Learning from Norfolk
Local Government and Property Taxes
Managing Director, Agency
for Real Estate Affairs
As Thailand's representative
to the International
Association of Assessing Officers (IAAO),
I led a group of ten people, including
senior government officers, bankers,
and fee appraisers, to participate at
the 2004 IAAO Annual Conference in Boston,
held from August 30 to September 2, 2004.
We had an opportunity to visit the Town
of Norfolk, Massachusetts. Norfolk is
a good case study of how town administration
and property taxation work hand in hand.
Norfolk is located approximately 40 kilometres southwest of Boston,
in the state of Massachusetts. Norfolk has only 2,895 housing
units and about 4,000 parcels of land (for all types of real
estate development). Growth in this town has been minimal in
light of its age, 134 years (Norfolk was established in 1870).
This minimal growth has resulted partly from careful planning,
which allows no haphazard growth to occur.
the Town with Property Tax
Property tax is the major source of income for town administration.
In the 2004 fiscal year, Norfolk expects to collect some 532
million baht in property taxes, of which 520 million baht will
come from real estate developments. Property tax revenue will
account for approximately 55% of the overall income of the town.
This means that about 45% of the town's income comes from state
government. Education is the town's major expense, expected to
cost in the area of 480 million baht. This is an admirable public
Since property tax is the major resource for local development,
efficient systems of levy must be in place. According to Ms.
Donna Putt, Chairman of the Board of Assessors and Ms. Deborah
Robbins, Chief Assessor of Norfolk, people reporting falsified
values for housing sales are subject to fine and possible jail
terms. Neighbours are also allowed to report cases of miscalculation.
This is something that is not likely to happen in Thailand today.
For the 2004 fiscal year, the property tax rate is 1.193%. This
rate can be adjusted each year, depending on the town's budgeting
needs. So if one owns a house worth one million baht, he would
have to pay 11,930 baht in tax. In Thailand, the 2005 property
tax rate will be 0.1% or 1,000 baht, around one-twelfth of Norfolk's
tax rate. This will not be adequate for funding the programs
of local administrations.
Assessed Value Equals Market Value
In the US, there is no difference between the government-assessed
value and the market value of a house. This is the key difference
between the US and Thailand, where we try to keep assessed values
at a minimum to reduce the tax burden of the public. However,
this may be poor logic. What we can do is lower the tax rate
levied at the market value. Distorted assessments by tax authorities
provide the potential for corruption to occur and give politicians
an issue to manipulate during campaigning.
Assessments in Norfolk are very precise. Only 0.1% of homeowners
object to their assessed values. This may be because both the
authorities and residents understand the valuation methods and
process. In the valuation profession worldwide, the market comparison
approach (a logical model) is the most widely accepted method
for assessing a property's value. In addition, the cost approach
to value (an aggregation model) is also used to recheck assessments
and consider depreciation. Lastly, the income approach to value
(a simulation model) is used mainly for income-producing properties.
Considering valuation practices, an assessor may inspect a house
only if the owner agrees. Otherwise, he must estimate value from
outside the building. If a homeowner disagrees with the assessed
value, he must then allow the assessor to inspect the house for
value adjustment (if any). In addition, CAMA (computer-assisted
mass appraisal) or AVM (Automated Valuation Method) are also
applied to assist the valuation of properties in many town.
Changes in House Prices
According to the 2003 Norfolk Town Report, the total value of
the 2,895 housing units was 43.980 billion baht, or 15.192 million
baht per unit. This was higher than the overall US average of
8.8 million baht. House prices in Norfolk increased for 13% last
year. In Bangkok, the increase in average assessed value was
only 1% (source: Agency for Real
Estate Affairs). It is amazing to learn that in 1995, an
average house price in Norfolk was only 7.716 million baht. This
implies property values have doubled (97%) from 1995 to 2003.
According to the town authorities, it is estimated that the growth
rate in housing supply in Norfolk has been around 6% per year,
but that demand has been around 9%. Consequently, housing prices
have increased over time. Another reason for the increase is
that there is a high school located in Norfolk that serves students
from three towns.
In brief, it can be observed that property prices depend on the
state of the economy. If the economy is good, prices tend to
escalate and vise versa.
The Composition of House Value
The value of a house consists of land and improvements to the
land, usually in the form of a building. The typical ratio of
land to improvement is 1:2. For example, say a luxury house in
Norfolk is worth 52 million baht. Land contributes 16.8 million
baht (5,600 sq. metres at 3,000 baht per sq. metre), whereas
improvements (before depreciation) contribute 35.2 million baht
(878 sq. metres at Baht 40,000 per sq. metre).
The case is opposite in Thailand, where the ratio of land to
improvement is 2:1. This is because Thailand less land and cheaper
labour costs. For example, say a luxury house in the Lakeside
Villa I development is worth 38 million baht. Approximately,
26 million of this value comes from the land (1,600 sq. metres
at 16,250 baht per sq. metre) and the remaining 12 million baht
comes from the improvement, or house in this case (500 sq. metres
at 24,000 baht per sq. metre).
In July 2004, I went to New Delhi for the 2004 Congress of the
Asian Real Estate Society. In New Delhi, the proportion is skewed
even more towards land, standing at a ratio of 4:1. This implies
that for a housing unit worth 5 million baht, 4 million baht
comes from the land alone. This is because India is very populous.
Adjustments in Thailand
We can see the differences between Norfolk and Bangkok. Many
of the practices in Norfolk should be applied in Bangkok or by
other local authorities. However, we need to scrutinise and carefully
analyze how to do things better in Thailand.
Norfolk's success in the area of property taxation is not technology.
Things are more manageable in Norfolk because there is a database
listing information on transactions with exact sales prices.
This type of database should be considered a major part of any
town's administrative infrastructure and should be developed
Several measures such as tax reductions and fines should be adopted
to ensure people report exact transaction prices. More important
for the success of a local jurisdiction's property tax collection
system is the restructuring taxation rates, resource allocation,
and an increase in the role of local authorities in the taxation
process. In addition, personal judgement of authorities should
be kept at a minimum to reduce possible loopholes for corruption.
Last but not least, the participation of the local residents
in each jurisdiction must be exercised. In Norfolk, around 20
town boards are open to public volunteers to assist the town
government in creating systems of good governance in local administration.
Unlike Thailand, administrative power is placed in the hands
of the public, rather than just in the hands of the mayor and
his or her deputies. Norfolk is thus a good example of grassroots
democracy and liberty entrenched in a liberal-minded American