Mr. Colin Murphy                                                                                                    Dated August 31, 2015
Auditor General for Western Australia
Office of the Auditor General
7^th Floor Albert Facey House
469 Wellington Street
PERTH WA 6000

Dear Mr. Murphy

RE: SALE OF THE YORK CONVENT  TO THE SHIRE OF YORK COMMISSIONER
                                                                  MR. JAMES BEST

It is claimed that the purchase of the commercial property, Lots 800-801, South Street, being the historic York Convent building and surrounds, Circa 1873, is through a loan issued by the WA Treasury to Commissioner James Best, the Shire of York, at his request.

The borrowing is the full amount of the purchase price being $625,000, with the Principle & Interest repayment for the Financial Year, 2015-2016, set at $72,000.

It has been lent by the WA Treasury to Mr. Best, as the Shire of York, without commercial justification, any, known, economic rationale and local community expectations evaluation.

In the absence of any publically accessible financial data the guesstimate is that the loan is at a commercial interest rate of five (5) per cent, for fifteen (15) years, with the total repayment being
$1,080,000.

It is assumed that, under the authority of the Auditor General,  a WA Treasury loan is considered, by you, to be ‘State Government monies’ and its use is under your jurisdiction and possible scrutiny.

It has been suggested that if any bank valuation on this property was done, it was on behalf of the vendor, not the purchaser. This is the standard procedure in the case of a domestic housing loan, but should be considered a failure in due-diligence and financial duty-of-care when a loan is provided from State Government monies for the public purchase of a private, commercial property.

The financial debt in comparison to the return in any community value expectations, in this instance, has no visible, positive computation.

Given that this property has been on the market for a period of two years, the supposed current valuation may well be outdated and overpriced.

You would be aware that the WA housing market has fallen by at least twelve (12) per cent over the past two years. Given the purchase price was $625,000 the current market value could be $550,000, or much less, if there has been a similar reduction in commercial property valuations.


As per my previous correspondence, the convent building contained within the property is dilapidated and possibly structurally unsound with some suggesting that the cost of the urgent, remedial maintenance required being as high as $200,000.

For the Shire of York to rent the property for commercial purposes it, firstly, has to ensure that the building is structurally sound, at its cost.

 As rental income in the WA domestic property market has fallen by at least ten (10) per cent, if the commercial property rental market has had the same devaluation, then it is highly unlikely that any annual rent return for the property would even cover the annual Interest repayments, let alone reducing the principle. (The devaluation is even more marked in rural towns.)

It is my personal opinion that there is a number of ‘red flags’ regarding the property that would probably preclude a major Australian bank from providing any loan for its purchase.

(a) It is a designated historic building, therefore there may be major restrictions regarding any
     external and internal renovations and/ or improvements and additions to the property to
     potentially increase its value.

(b) It is 142-years-old, situated in one of Australia’s most active earthquake zones and is built on clay
     soil. This provides the potential for a high, ongoing maintenance impost.

(c) It is a commercial property in a rural community, so the purchaser’s ability to service the loan
     through a local commercial venture would be considered a high lending risk.

(d) Should a bank have decided to provide the loan, it would be at no more than eighty (80) per cent
     of the purchase price. (In this case- it would be $500,000.)

(e) The bank commercial interest rate would be higher, increasing the interest paid to service the
     debt, also the term of the loan would probably be much longer.

(f) Some major banks have a distinct aversion to providing loans for the purchase of any property in
    rural WA. This is because of relatively low domestic income, low housing market value, only slow
    increases in housing market value and the higher risk of loan default where the sale of the
    property may not recover the loan debt.  
   
(g) It is highly likely that the bank would require a caveat over another property as security for the
     loan.

It should be once again noted here that the whereabouts, content, relevance and quality of any documents pertaining to a review of a York planning strategy, directly relating to the development of a village square, or town centre, incorporating the historic, York Convent building, is not known to the York ratepayer .


There has also been no proper, appropriate and necessary community consultation regarding any Shire expenditure required to be spent on such a project up to this point in time.

Given that a genuine, reasonable current valuation for the York Convent could be around $400,000, not $625,000 and that it requires $200,000 of immediate, necessary maintenance, then there is an additional cost to the community of $425,000.

You can add to this $455,000 in accrued interest and $44,000 for unseen, unapproved development plan. Therefore, the total infrastructure capital cost for a nebulous proposal currently stands at $1.3 million.
 
It is my opinion that the WA Treasury has provided an unwarranted loan to be paid for by the ratepayers of York at the unsubstantiated request of Commissioner James Best. It has been delivered in a commercially irresponsible manner, with no proper probity assessment and justification as being in the community of York interest.

This loan certainly comes under the province of the office of the Auditor General and as such deserves its investigation.

Yours sincerely

David Taylor.
Shire of York ratepayer