Monday, February 26, 2024

Farm sales take a hit amid economic gloom

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Some regions are selling half as many properties as the same time last year.
Despite the headwinds, political or economic, in any market there are always willing buyers and willing sellers, an industry expert says.
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Rising farm interest rates and ever-increasing compliance are impacting farm purchase decisions up and down New Zealand.

REINZ figures show that, nationally, farm sales are down a third on last year at 327 sales.

Significant farming regions such as Canterbury and Waikato have farm sales back 50% by number on the same time last year, July to November.

The only regions bucking the trend are Manawatū, where farm sales for this spring at 36 are ahead of last spring, and the West Coast, which continues to offer great value for money for those looking for a first farm with farm sales running at twice last season’s.

Property Brokers general manager rural Conrad Wilkshire said the rural real estate market adjustment predates the most recent November 23 Reserve Bank 75 basis point lift in the Official Cash Rate (OCR) to 4.25%, the seventh increase this year.

Farmer borrowing costs have already doubled over the past 12 months and while access to rural credit has improved, Wilkshire said the cost is now weighing heavily on farmers and grower minds when taking on more risk.

Last season was the opposite – rural debt had never been cheaper but accessing it was not a given.

“The current 75 basis point lift is the most significant since the OCR was introduced in 1999 and in our view, will impact further and reduce levels of buyer inquiry,” Wilkshire said.  

“We are often seeing the final sale price below the original appraisal assessments, given invariably these appraisals were undertaken prior to the most recent OCR increases and the knock-on impact of funding the cost of these farm purchase decisions.”

Despite the headwinds, political or economic, in any market there are always willing buyers and willing sellers, he said. 

“Farmers and growers are pragmatic, particularly if they have all the relevant information in front of them.” 

So why do some buyers choose to step up while others step back? 

“We attribute a lot of that sentiment to all the negative chat in the market on just about anything to do with our primary sector. 

“The reality is very different when you look at the contribution agriculture makes to New Zealand export receipts and the growth in these earnings year on year.” 

The latest Ministry for Primary Industries Situation and Outlook Report, for December 2022, highlights the contribution the primary sector is making to the NZ food and fibre sector, with export revenue growing by 11% to $53 billion in the year to June 30 2022. 

The sector has continued to perform well despite domestic and international challenges. 

Export revenue is again forecast to increase by 4% to a record high of $55b by June 30, 2023, underpinned by a favourable NZ dollar. 

“So, going against much of the rhetoric directed at our dairy, sheep and beef sectors, if this year’s forecast is achieved, our primary sector contribution will be up 15% for the last two seasons combined, led by pastoral farmers,” Wilkshire said. 

The forestry sector makes a big contribution to the national economy, but for the past six years national forestry export receipts have been flat at best.

“Before we all believe forestry is a one-way bet, our pastoral farmers have sound economic reasons to back their industry too,” he said. 

“The sector has defied all the naysayers since the 1980s and this next decade will be the same.” 

Property Brokers general manager rural Conrad Wilkshire says despite the headwinds, political or economic, in any market there are always willing buyers and willing sellers.

Innovation and adaptation remain central to the sector’s future, including accurately monitoring the contribution to the carbon footprint, but there might come a day when consumers also share that responsibility as many of the discretionary things they consume have little to do with food and shelter. 

“You only need to look at the ever-increasing size of NZ’s airport car parks to get a measure of that.”

Wilkshire is confident the market will reset, saying that “it always does”.

He advises buyers to step up and meet the market head-on.

“Standing back may mean a lost chance to take a once-in-a-generation opportunity as quality listings continue to come forward,” he said.

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