South Africa and Values

Method to Improve Municipal Real Estate Valuations, Increase Municipal Revenue Generation and Income Loss Reduction Through Enhanced Computer Assisted Mass Appraisal Systems (CAMA) Methodology
Overview
The Computer Assisted Mass Appraisal System (CAMA) is a widely-used system of appraisal found all around the world. As the International Association of Assessing Officers (IAAO, 2014) notes, “mass appraisal (valuation) is required when many properties need to be valued economically and en masse for a purpose such as annual property taxation” (p. 5). CAMA systems are designed to make that appraisal process simple. The Massachusetts Department of Revenue Division of Local Services/Bureau of Assessment (2016) adds that CAMA valuation “involves automated applications of the sales comparison, cost, and income approaches to value. A good system should support all three approaches.” Mass valuation practices are common globally, from North America to Europe to South Africa and to the East. To give the scope of how prevalent mass appraisal systems have become, a study from 2001 found that among countries of the UN ECE Region, the majority (72%) reported having systems of mass valuation of land for taxation purposes, while a further 14% have reported that they are currently developing systems of mass valuation for taxation purposes (Federal Land Cadastre Service of Russia, 2001). Clearly, mass appraisal systems are applied by Municipalities globally as an accepted system of valuation.
How does CAMA work? Simply put, CAMA determines real estate values. The exact method that the CAMA system will use will differ according to the inputs and variables that are used by the system to derive values. Most systems will use a combination of cost trends, land/property values, standard statistical procedures, and sales comparisons to arrive at a valuation. The valuation derived from CAMA is, in other words, only as good as the data that goes into the system. The typical Municipality will use statistical analysis, geographical information systems, Pictometry, and other qualitative and quantitative data collection instruments. As SAIV (2015) makes clear, “Data is necessary to support the valuation process and data may be formulated for collection, capture, analysis and reporting by qualitative (subjective) and quantitative (objective) data variables. The object of mass appraisal is to produce equitable valuations at reduced valuation fees” (p. 52). To summarize, mass valuation via CAMA “is the process of valuing a group of properties as of a given date using common data, standardised methods, and statistical testing” (SAIV, 2015, p. 52). Worth noting, however, is the fact “that certain properties may not be suitable for the application of CAMA techniques and these properties will need to be valued individually” (SAIV, 2015, p. 52). When CAMA is applied, in South Africa, the municipal valuer “must include all CAMA models, methodologies, calculations and formulas in the market report and submit with the certified valuation roll, where CAMA has been applied” (SAIV, 2015, p. 76).
CAMA has many benefits to Municipalities, as the above makes clear: it is a time-saving, user-friendly system that reduces a lot of the pain and toil of going into the field to obtain data to be used in a valuations process. Because Municipalities are so pressed for time when it comes to performing valuations, CAMA presents an easy and low-cost way to produce valuations for the Valuation Roll. The problem, though, is that CAMA valuations are not always representative of the actual market value. More shall be said on this in the next section.
How CAMA Can be Enhanced
CAMA may serve as a short-cut for Municipalities in one way—but it presents a host of other problems. For instance, as SAIV (2015) states, CAMA models are simply not legitimate means of procuring accurate values for every type of property—especially commercial property, which is commonly where the highest property values in Municipalities are found (and therefore the greatest revenue streams). For example, when it comes to relying upon mass appraisal systems to value commercial property, “there is no test for what constitutes a ‘credible’ commercial property CAMA model” (SAIV, 2015, p. 77). The same is also true for the Cost Approach based CAMA model. The Cost Approach based CAMA model, as SAIV (2015) shows, “is often incorrectly applied, and once applied, incorrectly executed because each ‘Cost Approach’ valuation has its own unique set of Depreciation methods (straight-line; reducing balance, etc); different Operational Lives; remaining lives; differing causes of functional and economic obsolescence” (p. 78).
To address these shortcomings, CAMA can be enhanced by linking the Mass Appraisal System to the Stock Exchange Listed Company annual reports and financial statements in which real estate assets are listed. As the research shows, Municipality valuations of commercial property is vastly undervalued when compared to the market values determined by publicly-held companies as published in their annual reports. These valuations often serve as the impetus for investment among shareholders who use these companies’ annual reports to make decisions about where they should put their money. Yet Municipalities do not benefit from the valuations that clearly attract investors; instead, they publish their own, which are based on data inputs that do not reflect that actual market conditions, which are typically taken into consideration by the valuers of publicly-traded companies. As a result of overreliance on CAMA systems that inadequately provide valuers with data, Municipalities undercut their own revenue streams. The income that is lost is substantial, needless to say, and by failing to boost the CAMA system with available data inputs Municipalities ensure that revenue will continue to be lost.
By enhancing the CAMA system through linking it to the Stock Exchange Listed Company annual reports and financial statements in which real estate assets are listed, Municipalities can provide a better set of data inputs that valuers can then use when they publish the Valuation Roll. When comparing the valuations published by the publicly-traded companies to their own CAMA-produced valuations, the Municipalities can simply use the higher valuation.
The research findings have thus far shown that almost all Municipal valuations are undervalued when compared to the annually published valuations of publicly-listed companies’ real estate in their annual reports and financial statements. Utilizing these published valuations as a data set input would improve the pool of data already used with the CAMA systems. It would be akin to a human resource manager obtaining access to a higher class of graduates from a top-tier university and gathering these graduates into his own pool of possible recruits to fill the various positions in the company. A Municipality can greatly benefit from introducing the valuations of publicly-listed companies’ real estate as published in their annual reports and financial statements, as these valuations could replace the ones published in the Municipality’s Valuation Roll, save the Municipalities time and money that would otherwise be spent on valuing the same properties, and boost the revenue stream of the Municipalities through rates and tax income.
The following flow charts provide a graphic representation of Municipalities’ “Current CAMA System” VS the “Improved CAMA System” as described above.











References
Federal Land Cadastre Service of Russia, 2001. Land (Real Estate) Mass Valuation
Systems for Taxation Purposes in Europe [online]. Available at: http://www.isivi.it/vienna2005/mass.valuation.pdf [Accessed 28 Oct 2017].
IAAO, 2014. Guidance on international mass appraisal and related tax policy. Kansas
City, International Association of Assessing Officers.
Massachusetts Department of Revenue Division of Local Services/Bureau of Assessment,
2016. Guidelines on CAMA system acquisitions [online]. Available at: http://www.mass.gov/dor/docs/dls/it/pdfs/cama1.pdf [Accessed 28 Oct 2017].
SAIV, 2015. South african standard on generally recognised valuation practice:
Municipal valuations for property rating [online]. Available at: http://www.saiv.org.za/ [Accessed 28 Oct 2017].