By LIAM DANN
The BNZ has warned that there is a risk that a dangerous price bubble is developing in the rural property market.
"The rural economy may be falling prey to the same demons that are afflicting the rest of the residential sector," the bank's head of market economics, Stephen
Toplis, warns in the latest Economic Monitor.
The sector was starting to be hit by speculative behaviour and default investment as individuals of high net worth feared putting their money elsewhere, he said.
"If one believes that there is a price bubble in the housing market then one must conclude the same for the rural market," he said.
In some ways rising rural prices may be more insidious as prices in the sector should reflect future expected earnings off the land.
Instead, prices had risen while the outlook for the agricultural sector had deteriorated over the past year.
Rural property prices had historically followed similar patterns to those in the residential sector, he said.
Statistics from Quotable Value New Zealand showed rural land prices had risen 8.9 per cent to be up 20.4 per cent in the two years to June 30. By comparison, house prices had risen 14.2 per cent to be 22.7 per cent up for the two-year period.
Since June 1980, the price of rural land has increased by 6.4 times while the rate for residential was 6.7 times.
Toplis conceded that there have been positives for the agricultural sector in recent months, such as improved commodity prices and an end to drought, but warned that the continued appreciation of the dollar would make the year ahead a difficult one.
He concluded that while it was too early say prices were in a "bubble" phase yet, anecdotal evidence suggested they would continue to rise.
Figures from the Real Estate Institute released yesterday show the median price for rural property rose from $540,000 in August to $610,000 last month.
The number of sales, at 184, also rose compared to both the previous month and September last year.
Trade in lifestyle properties hit a three-year high of 806 sales in September. The median price was $244,000.
Dairy farm prices were firm with a median of $1.6 million, up on both the previous month and the same month last year.
By LIAM DANN
The BNZ has warned that there is a risk that a dangerous price bubble is developing in the rural property market.
"The rural economy may be falling prey to the same demons that are afflicting the rest of the residential sector," the bank's head of market economics, Stephen
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