The demand for rural land in New Zealand remains stable despite global market uncertainty.
The current transaction numbers for dairy farms across key markets, such as Canterbury, are some of the highest seen at this time of the year since 2014, according to statistics from the Real Estate Institute of New Zealand.
Richard O’Sullivan, Director of Rural & Agribusiness at Colliers Christchurch, says total transaction numbers in Canterbury have increased notably compared to the past three years and there is also greater investment from local capital as opposed to overseas investors.
“In 2013/14 the Canterbury dairy market was heavily influenced by the inflow of overseas investment in our agricultural land and assets. $620 million of irrigated dairy assets traded during that season, of which approximately $330 million was registered and approved through the Overseas Investment Office (OIO),” O’Sullivan says.
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“There was a significant and almost immediate impact of much more stringent OIO approvals initially but in recent years we have seen the market gather momentum, particularly for this asset class.
“In the 2019/2020 season, for example, the Canterbury region saw only three sales, totalling $21.5 million. In 2020/2021 this rose to 18 sales with a total market value of $150 million. And this year we are seeing the strongest market conditions since.
“We are predicting an estimated $380 million of irrigated Canterbury dairy assets being traded for the 2021/22 season, with around 34 sales.”
The key influences at a macro level have been the steady milk pay out of the past few seasons, which has enabled farmers and financiers to make predictive economic and environmental decisions with some certainty, plus the recent low interest rate environment, which put buyers in a strong cashflow position for their first 12 months of land acquisition.
This has the positive downstream effect of capital flowing into other farming assets, primarily dairy support land. The dairy properties sold are being recapitalised with less debt and a focus on positive environmental outcomes.
“Existing farm operators have the confidence to make land purchases both ‘on’ and ‘off’ market with a focus on versatile soil type and reliable irrigation, which gives their businesses financial and environmental predictability,” O’Sullivan says.
The Colliers Rural & Agribusiness team has been helping to guide its farming clients to seize alternative purchase opportunities that maintain a steady business footing. Farms are transacting at record rates as owners explore different equity models.
“An exciting part of the market to re-emerge in recent months has been the equity partnership model, with an increased availability of investor capital and good quality managers stepping forward. Investors have been present in the market for the past 18 months but have really showed their hand on the back of milk, meat, and future arable returns.
“We are also seeing first farm buyers being active and well-supported by family farming businesses and corporate operators.
“Fortunately for this group of buyers there have been plenty of vendors wanting to help the next generation, with properties being part-settled at possession date with lease-to-buy arrangements being formed to complete the land purchase transaction.”
The flow-on effect of a strong dairy market should not be underestimated in influencing the wider land market in any given region.
The modern dairy business is becoming more reliant on a ‘closed’ farming system in terms of young stock grazing, imported feed, and protecting animals from disease.
This transpires into more conversations between farmers and advisory professionals to capture the synergies between arable, pastoral, and dairy farming classes.
O’Sullivan says these discussions, together with the buoyancy in a wider range of farming classes, has generated interest in sectors of farming that have typically been the domain of offshore markets.
The current projections for grain demand are strong across major farming sectors, while the consistent dairy pay out and limited import options have placed upward pressure on the contract grain prices for 2023 delivery.
“In Christchurch we’re currently seeing contract prices offered at around $550 per tonne (delivered) for feed grain destined for dairy and poultry consumption. This is a sign of increasing confidence levels not seen in several years – it represents a significant opportunity for New Zealand’s rural sector,” O’Sullivan says.
The yield of our domestic grain supply is estimated to reach 1,078,000 tonnes in 2023 as opposed to demand of approximately 2,000,000 tonnes, this unmatched supply of 922,000 tonnes can and should be grown in New Zealand.
This scenario could well play out with dairy sector confidence translating into forward planning of grain growing contracts, the downstream effect is the arable industry has confidence to plan and invest, alongside local agricultural contactors.
“In short, New Zealand’s rural market is ripe for futureproofing and can deliver an almost immediate response to the current global situation. Amidst the unsettled economic climate there is an opportunity to reconsider land usage and reaffirm our position as a sustainable market leader across a range of primary industries to enable the necessary delivery of world-class export products at strong prices,” O’Sullivan says.
- Article supplied by Colliers
