IPART

In October 2003, under direction from the NSW Govt, The Independent Pricing

And Regulatory Tribunal (IPART) commenced a "Review into Rentals for

Waterfront Tenancies on Crown Land in NSW".  IPART placed a small

advertisement in the press announcing the review and asking for submissions.

At no stage were lease and license holders contacted directly to let them know that

such a review was taking place. The failure to directly notify the parties to the

leases and licences was an act of great deception.

The advertisement was noticed by a few individuals who consequently formed

local action groups to make submissions to the IPART review, both as individuals

and as groups. Over time these groups have coalesced into the Waterfront Action

Group and moved to come under the umbrella of the Boat Owners Association of

NSW Inc.

Despite receiving over 300 submissions, the tribunal issued a recommendation

largely ignoring them. In issuing its report of the review, the Tribunal

recommended that all rentals be calculated using the formula contained in the

report.

The Formula

General Rent ($) = [Precinct SLV ($/m²)] x [Occupancy Area (m²)] x [Rate of Return

(3.05%)] x [Discount Factor(50%)]

Where:

Precinct SLV ($/m²) is the average of the Statutory Land Valuations divided by the

area of the land involved in a given precinct

Rate of Return is a Net property rental return based on a state wide 10 year rolling

average

Discount Factor (50%) is a discount applied for many reasons including the fact

that much of the land is under water, it has limited use, cannot be sold and is

legally available to the public.

A detailed explanation may be found in the IPART report. (See Maps and Links)

Precincts

After more than 2 years of fighting against NSW Maritime (Maritime) and

Department of Lands (Lands) over exorbitant and inequitable rents, charged for

"mud & water" under jetties, boat sheds, mooring pens etc, WAG had a small

victory in 2008, when Maritime reduced the number of precincts in

Sydney Harbour from 120 to 6, and in so doing reduced the huge variation in

rents from 120 different rates (varying from $6.38 to $141.05 per square metre in

2007), to 6 different rates in 2008 (varying from $29.87 to $88.52 per square metre).

That result reduced some of the inequity of the flawed IPART formula, which

favours precincts comprising large properties, and discriminates against

precincts comprising small properties. Lands had yet to follow the lead of

Maritime in this regard, so that (for example) in Pittwater some lessees paid about

11 times (per square metre) what others paid, and in Brisbane Water some

lessees paid 19 times (per square metre) what others paid.

Rate of Return

Unfortunately, reducing the number of precincts has not addressed the fact that

the IPART formula produces "meaningless figures" (to quote the NSW Valuer

General), and grossly overcharges all lessees/license holders. One of the major

flaws in the IPART formula is in connection with the net Rate of rental Return

(RoR), which IPART initially set at 3.05% and which has remained at that level

since 2004, despite the Tribunal specifying that it "will need to be reviewed

regularly".  

The IPART report set out to "develop a market formula for rental

returns to reflect market value at each rental review", but failed dismally, partly

because it assumed that the entire state of NSW (from Eden to Tweed Heads and

west to Broken Hill) was one market. The 3.05% was an average RoR for the

whole state over a 10 year period, with its mid point in 1998. It is completely

irrelevant (for example) to a group of waterfront properties in Sydney's

Eastern Suburbs which last year had an average Statutory Land Value

(SLV) of  $7,748,000, as assessed by the Valuer General, and a RoR of

less than 0.4%.

WAG has received expert advice that property values

and RoRs tend to move in opposite directions, because rents tend to

move up gradually, while property values are subject to greater swings

(both up and down). So when the Valuer General dramatically increased

Sydney waterfront SLVs in recent years, RoRs went down to compensate.

WAG, with the help of donations, has been able to recently purchase data

from the NSW Government that shows the RoRs in the suburbs surrounding

Sydney Harbour are all less than 1%. Also, there are considerable differences

between the RoRs in each of the 6 Sydney Harbour precincts (up to 2.4 times),

suggesting that each precinct is a separate market. WAGs figures demonstrate

that "mud & water" lease holders have been substantially overcharged by up to

$77 m² in many areas.

The Way Forward

WAG has made a substantial submission to the IPART review of the rental

formula and suggested a completely new and fundamentally correct formula.

But while WAG has some members with considerable skills in this area, there

is a real danger that the Government will ignore its advice. To ensure that

WAGs submission is treated seriously, WAG has commissioned experts to

thoroughly check the RoR calculations and issue written reports.

The engagement of both experts and legal advisors to assist WAG in these

endeavours is not cheap. Lessees of "mud & water" stand to benefit substantially

from a successful outcome of this review, and WAG therefore invites

donations through Membership of WAG and BOA to ensure that it has the funds

required to continue to employ the best experts available to work towards a

successful long term outcome.