Monday, April 22, 2024

Confidence returning to rural real estate

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A doubling in the number of dairy farm sales across the country during the past financial year and increased interest in sheep and beef farms has led to a significant jump in rural property sales, NZR real estate director Peter Barnett says.
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A doubling in the number of dairy farm sales across the country during the past financial year and increased interest in sheep and beef farms has led to a significant jump in rural property sales, NZR real estate director Peter Barnett says.

According to REINZ data based on sales made by real estate agents of dairy, sheep and beef, and cropping properties of more than 20 hectares, 200 dairy farms sold in the year to June 30, compared to about 100 the previous year.

Those dairy sales contributed to total sales of just over 1300 properties for the 12-month period, an increase of about 40% on the year before, although that year had the lowest number of sales of any year for the past 10 years.

The latest total compares well with sales in 2013-14, which was the best of those 10 years, when 1500 properties sold. However, it is still well behind 2007-08, regarded as the best year in recent memory, when more than 2000 farms sold.

Barnett says the difference between the 2014 year and the one just gone is the earlier period was very much a dairy driven property market, whereas the latest year has been more about sheep and beef.

That’s reflected in his home patch of Manawatū-Rangitikei, where sheep and beef farmers have been buying dairy farms to convert to finishing units, although that’s not a trend in the main dairying parts of the country, such as Waikato, Taranaki, Canterbury and Southland, where most sales have been dairy to dairy.

“When you also look at those areas, while our dairy sale numbers were significantly up this year, theirs are still well down on 2014,” Barnett said.

“Part of that is because in our area we have more sheep and beef buyers as they’re a bigger proportion of our farming population, whereas a greater proportion of their market is dairy-centric.

“In Canterbury and Southland, a dairy farm that’s on the market might only have been converted for five or 10 years and it’s got a great big rotary in the middle of it, all perfectly set up.

“They are the hardest farms to consider a land-use change on because they are such high-value, whereas here, if you’ve only got a little 18-a-side herringbone that’s been there since the 1950s, there’s not a lot of dough tied up in it.

“In most of those cases that I’m aware of here, there were dairy farmers interested in buying, it’s just the sheep and beef guys were prepared to pay more money.”

Much of the demand for property nationwide is being driven by strong economic fundamentals.

Barnett says through his 20 years in real estate there has always been a situation of when the dairy payout was up, lamb or beef schedules were down.

“But for the last three or four years they’ve been running more in parallel. You’ve had the lamb schedule and the milk schedule running at consistently higher levels than long-term averages at the same time, and while beef is a bit lower in relative terms, it’s still ahead of longer-term averages,” he said.

That’s given banks a bit more confidence, which has been helped by a decrease in dairy debt.

According to data to the end of March, the amount going towards principal and interest there is up from about 5% two years ago to about 20%, while banks are also reporting that their stressed loans have dropped significantly.

“If you look at Reserve Bank reports and bank balance sheets for the year ended March, in the two years to March 31 this year, there’s been about $3.3 billion of dairy debt repaid, which is about 8% of it,” he said.

“I’ve spoken to all the banks and they’re all telling me the same story, that they are open for business.”

Barnett is positive about the year ahead.

“I think that we will see upward pressure on values across a lot of classes of land because the (market) influences and demand won’t diminish, and we will likely see more purchaser interest from the dairy sector than we have seen in recent years,” he said.

“Value is driven by supply versus demand and if we’ve got more demand, which I’m sure we’ll have across the whole country, and we don’t have any more supply, then I think we’ll see a little bit of pressure on price. 

“I don’t think it’s going to go silly, I just think on some property we’ll see more competition.”

He’s also expecting more vendors to opt for auctions, although tenders will continue to be the predominant method of sale.

While auctions won’t suit everyone, he already has more booked for the year ahead than he has seen for a long time.

Sometimes vendors prefer auctions because they are taken out of the decision loop as to who ends up owning their farm, which is easier in tight-knit rural communities.

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