Australian rural land at an all-time high
It’s been said ad nauseam, but these are unprecedented times, and that is definitely the case when it comes to the Australian rural property market, as the rare occurrence of multiple factors, all prevailing at once, pushes prices to new highs as investors from a range of sectors chase agricultural land.
LAWD senior director of valuations Tim McKinnon, who operates Australia-wide, says demand for Australian acreage is stronger than it has ever been before and that the extraordinary rate of inflation currently witnessed had not been seen in decades.
“In general, (for) rural land values across Australia we’re seeing record prices right across the board and, in some cases, we’re seeing a doubling of value in the past two years. In other areas, it’s more like a doubling of value in five years,” McKinnon said.
“There’s been some massive increases and, in terms of what we typically see for rural land values, it is what we call step changes where it doesn’t increase year on year.
“Typically, we see a rapid increase, then a plateau, then another increase, so it step-changes and that is what history would show over the past 30 to 40 years of analysed data.”
The median price per hectare of Australian farmland increased by 12.9 per cent in 2020, according to Rural Bank’s 2021 Australian Farmland Values Report, which found last year to be the seventh year in a row of growth.
McKinnon, who has more than 15 years of experience in the valuation of large-scale institutional grade agricultural holdings across a broad range of asset classes, said there were three key drivers at play which had led to the dramatic surge in values.
“(Investors) have the ability to access cheap money through low interest rates and, for example, Victoria, NSW and southern Queensland have experienced good seasons in the past 12 months,” he said.
“The other driver is commodity prices from cattle, sheep, broadacre cropping, whether it’s wheat and grains or cotton are all high.
“The other thing that is helping it in NSW, in particular, is the development of dual-purpose crops. A lot of people are now grazing, especially around the Riverina and southern NSW.
“You are seeing people grazing varieties of crops and grazing it with predominantly lambs and they’re getting a really good yield on it which is pretty similar to what a normal crop would be now, if not better.”
McKinnon argues that, at least up to this point in the unprecedented hikes, the returns generated from acquiring large landholdings was backing up the huge price increases.
“A lot of the increase in land values has been stacking up on a returns basis. It might be getting to a point where it’s getting a bit ‘toppy’ now,” he said.
“I think at some point it has to plateau, but maybe I am a bad judge because I said 12 months ago that it had to do that. I think there is still plenty of appetite for land and commodity prices are still looking good going forward, so I can’t see it going backwards.
“There’s a mix of buyers from overseas, institutional investors, plus the domestic buyers. The main thing is the three factors driving it: interest rates, returns and good seasons. Not very often all three line up and that’s one of the big things.”
Inglis Rural Property agent Jamie Inglis echoed the view of McKinnon regarding the appetite for agricultural land in Australia.
“Everyone is saying it now, Covid has changed the way we live, and it has. This is the first time in my lifetime where there’s been such a dramatic change in the way business works,” Inglis said.
“The other reason, of course, is that we are now finding out that when Aussies travelled overseas in 2019 they spent $60 billion and that’s here. You can’t buy a new car now or there’s an eight or nine-month wait; coastal properties are through the roof, as are lifestyle properties and farming properties.
“In agriculture, cattle prices are at record levels, fat lambs are selling well and grain prices are good, etc.
“There are livestock agents around the country doing incredibly well because they work on a commission basis. Some of those big agents around the country wouldn’t know what to do with their money.
“There is this wash of money throughout the economy and we’ve seen that with the thoroughbred industry, which is also through the roof. It is an extraordinary time.”
Inglis added: “The world knows now that there are fewer safer havens than land. There’s an old saying, ‘they’re not making any more of it’.”
In recent times, Scone’s Glastonbury Farms has been sold and the sale of Ballygrove at Blandford was also completed in May and Inglis believes equine farms will be hard to come by.
Equine property Figtrees Farm in the Gold Coast hinterland also sold earlier this month for $5.35 million.
“There aren’t many thoroughbred farms on the market. We have got (Paul Fudge’s) Bong Bong, but other than that, I don’t think there’s a lot around,” Inglis said.
“That is always a good thing with supply and demand, of course, but of the commercial operations, I don’t think any would want to be getting out of the market now because of the returns they are getting (in the sales ring).
“Widden Stud is now operating in Victoria – they are expanding. The industry is healthy and, if we had a thoroughbred farm, there would be without doubt good interest.”
While competition for large-scale landholdings have reached new heights, the same can be said for small acreage lifestyle properties.
“To give you an example of lifestyle blocks in the bush, we sold a place at Holbrook (southern NSW) about a month ago. It had a nice house on a small acreage and it made $600,000 over reserve,” Inglis said.
“We had people bidding from Melbourne, Sydney, Canberra, all over the place, as well as locals.
“I think there were seven registered buyers and, in fact, the losing bidder got on the phone and said to Sam (Triggs, Inglis Rural Property) and said, ‘do you think the bloke would take a profit?’. It was an extraordinary result.”
Queensland-based McKinnon was in Tasmania when speaking to ANZ Bloodstock News and said the Apple Isle also had surplus demand for lifestyle properties as a result of the pandemic.
“At Smithton in the far north west corner, the real estate agent there can’t keep up,” he said.
“They are getting calls from Sydney and Melbourne with people wanting to relocate and the agent has no stock for them. We’ve got a lifestyle specialist at LAWD who works around the Yass and Goulburn area (of NSW) and that market has been red-hot as well.
“Everything sells pretty quickly because of the buyers out of Sydney who are looking for a change.”
Stable complexes in high demand
Clint Donovan, a Magic Millions auctioneer who has branched out on his own to operate an agency and sold Figtrees Farm, says horse stable complexes have also become a hot commodity on the Gold Coast.
“At the moment, on the Gold Coast in particular, which is where I have been dealing, there is a shortage of stables versus the demand for them and that is playing into sellers’ hands currently,” Donovan told ANZ Bloodstock News.
“There’s a big demand from trainers such as Lee Freedman, there’s been a lot of interest from John Moore from Hong Kong, so there’s a lot of people wanting to move in and play a part in the Queensland racing scene.
“I think the Aquis Farm investment into the lights at the Gold Coast Turf Club and everything that is happening, it is all a pretty good recipe for success and there’s a lot of people who want to get involved.”
Donovan revealed trainers attempting to buy stable complexes were coming up against investors who deemed them to provide strong returns.
“If you look at industrial and commercial sites, prices are going up and rents are staying the same, so it is forcing yields down. There is actually a really nice little niche of decent returns available that you won’t find anywhere else at the moment,” he said.
“A lot of commercial and industrial yields at the moment are four per cent or less.
“In a really good deal you might get up closer to five per cent and there are a few deals that I have done with leasebacks in place currently in excess of five per cent, so they are really competitive in that investment yield return.”
There has been a dramatic increase in trade of stabling in the past 12 months after years of relative dormancy, according to Donovan.
He said: “A lot of these properties have stayed stagnant and semi-for-sale and certainly purchasable for a long time, certainly in the last five or six years, but there’s a real urgency and rush on them now.
“That comes down to the health and the returns available in the Queensland racing industry.”