Every three years the capital valuation, or CV, of every New Zealand property needs to be updated. Auckland’s new CVs were due this year, but Auckland Council has proposed to delay its re-evaluation process until 2021.
So what does this mean for buyers and sellers?
Nothing, says James Wilson, director of valuation and innovation at OneRoof's data partner Valocity. In fact, buyers and sellers shouldn’t pay much attention to the CV of a property at all.
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“Council valuations were not designed to give any indication of the market value of a property,” he says. “They have a narrow purpose: to help councils figure out how to apply rates to a property. Should a buyer or seller use that as the only figure they look at? The short answer is no.”
Wilson says that there’s a lot of misunderstanding out there – even ignorance – about what a CV actually is.
“Property experts like valuers, agents and lenders are well aware of what CVs are used for, and will often not even consider them as part of their appraisal of market values. But laypeople who are trying to buy or sell property might not.”
That’s because the CV used to be the benchmark for making an offer on a property, says Mortgage Lab CEO Rupert Gough.
Valocity director of valuation James Wilson: "CV have a narrow purpose." Photo / Supplied
“Five years ago, we relied on the CV of a property much more than we need to now, because it was all we had to go off,” he says. “These days, we have free and easy access to up-to-date information about recent sales in the area, which gives us a much more accurate indication of the market value of a property.
“Real estate advertisements often list the CV of a property, though. It can be confusing for beginner house-hunters to see a value that might not relate to the price a property actually sells for. It’s a shame to have that as a benchmark when in many cases it’s completely irrelevant.”
'Take it with a grain of sale'
Ray White real estate agent Regan Golding says that buyers often ask what the CV of a property is but she tells them not to take it too seriously.
“Historically we regularly sell properties above and below the CV so it’s not something they should hold onto with both hands,” she says. “Sometimes a CV gives them a good guide and confidence that they could afford it, but ultimately we advise them to take it with a grain of salt.”
This is because CVs are produced by an algorithm that’s based on a property’s land and floor size. It’s not done in person – it’s all done by computers – which means it probably hasn’t taken any improvements into consideration, like new kitchens or landscaping.
“You really won’t know how much your property is worth until you take it to market and find out what the market is prepared to pay for it,” says Golding.
With so much uncertainty in the market at the moment, though, homeowners want some sort of guarantee around how much their property is worth. But despite a lot of media commentary about COVID-related property crashes, nothing has come to fruition.
Auckland Council has proposed delaying updating CVs until next year. Photo / Getty Images
“Early on, we found that people were quite fearful,” says Golding. “But I don’t believe that COVID-19 has impacted sales at all. Supply and demand will always impact sale prices, and we’re still very much in a market where we have far more buyers than properties available to sell them.”
Wilson says that instead of a widespread ‘crash’, we might see changes in sub-market performers.
“For example, the Auckland apartment market has already started to show signs of slowing down, and as a result values have started to soften. But in the wider Auckland property market there has been barely any movement in the overall index figure.”
Fairer outcome
Gough says the difference between the Global Financial Crisis and 2020 has been the degree of confidence.
“During the GFC there was a general lack of confidence in the market. So far this year, those who are confident that they’re still employed are looking for property and happy to pay good prices. They were right to think that it could have gone the other way, but interest rates and the removal of LVR restrictions have really buffered that. As long as they’ve got jobs, people are still confident.”
Auckland Council’s decision to put off their CVs for another year seems to make sense, then.
“Despite the optimism, there’s not enough evidence to have come through since the COVID-19 lockdown,” says Wilson. “By delaying CVs by a year, Auckland Council will be able to get a better understanding of how the property market has responded.
“Pushing it out a year allows for a fairer outcome for a rate payer because you’re not being unfairly punished by what was a very different market before COVID-19 hit.”
