Consultant Report - IPART

SECTION FIVE
Analysis of Discount Factor Based on Precinct Sample
Overview
LPI has been instructed to provide one or more evidence based discount factors. In providing those factors,
LPI was instructed to consider the following.
1. The factors were to be derived after considering and reviewing valuations referred to in the WAG
submission (Pages 11 to 12, fact sheet 8).
These valuations were reviewed through a separate process, detailed in Section Four, and have
been revised accordingly. Whilst they have been considered, they have been found unsuitable,
overall, in assisting the provision of evidence based discount factors due to issues also detailed in
Section Four.
2. The factors were to be derived after considering the different types of uses of occupancies.
The factors were derived after a valuation exercise was undertaken on benchmark properties which
represented a wide range of uses across varying locations along the coast. It is noted, at this point,
that considering the use of the land resulted in valuations altering little in quantum where the use
remained the same despite the area of the occupancy increasing.
The resultant discount factor, when applied to the average occupancy in a precinct, fairly represents
the use. Where areas diverge significantly from the average the resultant value basis used to
determine rental becomes less representative of the use.
3. The factors were to be derived based on a representative sample of occupancies and precincts
across NSW
The factors were derived after a valuation exercise was undertaken on benchmark properties which
represented a wide range of uses across varying locations along the coast.
4. The factors were to be derived consistent with the principles outlined in the Terms of Reference for
IPART’s review, including market return, operational efficiency, consistency and equity.
The provision of one or more recommended discount factors satisfies the goal of operational efficiency as
they are to be applied to base values derived from existing land values
The approach used to determine the derived discount factors has been applied consistently against all
benchmark properties.
The derived discount factors provide a market return based on use.
To assist in the equity of the factors, they have been derived using weighted averages from different regions
to arrive at a factor reflecting the proportion of lands in each region.
Whilst LPI was requested to consider the use when deriving evidence based factors, consideration was also
given to the alienation of private land for a public use.
The area of land required for a similar use is variable and dependent on the style and quality of the wetland
which is subject to occupancy. Whilst this may be reflected in a lower land value per square metre, it will not
always be reflected in the adjoining land value or the adjoining Precinct as defined. The land value as
derived by factor, in cases where larger than average areas are required may well exceed that as derived
based on use. This is especially so as the cost of building and maintaining structures will also increase due
to the greater area.
It should be noted that the opposite is so as the area of the occupancy becomes less than the average,
usually due to highly prized deep waterfrontage.
In an effort to resolve this issue, consideration was given to the value of the land to the public, not reflecting
the use of the occupancy. As the waterways are a recreational space, open space land was considered as
an appropriate comparison. A pilot study, undertaken by LPI as part of this review, considered this as an
Investigation of Discount Factor used for determining rentals for Domestic Waterfront Occupancies
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