Last week, the New Zealand government finally released the latest property valuation, often referred to as CV (Capital Value or Council Value). Due to the rapid growth of New Zealand house prices in the past two years, most of the properties’ value has a significant increase. Following this, we have received a lot of inquiries from customers. They generally believe that the update CV revaluation of the property they have owned is lower than the actual property market value, so they want to know whether they should submit a re-examination of their property value to improve their property’s CV. In today's content, we will help you analyze whether it is necessary to re-examine your CV according to different situations.

Should I object to Council Valuation of my properties？  

First, let’s quick recap what is the CV?

New Zealand government laws require all New Zealand councils to reassess the value of properties within their boundaries every three years. The latest property value revaluation was update in 2017 and needs to be reassessed in 2020 by local councils. However, due to the COVID epidemic and various uncertainties, the new property CV has only been updated recently. The primary purpose of the property CV update is to adjust the property rates. There is minor correlation between CV and actual property market value. CV is only a general guide to property’s value based on different elements such as location, size, and the recent sale prices for other properties in the surrounding area. Also the current CV only represents the likely selling price if your property had been sold in June 2021.. The government took another nine months to get the data ready to be released. 

Whether you should re-examination your properties’ council valuation depends on two objectives

Objective one: selling your property 

If you are selling the property, you can consider increase the CV (council valuation), because buyers might use CV to compare the value of different properties. 

Objective two: improve borrow capacity 

Increasing CV will have a limit impact on borrow capacity improvement. 

In general, the bank measure borrower’s borrowing capacity through servicing and equity of the secured property. Servicing means the applicant's repayment ability based on applicant’s net income. No matter how high the equity of the property's value is, it isn't easy to apply for a loan without a sufficient net income. We have seen many clients who have owned multiple investment properties with strong equity, but their servicing is not sufficient to support their loan application. Especially under the updated CCCFA regulation, most people experienced reduced lending. Furthermore, an increase in CV means an increase in council rates, therefore make the servicing even worse. 

On the other hand, even you have a strong servicing but if your borrowing capacity is limited by equity, CV is unlikely to be useful to improve equity. First of all, we need to understand how banks evaluate actual property market value. There are four valuation methodologies that bank use to determine properties market value. We will walk you through every each one.

EV (Estimate value)

EV is derived by the system based on recent comparable sales data of the properties located in the surrounding area. It will also take into account other relative factors such as land sizes, numbers of bedrooms plus other characteristics. The Estimate property values are updated frequently. Although EV does not exanimate house conditions in detail, it is much closer to the market value than CV.

RV (Register Valuation)

A registered property valuation is an independent assessment of a property’s market value conducted by a registered valuer. The registered valuation is based upon a full inspection of the property as well as the comparable sales data in the surrounding area. When valuing a property, a valuer will undertake a physical inspection of the property and send a comprehensive valuation report to the bank that you apply for a loan with. The registered valuation is considered to be more accurate and reliable way to get the value of your property, though this is time-consuming, and involves additional cost on top of your purchase price.

Purchase Price

In some situation, the purchase price of a property can be used as the valuation when financing a property. Banks will only consider using the purchasing and selling prices when the property is purchased recently, which means the validity of the purchase price only valid for a certain time. Many properties with sizeable appreciation have generally been traded for more than one year, so the purchase price will not be considered as a proper property’s market value.

CV

Generally, CV is only considered if there is no EV available. Properties without EV are home & income properties or there are limited transactions in the recent months at the same surroundings. Most of banks will consider latest CV as a property market value within one year, but some banks will consider using three years.

In summary, a higher CV will only benefit people who have a strong servicing, owned a non-standard property and not planning to pay for the RV (Register Valuation).

Based on the above points, it is not difficult to see that the applicability, timeliness, and accuracy of CV are insufficient. It is not the primary method banks use to evaluate the property's value. Excessive CV will increase the applicant's expenses and thus affect the loan ability. Therefore, my suggestion is that there is not necessary to re-examine your CV if it is for loan considerations. If you want to get personalized finance advice, we are here to help. We are more than happy to give you a free finance review base on your situations and provide with a tailored solution. Looking forward to hearing from you soon. 

Other Video You Might Like:

Why It’s Difficult to Get Loan Approved Recently?