Rating 1 introduction

EMT611:ValuationforRating(1)
1
Center of Studies for Real Estate Management,
Faculty of Architecture, Planning and Surveying,
University of Technology Mara
40450 Shah Alam,
Selangor Darul Ehsan, Malaysia.
Email: rohayumajid@salam.uitm.edu.my
TOPIC:
VALUATION FOR RATING
(1)
(INTRO)
Sep2013-Jan2014

2
INTRODUCTION
WHATIS AN ASSESSMENT
 EXEMPTIONS FROM RATES
(Sec. 134 &135)
 POWERTO IMPOSERATES
(Sec. 127, 137, 164)
 THENEEDTO IMPOSEASSESSMENT
 BASIS OFRATE
CONTENTS
Sep2013-Jan2014

1.0 INTRODUCTION
• Property taxes in Malaysia levied by the 3 level of government
include the following:-
Federal: Income tax, stamp duty, estate duty, real property
gain tax, share (land based company) transfer tax.
State : Quit rent, premium, permit.
Local : Rates, development charge.
• Payment of taxes:-* by yearly eg. quit rent.
• According to the present system, LA are very much under the
control of their State Governments.
• The member of LA are appointed by the respective SA.
3
EMT611:ValuationforRating(1)Sep2013-Jan2014

Introduction……..
• The 9th
Schedule of the Federal Constitution provides that
- LA shall be a State matter and therefore al LA with the exception of the
City Council of KL come under the direct jurisdiction of State
Government.
• Local Government, - being the third and last tier of Gov. in the country,
its sources of revenue are limited.
• The main source of LA revenue is from property assessment.
• Beside property assessment, LA also derive revenue from other
sources such as development charges, license fees, rent on premises,
fees for specific services, return from investment, grafts from the State
Gov and Contribution in aids of rates.
4

2.0 WHAT IS AN ASSESSMENT
• Form of taxation payable by the real estate owners on their
holdings.
• Imposed on real estate holdings such as:
a. Residential – terrace, bungalow etc.
b. Commercial – shop house, office building etc.
c. Industrial – light and heavy industry.
d. Agriculture - rubber estate.
e. Special properties
– airport, equestrian park, team park etc.
• Governed by the Local Government Act 1976 (Act 171).
• Also known as “Cukai Taksiran” or “Cukai Pintu”.
5

3.0 EXEMPTIONS FROM RATES (Sec. 134 & 135)
• Empowers the State Authority to exempt as its discretion any
holding or part of holding from the payment of any rate if such
holding or part thereof is used exclusively:-
a. as public place of religious worship.
b. as licensed public burial ground or crematoria.
c. for public school.
d. as public place for charitable purposes or for the purposes of
science, literature or the fine arts.
and not for pecuniary profit. 6

4.0 POWER TO IMPOSE RATES (Sec. 127, 137, 164)
• Part XV of the Local Government Act, 1976 (Act 171) deals with Rating and
Valuation.
• The law as contained in Part XV can be divided into two sections:-
a. that portion which concerns the valuer
(i.e Sec. 2,127, 130, 135, 137-145, 159-164).
b. That portion which concerns the section that is
responsible for the collection of rates
(i.e Sec. 127-133, 136, 146-158, 162).
• Power to impose rates is given by Sec. 127 (LGA 1976).
Existing Assessment List shall be the List on which the rates shall be
imposed until such time a Valuation List is drawn up.
7

Cont..Power To Impose Rates (Sec. 127, 137, 164)
• Who imposed the rates?
Local Authority – City Council, Municipal Council or District
Council.
Example: Dewan Bandaraya Kuala Lumpur (DBKL), Majlis
Perbandaran Kelang (MPK), Majlis Daerah Kuala Selangor
(MDKS).
• LA has to prepare a new Valuation List once every 5 years or
within such extended time as the State Authority may
determine.
• Former law LA had a choice of either preparing Assessment
List every year.
8

5.0 THE NEED TO IMPOSE ASSESSMENT
• Construction / development and maintenance of public
utilities.
• Maintenance and management of infrastructure.
• For most local authorities in Malaysia property tax or rates
remain the main source of income; in some cases
exceeding 65% of their revenue.
9
Services Provided By LA
Services
• Street lighting
• Garbage disposal
• Cleaning of drain
Facilities
• Market
• Hall
• Surau
Sep2013-Jan2014

6.0 BASIS OF RATE
• There are two basis (Sec. 130):-
Annual Value
all states of Malaysia
except Johor.
Improve
Value
Johor
10
In general it refer to rate able value of land & building
Derived from its yearly letting value
However in Malaysia- Also apply the other method
Sep2013-Jan2014

Estimated Gross Annual Rent
The first part of the definition states that annual value means
the estimated gross annual rent……
Valuations are in fact expressions of opinion and are
therefore “estimated”.
This also means that the rent actually paid for the property
under consideration need not be the rent to be accepted as
the annual value because it may not conform to the rent the
standard of which is set by the definition.
Adjustment are required where necessary.
This phrase also goes on to state that it should be the annual
rent.
11
Cont….–Basis Of Rate .. Annual Value
Sep2013-Jan2014

Reasonably Be Expected To Let
The estimated annual rent to be assessed has to be a reasonable one.
Valuer does not select the highest rent passing that conforms to the norm as
the rent required. Neither does he select the lowest; nor the average. -
What he should select is one that could be regarded as fair.
From Year to Year
The phrase means that the tenancy to be assessed should be a yearly one
and the tenant regarded as a tenant from year to year
Payment for Outgoings and Taxes
The landlord is the person who should be responsible for the payment of the
expenses of repair, insurance, maintenance or upkeep and all public rates
and taxes.
The definition shows that the rent to be assessed is a gross one. 12

a) No account shall be taken of any restrictions or control of rent.
b) Any machineries used for any or all of these purposes i.e:
i. The making of any article or part of an article.
ii. The altering, repairing, ornamenting or finishing of any
article.
iii. The adapting for sale of any article,
The enhanced value shall not be taken into consideration.
c) In the case of land which is; 13
“ the estimated gross annual rent at which holding might reasonably be
expected to let from year to year the landlord paying the expenses of
repair, insurance, maintenance or un keep and all public rates and
taxes”.
Annual Value : Sec. 2 (LGA 1976)
Sep2013-Jan2014

14
) In the case of land which is;
• As for (ii) & (iv), it were vacant land with no buildings.
• In all cases, the LA may with the approval of the
State Authority to reduce to a minimum 5%.
d) Any particular holding, in the opinion of VO, insufficient evidence to base a
valuation annual value, the VO may apply such methods of valuation as in his
opinion appears appropriate to arrive at the annual value.
Status on land The annual value
i.i. Partially occupied or partially built upon. AV as defined OR
10% of MV, discretion
of VO
ii.ii. Vacant, unoccupied or not built upon. 10% of MV
iii.iii. With incomplete building. 10% of MV
iv.iv. With building certified by the LA to be
abandoned or dilapidated or unfit for
human habitation.
10% of MV
Sep2013-Jan2014

• Sec. 2 (LGA 1976)
“. the price that the owner willing and not obliged to sell might reasonable
expect to obtain from a willing purchaser with whom he was bargaining for
sale and purchase of the holding
• Mainly used in the state of Johore as a basis of valuation.
• The definition of improve value is identical to the definition of market
value.
• The state of Johor has the rare distinction of being the only state which
continues to use the improve value as alternative basis of rating.
• The power to impose rates under the Johor Town Board Enactment
(Johor Laws Enac. No 118) was provided for under section 28(1) as
follows:“ Any rate or rates imposed under this part shall be assed upon
the improved value of holdings”
Cont….– Basis Of Rate….. Improve Value
15

Principles Of Market Value
Case: Ng Tiou Hong v Collector of Land Revenue, Gombak @MLJ
1984.
1. Compensation – a wiling seller and a willing buyer.
2. Market price – measured by a consideration of the price of sales of
similar lands in the neighborhood or locality and similar quality
and position.
3. Potential - must be take into account.
4. Nature of the land - refer whether the locality is within or near a
developed area, its distance to or from a town, availability of
access road etc.
5. Estimated of value by experts – undoubtedly.
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 Market Value
 The nature and extent of the interest; usually this is
the interest that is effected, e.g encumbered or short
leased etc.
 Potential- there is an abundance of case which
required potentialities to be taken into consideration.
 Improved value
 Valuation of special properties
 Treatment of leaseholds
 Potential as against existing use.
 Encumbered lands
abundance a very
large quantity of something
Problem in
Improve
value basis:
• A lot of
potentialities
need to consider
encumber
restrict or burden (someone or something) in
such a way that free action or movement is difficult
Problem associated with improve value basis
Sep2013-Jan2014
17

18
Type of holding Rate of assessment
 Residential 5.5%
 Commercial 6.6%
 Industrial 7.15%
 Agriculture 1.1%
 Malay reservation 2.2%
 Non-malay reservation 1.1%
Rate Imposed by MPAJRate Imposed by MPAJ
Annual Value : RM120,000
Type of
Holding : Residential
Rate of
Assessment : 5.5%
Amount
payable :
RM120,000
x 5.5% =
RM6,600
per year
Example calculation of Annual Value ;
Example
Sep2013-Jan2014EMT611:ValuationforRating(1)

RATE IMPOSED BY MBJB
EMT
611:
Valu
atio
n
for
Rati
ng
19
Type of Holding Rate of Assessment
Residential 0.14%
Malay reserved 0.10%
Commercials 0.25%
Industrials 0.28%
Agricultural 0.07%
Low cost house
(<RM50,000)
Improved Value : RM192,000
Type of Holding : Residential
Rate of
Assessment : 0.14%
Amount payable :
RM192,000 x
0.14% =
RM 26,800
per year
Example calculation of Improved Value ;
Example
Sep2013-Jan2014

COMPARISON AV & IV
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Tutorial Question 1?
Please find out what is the differences
between Annual value and improve
value. List down the
- criteria
- impact for property valuation
Sep2013-Jan2014

21
Annual ValueAnnual Value Improved ValueImproved Value
Existing use value (rebus sic
stantibus)
Not always
Potential is not considered Potential must be accounted
No distinction between freehold and
leasehold
There exist distinction
Assumption on vacant and to let Valued subject to encumbrances
Hypothetical tenancy Hypothetical sale?
Not very sensitive to changes or
fluctuation
Susceptible to fluctuation and
changes
No speculation is allowed Certain amount of speculation
inherent in the market value allowed
Answer: Tutorial Question 1
Sep2013-Jan2014

Rating 1 introduction

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