The Cleared Hectare method of valuation is the most used method for the valuation of rural lands and is generally, the most reliable method. The problems with the capitalization method and DSE methods were outlined in the previous two parts. Other reasons which favour the Cleared Hectare method are:


A cleared hectare of land is land which is "fully" cleared only. Therefore, it excludes all physical improvements such as fencing, water Improvements, buildings and yards and "invisible" improvements such as pasture improvement.

"Fully" cleared does not mean that every tree must be removed. Rather, it is the most economical clearing for the farm's long run viability and therefore, varies according to the highest and best use of the land. For example:


The Cleared Hectare method is a summation valuation as a number of components of
value are required to be added to the Cleared Hectare value:

MV = CH + F + W + PI + B


MV = market value
CH = cleared hectare value
F = fencing
W = water improvements
PI = pasture improvement
B = buildings and yards

The formula shows the major disadvantage compared with the DSE method in that many more components are required to be valued separately to obtain market value. Therefore, there is the possibility of greater accrued error.

However, since the most important variables in the valuation equation for medium to large rural properties are land, clearing and pasture improvement, about half of the market value is not all sensitive to the fencing, water and building variables.

To be able to evaluate a Cleared Hectare value it is common to value the land and clearing separately as it is rare for the subject and sale property to be comparable in the degree of clearing. Therefore, the valuer should understand the factors affecting the cost of clearing and hence the value of clearing.

See cost of clearing


The sales used to determine the market value of clearing must meet the following criteria:


This is the simplest and most direct method and therefore, there is little error. It is the preferred method if comparable sales are available.


A sale of a fully cleared property ($400/ha) is compared with the sale of an otherwise comparable virgin property ($100/ha) Therefore, the value of clearing = 400-100 = 300/ha. However, in practice it is unusual to get two sales at opposite ends of the spectrum. It is more likely that both properties have been partly developed. 

A block 25% cleared sells for $175/ha as opposed to the sale of an otherwise identical block, 50% cleared, at $250/ha. When comparing the two sales above, the difference in value must
be the difference in value of the clearing. The difference equals $250-$175 = $75 for the 25% clearing and therefore, the value of 100% clearing = 4 * $75 = $300/ha.

Once the value of clearing is known the land or site value can be found. The sale of block 25% cleared adjusted to a virgin block is the current value of $175/ha less the value of the clearing:

$175 - ($300 * .25) = $100/ha

The first two sales above represent the dipole or extreme cases of timber development; 0% and 100%. The degree of development is usually determined by canopy cover for example, by using air photos. However, the degrees of clearing shown is higher if the timber is scattered rather than contained in the one area. For example, a sale showing 50% by canopy cover in in actuality be 55%-60% developed as the removal of undergrowth is not visible on the air photo.

The removal of scattered camps is more inefficient and difficult than the removal of a larget virgin stand. This is because the operator can more efficiently and quickly "attack" a line, the width of the block. On the other hand with a 100% virgin stand, the operator initially, has no room to attack the timber. Therefore, up to a point, the greater the number of fronts, the greater is the percentage development.

Properties can ahve the same percentage of clearing based on canopy cover; 50%. However, with an increasing number of fronts, initially is more efficient for the operator to attack. However, a point is reached where there are too many fronts and the operator spends too much time moving from one front to another. Where the stands are smaller, costs rise as the operator has to cover nearly all of the property and such costs such as burning off, stacking and grubbing are also higher.


The cost to clear is the "real" cost that is, after taxation benefits. Else-Mitchell J in the Goobang case covered the problem of cost not necessarily equal to value. Although the following quotation is long it is one of the best statements on the value of rural improvements to come from the courts:

A common course which is followed for this purpose is to take sales of improved land and to make deductions from the price paid on such sales which will indicate the value of the land in an unimproved state. Since these sales are for the most part of land which has been improved by the erection of structures, fencing, and farm buildings, as well as the clearing of timber and pasture improvement, this process involves the deduction from the sale price of improved properties of the value or depreciated cost of the various improvements. To deduct the cost at current rates of effecting such improvements would be improper, for cost is not always reflected in value and expenditure on an improvement does not necessarily result in an increment of the same amount to the value of the land; sometimes it will be more and sometimes it will be less depending upon a variety of factors including the durability of the improvements, its necessity as a measure of proper development of the property, and so on.

This is, I think, only too well established by decisions of this Court and elsewhere to admit of argument (cf. In re Stobie, 3 LVR 28; In re McHugh, 16 LVR 35; Stennett and Ainsworth v VG, 12 LGRA 269; Thornton v Warren Shire, 15 LGRA 328; Trust and Agency v Ryan, 4 LCC 228; Greene v Hargrave, 7 LCC 18; Hopkins v Min for Lands, 12 SR (NSW) 215 at p 228; Campbell v Dep Fed Comm of Land Tax (NSW) 20 CLR 49 at pp52-53; McDonald v Dep Fed Comm Land Tax (NSW) 20 CLR 231.

In some of the authorities in which this matter has been discussed a distinction seems to have been drawn between improvements in the nature of buildings or other structures and those which relate only to the land itself such as clearing and timber treatment and statements will be found in the cases which suggest that in the case of structures their value or depreciated cost only is to be deducted whilst with clearing, timber treatment and other improvements to land itself the actual cost at current rates is to be deducted. This differential treatment might. appear to be justified by the fact that buildings and other structures depreciate with the passage of time whilst clearing. timber treatment and other improvements to the land itself do not. But a little reflection will show that it is erroneous to make any distinction between improvements of one sort or another and indeed if the current cost of all improvements were to be deducted from the value of land as disclosed by sales of improved land the result might well be a negative figure. Moreover it will be evident that the measure of appreciation of a building or structure may or may not be greater than the measure of depreciation of the currency in which its value is to be expressed and it follows that the money value in an improvement may increase or remain static despite its obsolescence so that current cost and actual cost less depreciation as simple formulae in ascertaining the added value of improvements may be equally erroneous as guides to unimproved value. This is not to say however that depreciated replacement cost may never be employed as a means of ascertaining the value which an improvement has added to land but as Dr Murray has pointed out (Principles and Practice of Valuation p 220) that method of calculation can be validly employed only under certain conditions one of which is that the value assigned to the improvements by that method is equal to their value as disclosed by sales.

Else-Mitchell J continued to consider the effect of taxation benefits on the cost of clearing:

There is another ground upon which it seems to me erroneous to treat the actual cost of making improvements as a deduction from improved values for the purpose of ascertaining unimproved values and this is to be found in the special concessions to primary producers provided by the Income Tax and Social Services Contribution Assessment Act 1936- 1962. These concessions are mostly contained in s75(1) and allow of the deduction from income of expenditure incurred in any year on the following matters -
(b) The destruction and removal of timber, scrub or
undergrowth indigenous to the land;
(c) the destruction of weed or plant growth detrimental to the land
(d) the preparation of the land for agriculture
(e) ploughing and grassing the land for grazing purposes
(h) The construction of dams, earth tanks, under ground
tanks, irrigation channels and so on.
In an explanatory booklet published under the authority of the Hon. the Treasurer for the Commonwealth in June 1965 it is pointed out "that comparable deductions are not allowed to all industrialists or traders or other taxpayers engaged in business" (p 22) and that the effect of deductions under s75 of the Act is that capital gain may be achieved by a primary producer effecting improvements to rural land at a net cost to him substantially less than the actual cost of the improvements, the amount of the net cost depending on the rate of income tax otherwise payable by the landowner (p 24).
It will be apparent that these income tax concessions enable a primary producer to undertake improvements to land which in terms of actual cost exceed the amount by which they add to the value of the land and in consequence a buyer of unimproved land who has a substantial income from primary productions or otherwise will be able to pay for that land in the market a much higher sum than a buyer who has no other income. But even the buyer who is in this latter position can look forward to
progressive benefits from income tax deductions as the land is gradually improved and its income earning capacity increases.

No doubt if there were frequent sales of land in an unimproved state the effect of the income tax concessions would be reflected in the price paid on the market for such land to the extent that such price, with the addition of costs of clearing, timber treatment, and the like, would exceed the market value of the property in an improved condition. This I think, is hardly capable of refutation but it is another question whether the measure of the excess price which might be obtained in the market for land in an unimproved state is capable of being estimated solely by an understanding an application of the provisions of the Income Tax and Social Services Contribution Assessment Act and the rates of income tax fixed by the complementary Income Tax Act which is passed each year.
- Objections to Valuation - Shire of Goobang (1969) The Valuer, January 1970, p57 at pp 65-66.

Opportunity cost arguments dictate that an intending purchaser will not pay more for clearing than the "real" cost for the purchaser to carry out the clearing him/herself, after tax. Optimum clearing can be expressed on a continuum with market gardening at one end and "relief grazing" at the other. Optimum clearing is the minimum amount of clearing required to use the land at it's highest and best use.

A prudent purchaser will not pay any more for clearing than the value of optimum clearing. For example, in grazing country where optimum clearing is well cleared with camps (wool growing) but has been cleared ready for plough, the prudent purchaser will pay only at the most, the value of “well cleared” even though a greater amount of money
has been spent on actual clearing. That is, the clearing represents overcapitalization of the land. Therefore, land with only 50% clearing by canopy cover may well be 100% clearing for wool grazing purposes.


Generally, the second most important component of value is pasture improvement. TA great deal of the discussion above and the comments of Else-Mitchell J applies equally to pasture improvement.


As with other valuations, non urban valuations should be determined with two methods. The Cleared Hectare method is usually the primary method and the Dry Sheep Equivalent method, is usually the secondary or "check" method. If the two values are close, then the secondary method supports the primary method and the value determined by the primary method is adopted as this is the most reliable.

In arid pastoral lands where the value of a property is directly a function of the number of stock that can be carried (and is determined by the relevant government authority), the primary method is the Dry Sheep Equivalent or Beast Area method. The c cleared hectare or  income method can be used as the secondary '"check" method.


500 ha * 650/ha =
325 000
Pasture improvement: 500 ha * 400/ha =
200 000
Fencing: 7 500 m * 10 =
75 000
Water: 5 dams * 2 000 average =
10 000
5 000
10 000
Shearing Shed: 3 stands * 8 000 =
24 000
50 000

TOTAL:  699 000
700 00