A framework for the development of a mass valuation standard in South Africa

Abstract

The observed prevalence of objections to the municipal valuation rolls in the metropolitan municipalities in South Africa suggests the existence of valuation inaccuracy. Research has revealed that valuation inaccuracy is more prevalent in mass valuation compared to single property valuations. It is also attributable to the absence or lack of valuation standards guiding professional valuers on mass valuation. Most countries using ad valorem tax subscribe to the notion of standardising valuation practices with the hope of improving valuation accuracies. Thus, the international valuations fraternity takes a leaf from the International Association of Assessing Officers (IAAO’s) Standards for Mass Appraisal of Real Property. The research also revealed that while many countries recognise the IAAO’s standards, there is a compelling case for localisation of mass valuation standard. South Africa, as a free-market economy, is no exception to this international movement. The localisation of standards by its very nature requires a clearer understanding of the local socio-economic and cultural contexts. Thus, the main objective of this study was to investigate and evaluate the use of valuation principles and practices for mass valuation with a view to designing a framework for the development of a mass valuation standard for the South African property market. A mixed method approach, which entails collecting requisite information through interviews, surveys, focus group discussion and secondary (example property) data, was adopted for the study. Consequently, purposive and snow-balling sampling techniques were used to identify the interviewees, survey and focusgroup participants, while the example property data was supplied by the City of Johannesburg. The data collected through interviews and focus-group discussions were analysed using the data analysis spiral approach. The data collected through the questionnaire was subjected to a simple statistical analysis. Additionally, statistical tests including, the Assessment Sale Ratio (ASR), the Price-Related Differential (PRD), the Price-Related Bias (PRB), the Coefficient of Dispersion (COD), the Mean Absolute Percentage Error (MAPE), and the Root Mean Squared Error (RMSE) were used to analyse the sampled property data. The results garnered from the analysis of the interviews, and the questionnaire survey, revealed imperfections in mass valuation accuracy and uniformity in South Africa. The results on the selected statistical measures show the scores of 0.97 for the ASR, 1.022 and -1.01 were for PRD and PRB, respectively. In addition, the scores for the COD, RMSE and the MAPE were found to be 9.60%, R40 000.00 ($2 281.52) and 23.5% respectively. The scores on the first three statistical measures are all within the parameters of acceptability of the IAAO standards, while the last three measures do not have predetermined standards. Overall, the results suggest negligible degree of inaccuracy and lack of uniformity which denotes under-valuation in some property classes such as the agriculture, industrial and commercial properties. These results of the study led to the development of a framework for the development of mass valuation standard for South Africa. It also led to the formulation of questions for the focus-group discussions, which were used to test and validate the proposed framework. These questions focused on whether the proposed framework offers’ solutions aimed at improving valuation accuracy in South Africa. The proposed framework addresses (1) the process of developing the standards and (2) high-level discussion of substantive contents of the standards. Thus, the proposed framework was affirmed by both focus groups, since it provides a simplified guide that stakeholders involved in the development of mass valuation standard could use.