The valuation notice from your Council is for the value of the Land only. The amount you paid for the property is for the Land and Building built on it.
When you build a new home on a parcel of land it might cost say $200,000 to build it. Over time the value of the building goes down (if you are renting out the house you can claim depreciation on the building).
It is the land that goes up in value over time, not the building. That is why the exact same house can be worth more in one area than another area - it is due to the land in the more expensive area being higher than the value of the land in the lower area - the house would be worth exactly the same in both areas, but the value of the land would be different.
In your case, your house might only be worth around $80,000 whilst the land is roughly worth as per the Council Valuation.