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Farm sales bounce back

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An increase in farm sales compared to the same period last year is prompting guarded optimism in the rural real estate sector, with one rural manager describing the latest results as outstanding, given the lockdown in early autumn.
BLNZ primarily attributes the decline in breeding stock to seasonal factors.
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Real Estate Institute of New Zealand (REINZ) data shows there were 341 farm sales for the three months ended July compared to 295 for the same period in 2019, an increase of 46 or 15.6%.

Conrad Wilkshire | August 24, 2020 from GlobalHQ on Vimeo.

That’s a significant improvement on figures released by REINZ a month earlier, which showed for the three months ended June there were 261 farm sales compared to 322 for the same period in 2019, a fall of 61 or 18.9%.

REINZ rural spokesperson Brian Peacocke says although the latest increase means sales volumes are comfortably ahead of the equivalent period a year ago, they are still well down on the same period in 2018.

“Whilst such a surge does not equate to the levels experienced over the last five years, it does nevertheless reflect a sector that is recovering from recent and current issues more rapidly than other sectors in New Zealand, apart from the residential sector,” he said.

He says a relatively mild winter to date with reasonable levels of rainfall in many regions has seen the new season get off to a good start, although in some districts the annual rainfall is well below the levels needed to replenish water tables and underground aquifers.

“Water in all its categories of quantity and quality remains one of the major issues facing the country and will likely be a dominant topic for some years to come,” he said.

Peacocke says based on livestock sales, particularly in the North Island, there is plenty of confidence in the beef sector, although sales of dairy beef calves are less buoyant than previous years.

“Early milk production in the dairy sector has started well, but most dairy farmers remain cautious given the volatility being demonstrated in Global Dairy Trade (GDT) auctions,” he said.

Property Brokers general manager rural Conrad Wilkshire says the REINZ data for the three months ended July show positive market indicators that can’t be ignored.

He says it’s “outstanding results” as there were real industry reservations in autumn about the impact covid-19 was going to have on farm sales because agents could not physically inspect properties during April and the lockdown only moved back to level two in mid-May.

“It clearly demonstrates our market’s capacity to operate through the cycles short or long term,” he said.

Across the board, median rural prices stayed static at around $23,000 a hectare.

Wilkshire says there is good demand for owner/operator properties priced up to $5m, although there have also been some larger deals, with Property Brokers recently selling two farms priced at more than $10m.

“Buyer decisions at this level tend to be very much investment-driven with discounts applied for regulatory uncertainty and any gaps associated with on-farm compliance programmes,” Wilkshire said.

He says the good news is the top tier of the rural market is no different to any other market, once it finds its level the recovery in the volume of sales is likely to be significant.

“Underlying cash yields of 5-6% look very attractive, and the rural market will adjust to this type of productive valuation approach,” he said.

“The continued strength of our primary sector underpins market confidence both this spring and long term.”

However, the rural property market continues to face regulatory headwinds, and a constrained credit environment, and this has had an impact on the volume of sales annually.

He says regulatory uncertainty, such as new freshwater rules, will mean buyers and sellers are likely to take a conservative approach, particularly among sheep and beef farmers whose forecast cashflows are not as strong as they have been.

But he says there will be buyers with a moderate appetite for some additional risk based on yields and returns, not historic valuations.

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