The Basics Of Real Estate Capital Valuations

The real estate market in New Zealand is constantly changing, with property values peaking and dipping with an almost seasonal frequency. To be able to maintain a sense of order, and determine rates, local councils have taken to issuing CVs across all properties within their region. When spoken of in real estate terms, a CV refers to a capital valuation. This figure acts as a barometer for shifts within the property market at large. Let’s take a look at some of the basics of CVs to help you gain an understanding of the part they play in real estate.

What is a Capital Valuation?

It represents the figure that would probably have been paid for your property if it had been sold at the date of the previous valuation. This is not the same as a market valuation and includes only the bare bones of a property, not taking into account any chattels or other additions recently affixed. For this reason, capital valuations have little bearing on actual real estate sales in New Zealand. Depending on the current real condition of a property it could sell for far more, or even far less, than a council certified CV.

The Difference Between Capital, Land and Improvement Value

Other important terms to understand are land and improvement value. While capital valuation refers to the selling price of the property at the time of the valuation, the land value is an assessment of the price of only the land at the time of valuation, disregarding any buildings on the property. The improvement value takes into account improvements such as driveways, paths and fencing, and is the difference between the capital value and the land value.

Why Do We Have Capital Valuations?

They are a requirement under New Zealand law, with councils having to provide a figure for local properties every three years. This information is publicly accessible online and gives a general overview of changes in the real estate market from area to area. The important thing to first understand about capital valuations is that they under no circumstances represent the market value of a property. Their function is more statistical in nature than as a tool for measuring the real worth of any one home.

Whilst the real estate market in New Zealand is usually fairly stable, and not influenced by international markets on a daily basis, the main city of Auckland, where one quarter of the country’s population live, does tend to show property trends before other regions, and usually the smaller the region the less volatile the market. In these regions such as Southland, West Coast and Northland, the prices that houses are sold for will be closer to the rated value than those in the main cities such as Auckland, Wellington and Christchurch which are far more susceptible to supply and demand requirements.

How is a Capital Valuation Calculated?

With regard to the actual process of assessing ones CV, council surveyors will visit approximately half of the properties within their region during each three year review period. First they will inspect the nature of the property and examine whether it holds the same classification as last time (i.e.: apartment block, house, townhouse, etc). Notes will also be made on land features, such as the quality of the view relative to surrounding abodes, and the general character and standard of the property as a whole. This process will take place every three years across New Zealand, until every piece of real estate is assigned a CV figure.

What Purpose Does It Serve?

Aside from being required under the law, capital valuations provide a stable base from which the regional (such as Auckland, Wellington, Canterbury) and district (such as New Plymouth, Napier, Kaikoura) council rates can be calculated. One method of calculating annual rates is to charge five percent of a property’s CV. There are other methods also used to determine rates, but capital valuations help regulate this process. Whatever the case, they are a core element of the real estate landscape of New Zealand.