Sale of a Holbrook property for $40m – which was $10m more than initial asking price – is indicative of record buyer demand
Last modified on Mon 13 Dec 2021 10.14 GMT
Farmland prices are soaring at quadruple the rates of median growth in Australia’s capital cities – as 30-year price highs across agricultural commodities combine with low interest rates and generally good seasonal conditions.
Experts are beginning to warn that the “exorbitant” price of farmland is prohibitive for those starting out, echoing city housing concerns.
The overall median price of Australian farmland value has seen a compound annual growth rate of 10.6% over the past five years. This is more than four times the rate of growth in residential properties in capital cities (2.6%) over the same period of time, according to data from Rural Bank.
This week’s sale of a 1,435-hectare Dalriada property at Holbrook in southern NSW for $40m – which was $10m more than the initial asking price – is indicative of the record buyer demand and prices for rural property that are being seen across Australia.
Fiona Simson, the president of the National Farmers’ Federation, said the buoyancy around agriculture in Australia was driving demand locally and from overseas investors.
Earlier this week, the Australian Bureau of Agricultural and Resource Economics and Sciences (Abares) predicted a historic gross agricultural production value of $78bn off the back of price highs across all commodities in the sector.
Wes Lefroy, the senior agriculture analyst at Rabobank, said the three macro drivers of farmland prices – commodity prices, production levels and the cost of finance (interest rates) – were all the best they had been for farmers in the past 30 years.
The median price per hectare of Australian farmland increased by 12.9% in 2020, representing the seventh consecutive year of growth, according to Rural Bank’s annual Australian Farmland Values 2021 report earlier this year.
The report showed that, for the first time in 15 years, all Australian states experienced growth in median price per hectare, with the highest growth coming over 65% in the Northern Territory and 25% in Tasmania.
“The big increase in the price of land has made it more cost prohibitive for anyone wanting to buy agricultural land,” Lefroy said. “It’s a similar effect to other asset classes, such as the Sydney property market, you have to adjust your sight how much land you can afford and where you can buy.”
Michael Curtis, senior agricultural analyst at Rural Bank, said the prices in Tasmania were being driven by significant development in the state’s irrigation schemes helping farmers increase their productive capacity.
In the Northern Territory, he said, the smaller number of transactions could cause values to swing quite dramatically each year but the strong cattle market of the past few years had supported stronger values.
Curtis said the anecdotal evidence suggested that values had continued to rise strongly in 2021.
“Buying power and confidence in the sector is strong,” Curtis said.
He said strong prices could be affected if interest rates began to rise again, but as confidence in the sector and demand for food remained strong, he believed it would continue to drive demand and prices for farmland.
Simson said there were many positives for those in the industry who were able to use the equity from the increase in the value of their farm asset to expand their farm operation, which in turn helped drive the industry’s expansion and the diversity of the sector.
However, “it’s not a great time for new entrants into farming or for young farmers to be buying their first time”, she said.
The Rural Bank report showed commodity prices hadn’t kept up with the growth in farmland prices since 2016, despite the historical correlation between the two.
Jess Cavanagh, the general manager of succession planning specialists Proagtive, said the prices were affecting succession planning within family farms.
“The core issue is that just because something is increasing in value on a value sheet doesn’t mean it’s able to derive an income commensurate to the value,” Cavanagh said.
Cavanagh said this created a difficulty for succession planning, because children who were not working on the land perceived another sibling receiving the lion’s share of the estate, “but quite often the person receiving the asset does not see that as liquid”.
“For the person working in agriculture, it’s nothing more than the vehicle to derive an income,” she said. “The worst-case scenario is families being torn apart.”
For those entering farming without relying on equity and other assets, Cavanagh said “the prices are so exorbitant, the business that you run on the land to service the debt isn’t lucrative enough to do that”.
Independent economist Saul Eslake said “if you have to borrow most of the money to finance the purchase of the farm, because you don’t have equity, and you can’t generate a profit in excess of three or four per cent, because that’s the rate you’d be paying on your loan, that’s not viable”.
Eslake said that the data from Abares showed that on average over the three years to 2019-20, the top 20% of farms earned an average return of or above 6% per annum, but the bottom 30% of farms had negative rates of return on capital.
Cavanagh said solutions existed in the form of share farming, leasing, or agisting allowed those starting out to understand how to run the business, before taking the risk of securing land to do it.
Cavanagh said whether younger people were or were not fortunate enough to be running generational assets and businesses, the same argument applied – “the value is in keeping Australian farms in Australian families.”
Lefroy said Rabobank was predicting farmland price growth would remain strong for at least the next two years.
“Typically we don’t see land markets crash,” he said.
He said that while environmental services still represented a small segment of the market, there were pockets of interest in land from a carbon farming perspective, particularly in pastoral lands in lower value drier climate, such as the eastern wheat belt in Western Australia, western NSW and western Queensland.
“Farmers primary income streams are going to still remain farming the land but we will start to see looking forward farmers starting to place more value on land that is perhaps more suited to carbon farming,” Lefroy said.