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Property Express - Investor activity re-emerging around large scale dairy

March 2021

For the last several years few large scale dairy farms have changed hands.

However, as New Zealand-based entities are showing greater enthusiasm to invest in the sector, that is now changing.

Calvin Leen PGG Wrightson Real Estate sales manager for Mid and South Canterbury and North Otago says following the 2017 election the incoming government’s restriction of overseas investment slowed sales of $10 million plus dairy properties to a trickle.

“Since Christmas however, we have started to receive regular calls from New Zealand-based investors looking at dairy. Farms with scale, a focus on yield, and environmental compliance are within their scope.

“Investors now appreciate that regulation to thwart environmental change is coming. This may mean herd numbers will drop. Now accepting that these regulatory changes are inevitable, investors are motivated to proceed. Simultaneously, post-Covid perceptions about other investment classes have been revised. Interest in the primary production sector has new credibility, including for dairy farms,” says Calvin.

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Southland Real Estate manager for PGG Wrightson Real Estate Andrew Patterson says investors are ready to buy large scale properties, though listings of this type in his region are scarce.

“These investors need confidence dairy returns will remain sound. At present they are, and the formula would still apply with a lower payout. Investment decisions by these entities work to a well-defined process: if an opportunity doesn’t tick the box, they won’t buy.

“Since dairy returns should be sustainable longer term than seemed likely 18 months ago, we started to hear from investors again. They generally already have dairy interests, have introduced new capital, or are expanding existing holdings. Some seek to buy then lease farms out for returns that compare favourably to term deposits or the stock market,” says Andrew.

Meanwhile in Waikato activity around large scale dairy also resumed recently, though with equity trends going in the opposite direction, as Trevor Kenny of PGG Wrightson Real Estate Matamata explains.

“After nothing much happened for several years, purchaser enthusiasm for South Waikato 400 hectare plus dairy properties is evident again. However, off-farm equity in these farms is being tidied up, and going the other way: back into family ownership. Investment is from family owned businesses expanding: growing their holdings, not shifting their equity from one property to another,” says Trevor.

On the east coast of the South Island established, modern, well maintained, self-contained tier one dairy units milking 1500 cows plus tick the boxes.

“With significant investment, making these opportunities self-contained manages the risk. Securing control over dairy support and grazing becomes a priority. If a farm does not offer that on a turnkey basis, investors will acquire additional land or engage long-term with quality graziers to achieve it,” says Calvin.

Recent evidence of sales suggests the market for larger scale dairy farms sits in the $44,000 to $46,000 per hectare range in Mid and South Canterbury and North Otago, and between $20,000 and $30,000 per hectare in Southland, a softening of between 10 and 20 per cent on values at the market’s 2013 peak. Large Waikato dairy farms are currently valued between $25,000 and $30,000 per hectare.

 

Calvin Leen

North Otago, Mid & South Canterbury Sales Manager

M 027 453 0950

Calvin.Leen@pggwrightson.co.nz

 

Andrew Patterson

Southland Real Estate Manager

M 027 434 7636

apatterson@pggwrightson.co.nz

 

Trevor Kenny

Rural Sales Consultant

M 021 791 643

Trevor.Kenny@pggwrightson.co.nz

 

Read the full edition of the Autumn Property Express here.

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