Homes are being sold for less than their official land value, as the bulk of recent valuations have continued to defy the trend of subdued property prices. A house in East Gosford that fetched $266,000 at auction last year has been valued at $324,000 for the purposes of land tax and council rates. At Pearl Beach a two-bedroom house, with new decking, on a 1693-square metre block sold for $600,000 last year but was officially valued at $611,000 - for the land alone - in the recent round of valuation averaging for the state tax. "The house was in better shape than it looked from the road," said its selling agent, Ray Dearlove. The discrepancies exposed the maladministration of the land valuation system, said the reform advocate David Singer, who has obtained documents on big rises in official values under freedom of information laws. He told the Herald yesterday that the system remained a lottery for landowners, with little regard for actual movements in prices. A 1.7 per cent land tax is imposed on people who own one or more investment properties cumulatively valued above a $352,000 tax-free threshold. With coastal and rural values still rising, most of NSW's 162,000 land tax payers face bigger land tax bills, despite a drop in 33 per cent of valuations. The documents reveal the valuations for 322,000 of the state's 2.09 million residential properties rose by 10 per cent or more in the past financial year, while 125,000 recorded falls of 10 per cent or more. At Jilliby, near Wyong, a vacant one-hectare block that sold last year for $390,000 was given an official land valuation of $423,000. When this block sold in 2004 for $455,000 its official land value after its subdivision was $329,000. The valuations on about 13,500 of the state's 40,000 industrial properties and about 22,000 of its 60,000 commercial properties increased by 10 per cent or more in the past year. About 10,500 of NSW's 26,000 hobby farms under 50 hectares recorded rises of 10 per cent, with big increases at Harden, Gunnedah, Uralla, Richmond Valley and Armidale. The NSW Treasury expected last July that the value of all properties owned by the state's land tax payers would rise by more than 3.5 per cent during last financial year. Unless the $352,000 tax threshold is raised before tax assessments were issued, the Government would collect at least $100 million more in land tax than it budgeted, Mr Singer said. "The Government has collected $680 million more in land tax over the last four years than it budgeted for, which amounts to taxation by stealth," Mr Singer said. "Investment returns will be eroded and tenants will have their rents increased to meet this huge unexpected burden." Complaints over erratic spikes in land valuations prompted the Government to switch from this year onwards to three-year averaging of land valuations. This includes the 2004 spike, when the Valuer-General increased residential, commercial and industrial land valuations by an average 23 per cent. The statewide average rose a further 18 per cent in the 2005 financial year. The latest annual average to 2006 was up 1.7 per cent. Source: SMH