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Farms selling well in the face of dropping payout

June 2015

Despite the fall in projected dairy returns, the market for farms remains strong, say the South Island’s foremost authorities on rural real estate.
PGG Wrightson Real Estate salespeople report that South Island dairy farm transactions were down this autumn, falling in volume in Canterbury, while in Southland, they dropped by as much as 65 per cent compared to last year. However, rather than a shortage of buyers, farmers’ reluctance to sell is the reason for the reduced sales volume.

Demand for quality Canterbury dairy property continues to exceed supply, says PGG Wrightson Real Estate Manager for Canterbury and West Coast, Peter Crean.

“While the fluctuating payout is a factor in the number of farms sold, the value of farms remains steady, with demand apparent for any listing. Motivated buyers, including individual farmers, syndicates, corporates and overseas interests, are in the Canterbury market, though listings remain scarce. While that is unlikely to change before spring, the continued prevalence of buyers over sellers, where we currently have multiple definite buyers for every listed farm, explains why prices have not been adversely affected by the falling payout,” he said.

PGG Wrightson Real Estate Manager for Mid and South Canterbury, Robin Ford, said the situation in his region was similar, though perhaps even fewer properties are listed.

“Despite what is happening with the dairy payout, and the recent drought, the market remains keen, with considerable unsatisfied demand. Motivated, well-resourced purchasers are actively looking for good properties, which are not currently being listed for sale,” he said.

In North Otago meanwhile, according to Real Estate Sales Manager, Neville Langrish, of PGG Wrightson Real Estate, Oamaru, a number of dairy farms sold at or near top values.

“Recent sales have included farms in Morven, Hilderthorpe and Lower Waitaki at prices exceeding $50,000 per hectare and, in Maheno, for slightly over $40,000 per hectare,” he said.

Elsewhere in Otago, two Manuherikia Valley properties sold for dairy conversion during the autumn and prospects for this district will improve if the Falls Dam project proceeds.

Further south, demand for dairy land appears slightly more cautious.

Southland Real Estate Manager for PGG Wrightson, Andrew Patterson, says his region’s rural property market is undergoing greater fallout than some other parts of the country.

“Buyers are reluctant to enter the market when they perceive subdued activity, while those who might otherwise list lack sufficient confidence that this is the best time to sell so that sentiment is feeding on itself. Corporates, in particular, are absent from the Southland market so those farms that are selling are going to local buyers,” he said.

Although the volume of Southland sales is low, like elsewhere, values remain steady.

“For better quality Southland dairy farms, prices sit between $41,000 and $46,000 per hectare, ranging to around $10,000 per hectare lower for second-tier properties,” said Andrew Patterson.

Notable recent South Island dairy farm sales include:
• A 177 hectare Amuri Basin, North Canterbury property changing hands well in excess of $50,000 per hectare in March

• Neighbouring farms at Waitohi Park, Pleasant Point selling in excess of $50,000 per hectare plus a premium for irrigation company shares in one case in April

• Two smaller West Coast dairy farms, each carrying approximately 200 cows (one north of Hokitika; the other near Lake Brunner) both sold in April for around $32,000 per hectare

• A 160 hectare Mid Canterbury dryland dairy grazing farm sold at auction in mid-May for $4.89 million (or $30,450 per hectare)
According to Peter Newbold, PGG Wrightson Real Estate General Manager, dairy return projections through the winter will have a bearing on activity during the spring market, traditionally the best time to sell a farm.

“With demand exceeding supply, we are in a sellers’ market and the sentiment of sellers is the main influence.

“Few dairy properties are currently for sale. With unmet demand throughout most of the country, a favourable reception awaits those who commit to sell.

“If milksolids forecasts climb closer to $5 per kilogram by the spring, as various commentators indicate, activity in the market for South Island dairy farms should rise another notch or two, as motivated buyers are still out there,” he said.