What Is Capital Value Of A Property in Australia: Why it’s Vital

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If you’ve purchased a property in Australia, have decided to sell it as an Australian expat, and want to get it valued, there’s an important value that you’ll need to understand. This value is the capital value.

The capital value is important. Since it’s such a critical figure, many property owners contest this value and, in situations like these, objections can be raised and made with the valuer general. This just shows just how crucial the capital value can be!

So, if your aim is to sell your property, make changes to your property, or get it valued, you must understand the answer to the question “what is capital value of a property in Australia”. And you’ll find the answer to this question and many others related to capital value in this article!

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What is Capital Value of a Property?

The capital value of a property refers to the amount or sum that a property might be sold for in circumstances where the property is sold under conditions that are reasonable. It’s the total value of your property, including the land.

Keep in mind that, although you might see the term capital value abbreviated to “CV” on your council rates documents, don’t confuse this with the term “council value”! 

What is Capital Improved Value?

In the context of capital value, there is also another term that you will need to be aware of, which is capital improved value. This is a term used to describe the land’s market value and the valuation of the building, in addition to any improvements or enhancements done to the property.

What Is It Compared With Capital Return?

In answer to “what is capital value of a property” compared with capital return, where capital value refers to the realised sum ordinarily gained when valued and put up for sale under conditions that are reasonable, capital return refers to how capital value might change between different periods, minus the capital expenditures.

Capital return, in this sense, is portrayed as a segment or percentage of the capital value, minus the partial sales and a segment of the net income.

What is Capital Value Used For?

Capital values are useful for selling property, but they have other uses as well.

The capital value of a property can be used to calculate a property’s rates, which can be calculated with a simple sum: Just multiply the assessed annual value of your property by the council rate. Here’s a quick example. If your capital improved value is $125,000, multiply this by your council rate (which might be 0.004 cents), giving you $500.

Here’s another example of the rates you might be charged. If the assessed annual value of your property is $200,000, and your council rate is 0.0042 cents, the rates you’ll pay will be equal to $840.

Say you’d like to make changes to your property and choose to take out a home loan to do so. What’s important when making changes, which might be a building extension or the demolition of a part of your home, is to take note of the building work required before you begin.

Once you know which building work will be part of your proposal, and have been given the go ahead, you will need to notify the valuer general who will then make another valuation of your property. Once they have been advised of the approved changes, your rates will be updated and you’ll be notified.

What Factors Affect Capital Value?

Certain calculations that are used to provide the capital value of a property in Australia include factors such as:

  • Improvements to structures, which might include the building’s walls
  • Enhancements to the land, which might include planting trees

For example, you might have enhanced the land of your property by planting a row of trees, or by extending your property’s area by expanding the space and building additional walls. If you’ve spent $20,000 on extending the property space and built additional walls, this is one factor that will contribute to the capital value of your property.

Who Determines Capital Value?

Capital values of properties are established by the valuer general office. The valuer general office will establish the capital value by acknowledging enhancements and improvements mentioned in the section above.

What the valuer general office will also consider are the valuation methods, market evidence, and additional factors that can change or influence a property’s value.

What About Market Value?

The capital value of a property is often different from the market value of a property. Whereas capital value determines an approximate property value guide used to make calculations for the necessary council rate, the market value, the market value are more specific.

The market value is established by a real estate agent by considering three factors. The first is the capital improved value which, as mentioned, is the value of the land and building or land enhancements. 

The second is the net annual value which is the present moment value of the net annual rent of a property. And the third is the land’s value on its own (known as the site value).

Does Capital Value Include Land Value?

Yes, the capital value does encompass the land value, since the capital value is the sum of the land’s value and the improvements made to the land, in addition to the value of the property itself.

You’ll get a different answer when comparing the questions “what is capital value of a property in Australia” and “what is land value”. Even though the capital value includes the land value, the land value refers to the property’s value that excludes the visible enhancements and improvements made to the land.

To explain this more explicitly, whereas the capital value equates to a price that your property might sell for when it has been revalued, the land value equates to the land’s price that you would receive when revalued and sold—excluding the buildings or enhancements.

Land value also refers to the property’s value excluding the enhancements of structural changes or changes to fixtures.

What Is Capital Value Of A Property in Australia: Why it’s Vital

Capital Value vs Market Value in Australia

The capital value of a property is often different from the market value of a property. Whereas capital value determines an approximate property value guide used to make calculations for the necessary council rate, the market value, the market value are more specific.

The market value is established by a real estate agent by considering three factors. The first is the capital improved value which, as mentioned, is the value of the land and building or land enhancements. 

The second is the net annual value which is the present moment value of the net annual rent of a property. And the third is the land’s value on its own (known as the site value).

Capital Improved Value vs Market Value

The capital improved value (CIV) of a property is an estimated value used for taxation purposes, while the market value is the actual price the property would sell for on the open market.

The key differences between CIV and market value stem from how each value is determined. CIV is set by governmental authorities based on the land value plus improvements like buildings. It aims to estimate the overall property value but does not necessarily reflect true market conditions. CIV also tends to lag behind shifts in the real estate market. In contrast, market value fluctuates constantly based on supply and demand. It is the estimated selling price considering recent sales of comparable properties and what buyers are willing to currently pay.

Market value tends to be higher than CIV, especially during times of rising prices and high demand. This is because CIV only looks at tangible property assets, while market value incorporates intangible factors like location and desirability. Additionally, CIV is updated periodically and thus responds slowly to market shifts, whereas market value reacts quickly.

CIV provides an administrative value for taxation purposes that may diverge from market value, which is the actual price determined by real estate market forces. Taxes use CIV calculations, but buyers and sellers make transaction decisions based on real-time market value.

How is Capital Improved Value Calculated?

Capital improved value (CIV) is calculated by governmental authorities using a few key inputs:

  • Land value: The assessed value of the land itself based on recent sales of comparable vacant land parcels. Factors like location and lot size are considered.
  • Improvement value: The value of structures and buildings on the land, calculated by looking at building size, construction quality, age, condition, etc.
  • Depreciation: A depreciation percentage is applied to the improvement value to account for ageing and wear and tear. The depreciation rate varies based on the expected usable lifetime of structures.
  • Other factors: Some locations adjust CIV calculations based on current zoning, potential alternative uses, access to utilities, environmental issues, and other variables that can impact property value.
  • Market adjustment: Some jurisdictions periodically adjust CIV valuations up or down to bring them closer to current market conditions, usually by applying a blanket percentage adjustment.
  • Exemptions: CIV may be reduced by applicable exemptions for things like homestead status, agricultural use valuation, or tax abatements on new development.

CIV is calculated by combining the assessed land value, depreciated structure/improvement value, market-based adjustments, and net of any exemptions. While aimed at estimating market value, CIV does not necessarily equal or directly correlate to true market value at any given point in time.

What Is Assessed Annual Value?

The assessed annual value, in relation to the capital value of a property, refers to the property’s annual, gross rental value, whereas the capital value is the property’s total value.

Since the assessed annual value (also known as the AAV) can be used to calculate the property rates you must pay, it’s a very important figure to be aware of.

Things to Keep in Mind

The vital things to keep in mind are that if you’re an Australian expat looking to make enhancements to your home after being approved for a home loan or to get your property valued, look out for that capital value figure. The capital value can change, which is why you should always keep an eye on it!

Contact our team to learn more about home loans and home valuations and stay up to date with the latest on property and mortgages in Australia.

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Frequently Asked Questions

Capital value refers to the total monetary value of a property including the land and any structures on it. It is the value used for property taxation purposes.

Capital value is determined by the state/territory Valuer-General or land commissions using sales data for comparable properties and other valuation methods. They aim to estimate the market value of the property.

Capital value may not always equal current true market value. Market values tend to fluctuate more frequently with property market conditions.

Each state has different rules, but property capital values are reassessed every 1 to 5 years on average. Regular revaluations aim to align capital value closer to market value.

Property and land taxes levied by state/local governments use the capital value as the basis for taxation. This includes council rates, land tax, and stamp duty.

Most jurisdictions have dispute and appeal processes if you believe the value is inaccurate. You typically need supporting evidence like sales of comparable properties.

Capital value will be updated to reflect new constructions or renovations at the time of the next general revaluation. You may need to notify the state valuer.



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