Grant Cameron popped out home this morning to let me know about an urgent meeting he is calling in regards to Retaining Walls. I don’t have that issue at my property, but was disturbed by what I am learning about this issue (the below link tells you more about the meeting and how to Register).
7:30pm – 9:30pm
Thursday, 10th July 2014
The Oak Room
Christchurch Netball Centre
455 Hagley Avenue, Riccarton, Christchurch
Apparently, and those of you with this problem will know it better than me, but a decision has been made that indemnity value of a retaining wall means a depreciated value. This “interpretation” from my understanding, seems to be something that EQC / insurers have jumped on as a way to reduce their pay-outs to claimants.
To paint a picture. Let’s say you own a commercial building. It makes sense from a taxation point of view to apply depreciation to assets (building) to take advantage of the tax benefit. A depreciated value does not affect a market value of an asset (building), nor does it influence the cost to rebuild or repair that asset (building).
When it comes to residential property we don’t tend to use a depreciation taxation models unless those properties are being used for commercial reasons (e.g running rentals as a commercial operation). Residential property valuations, as most of us know, tend to use market value plus and “cost to build” models etc. A Residential Property Valuer would not even consider using a taxation deprecation model to value your home. But it appears this is exactly what EQC and our insurers are going to use to asses pay-outs on damaged retaining walls.
This is NOT JUST A CANTERBURY ISSUE.
Let’s run an example. If I have a retaining wall that I build in 2001 that cost $200,000 to build, using a taxation depreciation model for a building that has a 50 year life, and using DV (Depreciating Value with the IRD rate of 10.5% my retaining wall has a value of around $48,000 in 2014. That is not far off an example of an offer that has recently been made to a claimant. Rebuild Christchurch’s website has the numbers that are being bandied about –check those out for a more accurate model.
This opens an entire can of worms. Imagine that my property is worth $900,000, well it was until I could not afford to repair my retaining wall. I am exposed, my bank is exposed and my insurer is not going to move an inch until I sort out the retaining wall.
GCA have seen this issue coming and want to do something about it and want your feedback. The meeting is short notice, get along if you can, costs nothing but your time.
One caveat, I am not an accountant and the figures I used about are my lay persons look at a complex situation. Do your own research, gather as much information as you can – but work together to get a result. We cannot fight back individually and we must not accept models that are flawed.