While the formerly-low interest rate environment, sound commodity prices and strong carbon market have driven transactional activity and recent value growth in the pastoral sector, fundamentals are beginning to change, according to the latest sector report from Bayleys’ Insight & Data team.
Nick Hawken, Bayleys’ national director rural said although the price of carbon is still providing a floor in the market, he expects to see some rebalancing of values as rising interest rates, escalating on-farm costs, revised overseas investment thresholds and agricultural emissions pricing start to take hold.
“Values and volumes are holding fairly steady for the time being, but on-the-ground activity and industry data will start to reflect changing dynamics off the back of regulatory and economic forces at play.”
Hawken said the stalled He Waka Eke Noa decision process around on-farm emissions pricing has created some friction in the market as policymakers and farmers are not on the same page.
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“Farmers are currently in a holding pattern as they await clear and achievable pricing targets to be prescribed, and then assess and understand the impact this will have on the viability of stocking rate, carrying capacities, and their bottom line.
“Fattening and dairy support buyers have continued to compete for the more productive land classes in order to future-proof their farming operations with more scale, as the proposed regulatory changes threaten stocking rates.
“On the face of it, the pastoral farmers will be the hardest hit by the government’s proposed changes to He Waka Eke Noa.
“Meanwhile, the ability for pastoral buyers to compete with carbon forestry interests for hill and breeding country continues to be eroded with the strong carbon price continuing to be a primary driver.”
While the changes to the Overseas Investment Act (OIO) requiring the benefit to New Zealand test to be met for bare land conversion to forestry have come into play, it will be some time before an impact is seen
“From a transaction perspective, this policy change has introduced some uncertainty and a degree of risk into the market for transactions requiring OIO approval,” explained Hawken.
“In the short-term, vendors will likely be confronted with a trade-off between higher value and greater risk associated with approvals needed for offshore interests, versus more modest but lower risk offers made by local buyers.
“An initial round of transactions is needed to get a better understanding of how these changes will impact activity and value, so the coming six to twelve months will be quite a telling time.”
Land prices can be expected to stabilise at the lower end of the market, while pressure on prices for the better land classes (fattening and dairy support) are also expected to stabilise given tightening margins behind the farm gate.
“Additionally, it is the increasing cost of debt (rather than access to debt) activity that is expected to soften relative to last spring,” said Hawken.
“Principal repayments across the rural debt market should continue to provide access to capital to support transactional flow, but lenders and buyers are exercising more cautious due diligence practices as they attempt to understand what the financials will look like once inflations settles down.”
In the 12 months to September 2022, Real Estate Institute of New Zealand (REINZ) data shows mid-range pricing per hectare for pastoral properties ranged from $14,000-$40,000, with a total land area of pastoral properties sold being 168,034ha.
The average price per hectare for all of New Zealand was $34,291 and the regions with the largest volumes of land sold were Wairarapa/Wellington, Otago, Manawatu/Whanganui and Canterbury.
Click here to read the full report.
