or simply unknown.

In a review of studies in the United States between 1975 and 1992, Kroll and Priestly in The Effects of Overhead Transmission Lines on Property Values, found that in about half the studies there was a loss in property values between two and 10 per cent and in the other half there was no appreciable effect. A study of the effects of transmission lines on residential properties in Newlands, Callanan and Hargreaves, in The Effect of Transmission Lines on Property Values – A Statistical Analysis, resulted in a conclusion that the effect of having a pylon has a negative effect of 20 per cent at 10 to15 metres from the pylon, decreasing to five per cent at 50 metres and diminishing to a negligible effect at 100 metres.

They also concluded that the presence of transmission lines over or near properties was not a statistically significant factor. Although this is dated, and not directly valuation evidence as such, it does illustrate that the injurious effect element of lines is in many cases relatively moderate.

Valuation approachesBefore and after The historical approach supported by public works legislation and case law has been to value easements based on the ‘before and after approach’ This is valuing the property notionally with and without the easement and establishing value based on the difference. This approach appears to be supported by the majority of registered valuers.

The benefit of this approach is that it has been used for a long time there is a large body of case law relating to it and, at least in theory, it is able to be verified objectively by market comparisons. It is possible to compare prices

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achieved for properties subject to transmission line easements with prices achieved for similar properties that are not subject to easements.

It also allows for rational assessment of injurious effect, being the effect on value of the balance land over and above the value of the land interest taken valued in isolation. The approach to injurious effect taken by the High Court in Braemar Station Limited v Minister of Works and Development in the High Court, Timaru in 1984 is instructive. This is even though the case is old and relates to the taking of land which affected the land type, balance and productivity of the balance property rather than the taking of an easement.

The Court found that −• Thelossreflectedbyinjuriouseffectmustbereflected

in an appropriate reduction in residual value• Anyothermethodofapproachwillleadtoanswers

that involve double-counting or cash investment alternatives which would be inappropriate

• Theaftervaluewascalculatedtakingintoaccountthetotal permanent loss suffered due to the effect of the taking on the utility and profitability of the balance land

• Injuriouseffectwascalculatedbydeductingthevalueof the area taken from the total loss in value

• Aseparatecalculationofinjuriouseffectbasedonamathematical calculation of loss of production was rejected as double-counting.

Anecdotally, in discussing transmission line easements with valuers, it is evident that there have in some cases been practical difficulties in objective sales comparisons of properties with and without transmission easements. This is because of the inability to actually identify any significant difference in values clearly attributable to the presence or non-presence of transmission lines.

Corridors of effectTo consider the total permanent loss suffered due to the effect of the taking on the utility and profitability of the balance land where there is no clear market differentiation on a before and after basis, valuers have developed a ‘corridors of effect’ approach. This calculates the effect on land value as a reducing percentage of the value of the underlying land. The highest percentage reduction relates to the area under the pylons and lines, and a reducing percentage applies to the corridors further away, with adjustments made for proximity to buildings and other improvements.

Valuations for easements for energy pipelines in Taranaki reflects this with only one corridor relating to the area occupied by the pipe, for the obvious reason that the effects do not extend outside the immediate area of the easement. The accepted method is to −• Acquireatemporaryleaseduringconstruction• Payanannualperhectarerateequivalenttogross

earnings for the leased area calculated on a pro-rata basis as rental for the lease

• Assesstheunderlyinglandvaluetotakeintoaccountall potentials for land use that is part of, and included in, the assessment of CMV

• Acquireapermanenteasementforthepipelineandpay 50 per cent of the assessed value of the easement land traversed for the pipeline easement, adjusted to take into account the circumstances related to the land in question in terms of the valuer’s professional judgement.

The payment is a total payment without any separate additional payment for injurious effect. It is deducted from the before value to arrive at an after value, which is then tested against the 100 per cent land value to provide a reality check. Although subjective, this is considered capable of being assessed in terms of a valuer’s professional judgement and experience.

It is consistent with the principle expressed in Carlton Heights. A willing seller would not sell the land for nothing, and a figure representing the inherent value of the land on an area basis adjusted to take into account appropriate factors is acceptable and fair to both buyer and seller.

Easement feeSome registered valuers are using an easement fee based on a multiplier of land value. This is established by converting known compensation payments for transmission easements to a linear market rate at a per hectare rate. It is calculated on a stated corridor width for the easement through the property. The figure is then apportioned between land value and injurious effect and then expressed as a multiplier based on the current market value of the underlying land expressed on a per hectare rate.

This multiplier is typically in a range between 2.4 and 7.0 times the land value. It generally results in a valuation at least double that obtained using orthodox before and after methodology and often much more than that.

Valuations based on a simplistic multiplier without differentiation between applicable considerations and circumstances have the following difficulties −• Aneasementnecessarilyinvolvesalesserrightthan

full ownership on a purchaser. A formulaic valuation method, which results in a value over twice full freehold land value, is therefore always going to be questioned and needs to be thoroughly justified in order to meet professional standards.

• Aneasementvaluationthatexceeds100percentofland value can only be valid if it includes an injurious effect element and this cannot be calculated on a mechanical formulaic basis.

• Injuriousaffecthastobejustifiedintermsoftheeffect

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on particular properties. A linear rate derived from total payments cannot be apportioned between easement value and injurious effect without assessing the total effect of the line on individual properties.

• Thejustificationgivenforcalculationofaneasementfee on a linear basis appears to be the same as that used for calculating injurious effect. To add one to the other must involve double-counting.

• Althoughamultiplierisstatedasbeingacross-checkagainst the market evidence, that evidence relates to entirely different transactions which are not directly comparable in any conventional sense.

• Althoughthemultiplierispurportedtobeacross-check for both the easement fee value, plus the injurious effect element, the split between them as a proportion of the total has no separate validation mechanism. It is based entirely on subjective selection of percentages and corridors of effect.

Irrespective of Public Works Act considerations, the willing buyer and willing seller principle cannot be simply ignored. The Court of Appeal in Hajnal v Asmussen, reported in the last issue of Property Quarterly, confirmed willing buyer and willing seller as the applicable test in establishing compensation to the owner of affected land for the granting of an easement to provide access to landlocked land. The Court identified the following approach as appropriate −• Identifythevalueofthelandbeingtaken• Adjustthestartingpointwithreferencetoother

relevant factors such as the increase in value of the buyer’s property, the expenditure in that the buyer will incur in establishing the easement, avoiding over-capitalisation and any detriment or inconvenience

caused to either party.This is the sort of approach any valuer is required

to take to adjust and compare property sales for any particular class of property. If an urban valuer disregarded differences in condition, location, size and other relevant factors in evaluating market evidence of house sales, and did not disregard aberrations caused by particular unique circumstances or just obvious overpayment, they would be quickly taken to task. Valuations of transmission lies based on a multiplier without serious analysis and differentiation of definable factors and differences should be treated no differently.

Resolving the conundrumThe circumstances and rationale for differentiating the reasons why power companies have paid particular amounts for easements have not been publicly disclosed and are hard to establish. That is no reason for ignoring the fact that there are different reasons, and unless one power company wants easement rights over a particular property, there is no market for that easement to anyone including other power companies.

Anecdotally, one of the reasons advanced is that they have accepted valuations based on a multiplier derived from undifferentiated market evidence as evidence of market value. This would mean that the valuations themselves have contributed to the market that valuers are tasked at independently assessing.

If the acquisitions currently being used to support the easement fee approach can be justified as comparable open market transactions, this justification needs to be clearly established. That is something for the valuation community to address at a professional level, but I cannot

A Waikato landowner’s viewSteve Meier People who privately own land and host utility company assets upon that land have become secondary users to privately owned land to which the landowner pays all local and national charges. Ultimately, in the case of transmission lines pre-1988, landowners are living in an occupied land space and the utility company has first rights to the use of that land. Most of this undermining of land and human rights is done behind closed doors, excluding any form of public and private input or in many cases, the upping of the status of electricity transmission from national significance to national importance.

For example, this excludes any opposition to decisions or submission processes by way of government call-ins. The only shallow protection to landowners hosting transmission lines before 1988 lies

in the Electricity Act 1992 in section 23. This clearly states the timing, nature and category of procedures such as emergency or maintenance and methods of mitigation of damages of procedures if land is affected.

Regarding electricity transmission lines, for works completed before 1988 and no compensation ever paid, it is up to landowners to know their own rights. As the Electricity Act is based on the Resource Management Act and Public Works Act, and clearly defines their inherited existing use rights, to step outside these rights is not permitted under the Electricity Act. They have existing use rights, but no progressional rights after that.

It is up to landowners to scrutinise utility operations for themselves, to not be afraid to ask questions or research information, and to ask themselves if they feel the hosted occupier is remaining within these existing use rights. Once a landowner is duped out of their rights it is never possible to retrieve them.

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see how such transactions can be credibly differentiated from aberrations caused by petrol station or supermarket purchases.

Just like those transactions, they are influenced by special circumstances and reflect what particular companies were prepared to do to get a deal in a certain timeframe in certain circumstances relating to their business. Whether it is articulated as such or not, they invariably include a premium over market value particular to that company and that requirement.

Market evidence

If valuers can identify genuine market evidence and a competitive market which excludes atypical transactions and commercial premiums unique to particular transactions, they may be able to justify use of market evidence in valuing easement rights. However, they cannot simply rely on a market rate calculated on a linear or any other basis without analysing and differentiating the market prices in terms of relevant differentials in exactly the same way as they do in a normal market transaction. Without clear industry guidelines as to how a general market, rather than a one-off non-market, requirement can be identified and in-depth analysis of the costs and effects of different types of lines carried out, this is likely to remain unachievable.

Before and after methods, along with willing buyer and willing seller principles are well accepted, understood and capable of independent assessment and review. Similar properties with and without power line easements can be compared, as can sales data relating to such properties. If this data discloses a measurable and consistent difference, it is a clear basis for a market assessment and for a check against any linear assessment. When there is no consistently measurable difference, then as the market discloses no appreciable market difference it is a factor to be weighed in the assessment of what a willing buyer and a willing seller would accept.

Clear guidelines neededThe rationale supporting the corridors of effect approach is consistent with the ordered approach taken by the Courts in cases such as Hajnal discussed above. It is also consistent with the approach taken when very small areas are acquired from large properties where value is not reflected by before and after assessments. A logical starting point is lower than 100 per cent of land value for the affected area, on the basis that the right taken is less than 100 per cent of the bundle of rights attaching to that land.

The corridor of influence approach provides a mechanism for identification and assessment of relevant effects in accordance with the valuer’s professional experience and expertise. The underlying before and after assessment still provides a reality check in terms of the reasonableness of the outcome. To quote Carlton Heights again −

When a valuer is called to give evidence, the Court prefers him to present a complete valuation of the land and to vouch for each step therein and the final conclusion arrived at.

This is equally appropriate to a formal report. Clear industry standards and guidelines would also be helpful.

It would be nice if power companies disclosed the commercial basis behind their commercial decisions with relation to their acquisitions and operations, but that is not something valuers can either demand or expect. The fact that companies make commercial decisions relating to unique site-specific needs is not new, wrong or unexpected. However, the fact that purchase figures cannot be broken down to component parts does not give a licence to either assume the existence of a genuine competitive market or to deal with these figures on an undifferentiated basis.

Peter Graham is a Special Counsel for The Property Group Ltd, Napier. He has over 30 years of legal experience and is an acknowlegded expert in Public Works Act compensation.

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Niven Prasad

Cross leases – Neighbour consent to structural alterations and the right to park on common property Song v Chai

The case of Song v Chai 34 TCL 29/7 highlights once again the blurred boundaries between individual and common property rights that arise in cross leases. The case is helpful in its discussion of structural alterations requiring neighbours’ consent and the courts’ view on shared use of common property where the clauses in the cross lease do not give express guidance.

Case backgroundIn Song v Chai, the court considered whether −• Adefendantflatownerhadbreachedthetermsofa

cross lease by converting the garage into a bedroom without the neighbours’ consent

• Whetherthedefendanthadbreachedshareduseterms of the cross lease by allowing its tenants to park vehicles on the common property.

The plaintiffs, neighbouring flat owners, had acted as the defendant’s solicitor in the sale and purchase of the flat. The defendants bought the flat and leased the property out to tenants on the basis that the tenants could park their vehicles on the common property.

After suffering access issues related to the new tenants’ parking, the plaintiffs applied for a mandatory injunction through summary judgment. The application asked for the bedroom to be reinstated as a garage and for the discontinuation of parking on common property. The High Court declined the application of the plaintiffs and referred the matter to trial.

The presence of an arguable defence against the bedroom conversion claim meant the High Court had to dismiss the mandatory injunction application upon summary judgment. It was arguable whether the conversion was a structural alteration requiring consent of neighbouring owners.

On the issue of parking, the court decided that parking on common property should only be allowed on the basis that the parking is expedient and temporary. But the court refused to grant an injunction and deferred that matter to trial also.

Legal update

The issue of consent for structural alterationsThe court considered it inappropriate to determine in a summary judgment application whether the conversion of a garage into a bedroom was a structural alteration requiring the consent of other lessees. That issue required a wider investigation with the input of greater evidence, which would be more forthcoming at trial.

The court did however consider guidelines relating to structural alterations from the previous case of Estate of Ferguson & Anor v Walsh (1999) 4 NZ Conv C 193, 032. Briefly, three guidelines were mentioned −• Alterationswillnotbestructuraliftheyarecosmetic,

decorative, or superficial and do not make a significant contribution to supporting the building or maintaining its inherent shape, strength and integrity

• Alterationsmaybestructuralbutnon-load-bearingandof no or minimal concern or interest to lessees other than the owner involved in the alteration, for example, moving internal partitions or doors, or altering an exterior wall distant from or otherwise not having an effect on other lessees

• Alterationswhichaffectload-bearingandhaveaneffect on the strength and support of the building are structural.

The guidelines were not determinative, nor were they exhaustive. Given the factual complication of ascertaining when the garage had been converted and the previous solicitor and client relationship of the plaintiffs and defendants, there existed an arguable case that consent had been implied. This was not to mention the issue of


whether the conversion could be defined as a structural alteration in the first place.

The issue of parking on common propertyThe parking issue had two elements. First, whether a parking clause in the cross lease prohibited parking on the common property. Secondly, whether that parking prohibition had been waived by the neighbours.

The relevant parking clause, clause 11, provided for uninterrupted enjoyment of the flat property together with the shared use ‘in the said … drives, paths, and grounds on the [property] and of any stairways, balconies, and verandahs in the said buildings for access only to and from such flats.’

The court’s view of the clause was that it is not up to lessees in a cross lease to resolve among themselves

in relation to the use by one, as opposed to the other, of certain parts of the common property. The court went on to conclude that parking on more than a temporary basis within the common property is a prohibited activity, despite the absence of words saying so.

The fact that parking had taken place without any neighbours taking exception in the past did not constitute a waiver of any prohibition on parking on the common property. The court held that any concession made by the plaintiffs to allow parking on common property in the meantime were made with a view to achieving settlement without compromising the plaintiff ’s right to assert a case for a parking-free zone within the common area.

Niven Prasad is a commercial property solicitor for Simpson Grierson

Legal update

Career pathways evening The Career Pathways evening was held at Mount Maunganui college on 8 August. Steve Newton and Chris Boyd attended the event after the local branch was invited to come along to represent the valuing profession. Steve and Chris represented the greater interests of the Property Institute, with discussion generally around property and what our members do.

The event was well attended and structured, with the entire school hall set up to represent a wide range of potential occupations. The intention of the evening was to offer students the opportunity to gain knowledge about a number of potential careers and talk to those involved in specific jobs. Students were enthusiastic about further learning and plotting the way ahead, and it was great to raise the profile of the Property Institute.


Ian Campbell FPINZ

International Valuation and Appraisal Week 1 to 7 November 2011

This article is based on a paper I presented to address the 5th World Association of Valuation Organisations Congress in Singapore in November 2010. This highlighted the combined opportunity for the valuation and appraisal industry to showcase itself during the first week of November each year.

To achieve the critical mass and desired effect, the International Valuation and Appraisal Week would require the support of property professionals, including each professional membership organisation within each county and region relaying a consistent message of support and recognition of the industry on a global scale.

This article offers the opportunity for all members and their organisations and businesses to participate in a joint global initiative. In doing so, they will help to enhance the greater awareness and interest in real property valuation and appraisal during the first week of November each year, starting in November 2011.

Why have a global initiative International Valuation and Appraisal Week is a celebration by all valuation and appraisal organisations, to raise the awareness of the importance that valuers and appraisers make to the global economy. Promoting the valuation and appraisal industry on a global basis over an entire week has never been done before. On one hand, the awareness week will offer the opportunity for professionals to market their services to the public. On the other hand, it will create an opportunity for customers and the public to understand the industry better and the professional skills and experience that are there.

For clarification, the word appraisal has been included in the initiative as this term is widely used in the United States and other parts of the world describing the same function. As a global campaign, it is therefore appropriate that the initiative is titled to include both valuation and appraisal services. The reality is that the valuation and appraisal industry has never attempted to undertake joint marketing in a global context. A week set aside to enhance recognition of our business and industry is probably a good investment.

Other professional groups such as accountancy and law enjoy a significantly higher public profile for their profession. This in turn has led to their command of a

greater share of interested students, graduates and career opportunities. You may agree that few students would have ever considered or heard about property as a career choice compared to accountancy or law.

How to improve marketingHas awareness of the valuation and appraisal sector been overshadowed by the successful marketing of other professional groupings, or overtaken by the marketing of the real estate sector? These questions may signal a need to consider how the valuation and appraisal industry markets itself now and in the future.

Conversely, when considering the number of property professionals expected to retire over the next decade versus the number of graduates replenishing the industry, could not a fresh approach promoting the benefits of the valuation and appraisal sector help upon reflection? There may be other tangible benefits in promoting the industry to consider here as well.

Given the general acceptance and move towards adopting internationally recognised standards in accounting, including valuation standards, the industry may now be ready to combine and develop a more cohesive marketing approach. This is irrespective of the professional membership body that a member belongs too.

Often fresh eyes can bring fresh solutions. The International Valuation and Appraisal Week offers a fresh approach. With your inclusion this event will create a positive atmosphere for all the participants involved. For more information contact [email protected] or look at the web site www.wavoglobal.org



Labour and capital gains tax

We asked the main political parties to comment on the suggestion by the Labour Party to introduce a capital gains tax. The Labour Party was the only political party to respond.

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When we look at New Zealand’s economy today we see there are a number of serious structural problems which are holding us back from achieving our potential − high private debt, rapidly growing government debt and a limited capacity for growth. If we can fix these problems, we can all look forward to a more prosperous future.

In this article we will explore how Labour’s tax package would help the property investment community to build a stronger, more productive economy.

Labour’s tax packageLabour’ tax package will give hard-working people a tax break, pay off the country’s debt and grow our economy, all without our valuable assets being sold off. The main features of the tax package are −• Introducingacapitalgainstax(CGT)• UsingtherevenueraisedbyaCGTtopayformakingthefirst$5,000of

everyone’s income tax free, and to pay down debt • AskingthewealthiestNewZealanderstoreturnasmallpartofthetaxcuts

they have received in the last three years by reintroducing an inflation-indexed top 39 per cent tax rate for income over $150,000 a year.

• UsingtherevenuefromthatmeasuretoremoveGSTfromfreshfruitandvegetables

• ReducingthesubsidytoagricultureundertheETSandredirectingthemoney towards research and development tax credits.

The problem we faceWe did not take the decision to introduce a CGT as part of our economic package lightly. It is the responsible and carefully considered response to the situation the country is in. New Zealand’s economy, like much of the rest of the world, faces severe challenges rooted in too much borrowing. While the last

Labour government paid Crown debt down to less than zero, private debt exploded as a result of the housing bubble.

Now, New Zealanders are trying to unwind their debt, which means less spending. This is a recipe for stagnant growth, leading to lower wages and chronic unemployment, which have myriad social as well as economic effects.

The nuts and bolts of CGTThe key points of a CGT are −• Itwillnotberetrospective,itwillonlyapplytocapital

gains after valuation day• MostNewZealanderswillnotpaythetax• Itwillnotapplytothefamilyhome• Thosewhodopayitwillstillgettokeep85percent

of any gain they make because the tax rate will be set at a flat 15 per cent.

• Itispredictedthetaxwillraise$26billionover15years. This can be used to pay off debt, make the first $5,000 of income tax-free for everyone, save our assets and prepare for the mounting cost of our aging population

• RealestateintheCanterburyCERAzonewillbeexempt for at least five years to give earthquake-affected residents some relief.

A tax on capital gains will be set at a simple low flat rate of 15 per cent, which will be applied only to net gains after the valuation day. The tax will be forward-looking and only apply to gains accrued after implementation, past gains will not be affected. The tax will be applied on realisation and in most cases this will be the point of sale. Losses can be carried forward and offset against future capital gains.

Exemptions will include the family home, personal assets, collectables, small business assets sold for retirement, and payouts from retirement savings schemes including KiwiSaver will be exempt. Real estate in the Canterbury CERA zone will not be liable for an initial period of five years from the commencement of the tax, and after that it will be reviewed.

We will ensure trusts are not used as a means of avoiding the tax. Traders will not get a tax cut under. Assets currently taxed at the individual’s marginal or at the business tax rate will continue to fall under the existing regime.

How will CGT affect property investors?Labour wants to see all New Zealanders prosper. We know that the interests of property investors are ultimately tied up with the performance of the economy as a whole. Property investors stand to gain from a set of policies which create jobs and lead to higher wages, which increase the price renters are able to pay.We recognise

the valuable role that property investors play in providing rental accommodation to those who are either not in the financial or personal position to purchase a home or who choose not to for whatever reason.

As we all know, property bubbles formed in both the 1990s and 2000s. Rising prices encouraged more people into property investment, but betting on rising prices is never going to work for any industry. The tax distortions, particularly the lack of taxation on capital income which exists around property investment along with rising prices, caused many people to favour property investment as a savings tool.

Burst bubbleThe feedback loop of rising prices and the tax advantages of investing in property resulted in investors taking on more debt and a price bubble forming. Inevitably, the bubble burst. Many investors were left exposed with piles of debt and facing financial ruin. Labour wants to help the property investment industry to return to a sustainable basis. Investors need to be able to make a return based on the income and expenses of their investment, not only by capital gains. A CGT should achieve this.

Some people have made dire predictions that CGT will force people out of the property market, but international experience shows that does not happen. Australia introduced a CGT in 1986 and has a healthy rental market. Since the introduction of CGT, rents have increased in line with general inflation. CGT is a small tax that will only apply to net capital gains on sale. It will not force landlords out of business.

How CGT will help the economy?One of New Zealand’s biggest economic concerns is the mountain of debt we borrowed from overseas as mortgages during the housing boom. We need to make sure that we do not go through another property boom which leads to more borrowing and leaves us more indebted and more exposed to the turmoil in international financial markets.

A CGT will help to prevent another bubble. When we look around the world, New Zealand had one of the worst property bubbles in the 2000s. The Treasury estimates that half of the bubble was due to the tax advantages of property as an investment vehicle. If we put a CGT in place, we can avoid repeating the boom and bust in property prices which we have experienced. This will lead to a stronger economy in the future.

In conjunction with Labour’s research and development tax credit, our skills policy, our economic development policy, and our savings policy, a CGT will help to direct investment into productive enterprises. This is how we will grow our economy by increasing the productive capacity of our businesses and our people by New Zealanders investing in them and backing them.

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Martin WinderValuer for TelferYoung

Before training to become a property valuer I spent 14 years in the timber joinery industry with a firm which specialises in quality residential dwellings and hospitality facilities. Highlights included company ownership, roles in estimating and as production manager, lecturing at Christchurch Polytechnic to Advanced Trade Certificate level, and representing New Zealand at the World Youth Skills Olympics in France.

Profile

Career changeAt the age of 30, married and with three young children, I decided on a new life challenge. This involved first improving my computer skills, and secondly enrolling in the Bachelor of Commerce (Valuation and Property management) degree programme at Lincoln University. The decision to gain a university degree was as much about broadening my own career options as it was about providing a pathway for my children to follow, and to emphasise the benefits of a quality education in today’s economy.

I had my sights set on a valuation career. I love property, have a knack with numbers, and the balance between outdoor property inspections and indoor office work was appealing. The property market had been in a sustained period of growth which I knew would not last for ever. However, I thought that if the market declined while I was studying, then recovered about the time I graduated, then my timing would be about right. That was the plan.

The three years of full-time study was extremely enjoyable and rewarding. The variety of people I met along the way and the long-term friendships were a surprising upside. Financially it was challenging. My wife gave birth to our fourth child between exams. We had one of our cars condemned when it would not pass a warrant of fitness and our main car was written off by my wife all in the same week – we can laugh about it now.

There were good times as well. I was awarded several scholarships and prizes including the PINZ student of the year award. These provided a welcome

emotional lift, much needed additional income, and a satisfying reward for the sacrifice the whole family was making.

Not quite to planThe practical component of the degree requires 12 weeks of full-time work experience. This is where my relationship with TelferYoung (Canterbury) Ltd began. New Zealand’s economic fortunes had not gone according to my plan. The boom lasted an extra year and the slump an extra two. Needless to say the labour market was tight with very few graduates obtaining valuation roles. Thankfully, the team at TelferYoung took a risk on me and employed me at a time when the outlook was rather bleak.

I have now worked for a little over two years after graduation and have completed a wide variety of valuation tasks. I began valuing in the residential market and have now moved on to the industrial and commercial sector. From time-to-time I assist in the valuation of land with subdivisional potential, hospitality properties and telecommunication site acquisition.

Studying continuesThe study does not stop once you leave university. PINZ have established a large educational resource which is focussed on helping property valuers in their professional development. I am currently working towards my registration, along with full membership of PINZ and NZIV. This requires study of a broad range of topics. Many of these are accessed through the PINZ website – such as case law, online ethics seminars and webinars.

I have also attended many PINZ courses as part of CPD requirements. The PINZ email updates are a good way to keep up-to-date with industry changes and the latest issues.

EarthquakesLike everyone in Canterbury the morning of 4 September 2010 will be etched in my mind for ever. I was woken from deep sleep, fumbling round in the dark, grabbing the children and moving outside to safety. Unfortunately that was just the beginning as it was followed by the much larger quake in February 2011which caused deaths of many and destruction on an unprecedented scale.

On a personal level our house has sustained significant damage, many friends have lost theirs, the

school has been affected by the destructive effects of liquefaction, and many normally stoic and strong people have been reduced to nervous wrecks. TelferYoung’s office was based in Cathedral Square, but we have since relocated to a two-level office complex in Blenheim Road. However, our many years of property files still remain thrown around the file room as they fell. With each passing week it looks less likely that we will see them again.

Changing timesThe earthquakes have changed everything from a valuation point of view. After each large quake everything stops − the city, the office, all jobs put on hold for the time being. Slowly clients begin to take stock of their situation and attempt to move forward. The need for sound property advice has never been greater. The senior valuers within TelferYoung Canterbury have got on to the front foot and shown considerable leadership and initiative. They have organised seminars, discussion forums and high-level informative briefings for political leaders, banking sector leaders and special interest groups both in Christchurch and Auckland.

These presentations have aimed to quantify the challenges and overall scale of the situation, while also bringing assurance that certain sectors of the city are relatively unaffected. At the time of writing, airport, rail, roading networks and port facilities are all operating at near capacity levels. The South Island rural economy is strong, and Christchurch’s manufacturing sector is performing well, much of it based to the west of greater Christchurch which has been less affected. So it is not a completely negative picture.

New work opportunitiesConventional valuation workloads diminished after the quakes, with transactions understandably at an all-time low. The first real earthquake-related work which crossed my desk was from commercial and industrial property owners who had sustained only minor damage to their properties but wanted their insurance reinstatement valuations updated. These valuations usually take place on a biennial basis. This has now changed to an annual basis for many.

The second source of new work has been market-related indemnity assessments on buildings to be demolished for insurance payout purposes. This involves a complete market valuation of the land and buildings

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before the first quake, then the deduction of the land value to arrive at the market indemnity value. Many of our registered valuers have been assisting EQC with their assessment of residential land values in areas which have now been categorised as red zone.

The future of valuation looks very bright in Christchurch. The rebuild is likely to stimulate activity for the next 10 to 15 years. The temptation has been to pack up and leave this city. In fact, after each decent aftershock it becomes more than just a temptation. However, I firmly believe those who persevere and contribute to the rebuilding effort will be rewarded in more ways than just financially. It is a great chance to be part of something new, bright, sustainable and cutting edge – quite possibly a once-in-a-lifetime opportunity for New Zealanders.

Long termTelferYoung is well-positioned to meet the challenges and opportunities of this new era. Recent investments in new technology, and a willingness by the TelferYoung group to adapt to some of the changes sweeping the valuation industry, have given me great confidence. This stability enables long-term career planning with particular regard to areas of specialisation, and also the possibility of completing a masters degree programme part-time.

I do not have many pearls of wisdom to offer students except to state the obvious – it is true that Cs get degrees but they do not attract job offers. You really need to work hard and stand above the rest to land a good job. Even in the toughest job market, jobs are available for those who show initiative and a willingness to work hard.

Life outside workWhen I am not at work I enjoy spending time with my wife and children. The children are involved in many sporting teams and pursuits, and we love holidays and weekends away. One of my life-long passions is the high country of the South Island. I am a keen alpine tramper, and I like getting away into the remotest of regions for a few days or even up to a week from time-to-time.

The resourcefulness and self-reliance is something I thrive on. The alps have many valleys and glaciers tucked away just waiting to be explored and appreciated. They are wild places, guarded by wild rivers, and frequently buffeted by wild weather.

I am genuinely looking forward to my career in valuation, the challenges it offers and the wide variety of people you meet. Every property is different and so is every day.

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Managers MixersManagers Mixers were held in Wellington, Auckland and Christchurch in August. The Chair of the Property and Facilities Managers Council, Tyrell Snelling gave an update on what the council has been up to, including the Professional Pathways programme. It was good to see both members and non members at these events.

Social activities


property quarterly (october 2011)

Documents