Rural Property Pulse - A closer look (Spring 2018)
Sheep and Beef
Activity in the property market for sheep and beef farms was buoyant through the winter, with the quantity of transactions equalling, or in some cases exceeding, sales for the same period last year. Although statistics suggest prices have firmed slightly rather than an actual increase, that may be due to the better quality of farms offered for sale this year compared to last. General optimism in the sheep and beef sector indicates a busy spring, with inquiry during the winter, especially from potential vendors, at higher than normal levels. Cyclical issues around farm ownership and career progression are the main factors motivating those who seek to sell, particularly as older farmers consider increasingly complex compliance issues. One notable winter sale was a well-appointed 1026 hectare finishing property at Mahoenui, which changed hands consistent with other recent sale in the southern King Country.
North Island Dairy
A 92.5 hectare property on the outskirts of Cambridge, held in the same family for 120 years, sold at auction in May for $11.1 million. Purchased by a neighbour, this sale equates to just short of $120,000 per hectare, a record for a Waikato dairy farm. Although prices for dairy land elsewhere appear to have firmed slightly over winter, that possibly reflects the superior quality of farms transacted recently rather than increased market appetite. A busy spring North Island dairy farm market is likely, with steady inquiry from potential vendors through the winter and some attractive farms poised to list. With the risk of Mycoplasma bovis preoccupying many farmers, demand for smaller blocks and grazing farms, which will enable dairy operations to become more self-sufficient, is likely to rise. Farm prices should remain reasonably firm through the spring.
South Island Dairy
With caution prevailing in the sector, particularly around Mycoplasma bovis, few winter sales of Canterbury or Southland dairy farms were completed. Two Northern Southland properties did change hands. Each of approximately 400 hectares, both were purchased by the same New Zealand-owned corporate buyer for between $24,500 and $28,000 per hectare. Although other dairy farm sales were rare, demand for grazing blocks is strong, as farmers seek to make themselves self-sufficient, keeping stock isolated from infection. Blocks from 50 to 100 hectares, with water, are particularly sought after. Once spring milk testing clarifies the Mycoplasma bovis status of individual properties likely on or before 15 November, more South Island dairy farms may come to the market. Some potential purchasers are waiting to see if any affected farmers will be encouraged to sell. While there is uncertainty, discounts might be anticipated.
Prices are firm across all classes and sizes of viticulture land as market interest remains high. Winter sales of Wairau Valley bare land, with good water rights, ranged from $30,000 to $65,000 per hectare. Several larger development blocks in Marlborough’s fringe areas sold to corporate buyers at around $25,000 hectare. Some changed hands without being actively marketed. Marlborough-based Spring Creek Vintners Limited purchased a 130 hectare Seddon property in June, while the New Zealand Super Fund acquired a sizeable established vineyard in the Awatere Valley. Additional large development blocks will list for sale for 2019 planting. Increased market activity is indicated in spring, as some desirable listings in strategic Marlborough locations, with secure water will be offered for sale. Meanwhile, considerable vineyard development is under way in the Matapiro district, west of Hastings, where corporate growers are expanding rapidly, with a huge number of plantings.
Although demand for gold kiwifruit orchards is at benchmark levels, rather than cashing in, owners prefer to take the excellent returns their crop is expected to generate in the coming season. Property sales were therefore scarce during the winter, and listings are unlikely to come forth in great numbers in the spring. For those sales that do proceed, existing orchardists are the dominant purchasers. One small Paengaroa orchard, including a house, sold consistent to benchmark levels during July. Twelve months ago, the best gold kiwifruit orchards were changing hands at $800,000 per canopy hectare. Now value expectations sit above $1 million. For highly favoured green kiwifruit orchards, $450,000 per canopy hectare, excluding the crop, is the going rate. Continued price rises will depend on support from financial institutions, which may regard anything higher than current levels as unsustainable.
Pipfruit and Stonefruit
Demand for pipfruit and stonefruit orchards and development blocks remains high, though owners are reluctant to sell. Corporate growers are looking to buy in Hawke’s Bay. Prices for suitable bare land range from $100,000 to $150,000 per hectare. Irrigation and loam soils are the starting point, with water reliability and soil fertility determining value. Suitable orchards are often attached to lifestyle properties, which are also under strong demand. As the productive land within these properties is generally leased, the owners are not selling. These scenarios will probably prevail through the spring, meaning sales are likely to be rare. Anyone willing to sell should therefore do well. However, some Hawke’s Bay wineries are reviewing contracts due to varieties losing popularity, with vineyard owners therefore considering converting to pipfruit or stonefruit, which could help appease some of the demand for suitable land.
Returns for feed and malting barley, feed and milling wheat, and white clover are ahead of last year by anything from five to 25 per cent, providing encouragement for arable farmers. Dairy farmers seeking to improve their self-sufficiency in the face of the Mycoplasma bovis outbreak also provide cropping farmers with additional options. Benchmark prices for cropping farms sit between $50,000 and $56,000 per hectare and are unchanged for more than 12 months. One or two properties selling favourably in Mid Canterbury’s arable ‘golden circle’ in September may encourage others to test the spring market. In these properties, purchasers are mindful of land and water regulations constraining nitrate use. This is encouraging some innovation around land use. Purchase of additional smaller blocks to augment a larger cropping farm could become a more significant feature as this trend develops.
With New Zealand logs under strong demand from overseas markets, particularly China and India, enthusiasm for forestry property remains high. Currency exchange trends are further improving the equation for exporters. Forestry activity continued through July and August, including in regions where the weather traditionally curtails winter operations. Independent companies seeking to source timber through the purchase of trees and land are in the market for suitable property. They need to enhance the supply of logs into their processing businesses for domestic and export markets. Any forest properties listed for spring sale should be well received and vendors can expect positive outcomes. Transactions for forests planted in the mid 1990s and now approaching maturity currently sit between $25,000 and $30,000 per hectare. With demand exceeding supply and the market favouring the seller, those values may well firm in the coming months.