Q.
As an estate agent you are required to give advice regarding 'Annual Value' and 'Improved Value' in a discussion relating to Local Government Act 1976 which gives an impact to the property owners. Discuss these matters and give 3 working examples each.
(25 marks, 2012 Q4)
A.
Local Government Act 1976 (Act 171) under its Basis of assessment of rate:-
Section 130. (1) Any rate or rates imposed under this Part may be assessed upon the annual value of holdings or upon the improved value of holdings as the State Authority may determine.
The Annual Value of holding or Improved Value of holding is the Annual Rentable Value of the holding which will be used as a base for calculating the assessment rate.
The Act also specifies its power to impose rates in S.127 and s.128.
Annual Value and Improved Value were posted earlier, see below links.
Annual Value in past year question 2013 Q2.
Annual value and assessment rates.
Annual and Improved Value in JPPH website.
Drainage rate
Difference between Annual Value and Improved Value.
3 working examples:
Annual Value:
Example 1
House newly assessed by the Local Authority to be rentable at RM1000 per month. Annual value is calculated based on 6% of the Annual Rentable Value, which is:
RM12,000 x 6% = RM720 or RM360 six monthly.
Example 2
House previously used to be rented is now converted to commercial use - change of use. A corner double storey house previously rented out is now taken over by a second hand car dealer. Annual value is now re-assessed for increased value. A valuation list is followed for such purpose.
Example 3
House with no highway access now opened up a bridge for better connectivity to a highway. This enhancement of the value of the property would increase the rentable value thus, the annual value payable to the Local Authority.
Improved Value:
Example 1
House has been acquired in an Auction and renovated to increase the numbers of rooms to double of its original room number to accommodate extended family. Its original price was RM400,000. Now, the value increased to RM800,000.
Increase in capacity (density of use) increases the Value. Such improvement to the property can be used as a measurement for assessment rate called Improved Value. This improvement would attract valuation, and a higher value would be imposed based on the outcome of the valuation.
Example 2
Previously agriculture lease land, now improved with fencing to avoid trespass would incur an Improved Value for the rates payable to the Local Authority. With higher market value, it attracts valuation at higher assessment rate as Improved Value has increased.
Therefore, if the new Value of the land is RM8,000 from RM5,000, hence the rate payable annually would be calculated based on the higher RM8,000 x 5%, which is RM400, instead of RM250 earlier.
Example 3
The restaurant is occupying a bungalow house with scrubs and bushes surrounding it. As there is need of car park, the proprietor improved the restaurant with sheltered car parks accommodating 20 cars, the area affected is an increased of 100% from the original size of the restaurant building. This is an enhancement which can attract Improved Value rating.
A valuation list will be followed to calculate the improved rates, which is likely to be a percentage of the Improved Value - an expense put into improving the restaurant. The Annual Value would also increase as the restaurant is likely to thrive better in the food business with ample parking.
Ref:
Own account.