Property bulls still on the charge

By ANNE GIBSON

Expectations that the rural boom will go on are being borne out by the latest reports and data, but some industry experts are sounding a warning.

Murray Cleland, who heads the Century 21 Elders Real Estate network and is the Real Estate Institute's rural spokesman, is cautioning investors against becoming too bullish about rural land prices.

Comparing the rural boom with the kiwifruit boom-bust cycle, Hamilton-based Mr Cleland reckons prices have gone as high as they can.

He should know, having been in the midst of the Waikato dairy farm boom and in the business for more than 20 years.

While real estate agents' commissions benefit from higher sale prices, Mr Cleland sees danger in an overheated rural scene this year.

"We're at the peak of the market now," he says, calculating that during the past 18 months rural land prices for sheep and dairy farms rose at least 35 per cent. He warns rural land buyers to get back to the basics and tells investors to consider productivity ahead of other factors.

"Buyers should do their homework well before buying and make sure the land is producing the results which are being quoted," he says.

Investors should also be wary about fluctuations in external factors affecting agriculture, particularly a rise in the value of the New Zealand dollar or an increase in interest rates which could depress commodity prices and cause a downturn in farm prices.

Property Institute chief executive Conor English also picked the top of the market, saying this month that prices were changing. Estimating that rural property accounted for about $85 billion worth of New Zealand's $420 billion property assets, he said prices should "settle" this year.

"Increases in farmers' incomes look less likely with international commodity prices coming off historic highs," he said. "There are now a number of factors which suggest that this market has peaked and land value growth may slow."

Just before the New Year the Real Estate Institute released its rural property report, which showed considerable rises in the number of farms being bought and sold, as well as the prices people were prepared to pay for land.

Massey University hopped aboard the good news machine last month too, announcing the results of a quarterly survey which showed optimism continuing to grow.

"This is the seventh consecutive quarter where this survey has recorded a positive outlook on the back of good commodity prices, a low Kiwi dollar and low interest rates," Massey said.

The survey was based on confidential questionnaires completed each quarter by a panel of rural real estate market experts drawn from the banking, real estate and valuation professions.

panellists forecast increased sales for dairy farms, hill country sheep and beef farms and arable/fattening farms, compared with the same period last year.

"However, for the third consecutive quarter, the panellists are less optimistic about sales volumes than they were in the previous survey," Massey said. "Forestry sales are forecast to remain the same. Horticultural property turnover rates are predicted to fall."

The Real Estate Institute reported that 498 rural properties were sold in November for a median price of $220,000. That resulted in the national median rising 32.3 per cent between November 2000 and November last year.

Medians rose for grazing properties (up 8 per cent), finishing property (47 per cent) and dairy farms (15 per cent). The only sector whose median price decreased was forestry (down 67 per cent).

The demand for dairy properties rose on a month-to-month basis and a year-to-year basis, with 83 farms selling in November, up from only 48 in October and 52 in November 2000.

The November median sale price for dairy farms of $1.4 million was up on the $1.2 million of November 2000 and the $1.3 million for October last year.

But can it continue?

The National Bank's rural report issued last month addressed the prospects of a global recession and what it would do to farm-gate prices.

It concluded we were not immune to international economic trends, but overall its pick for commodity prices was that they would not be too different from the previous season.

Bayleys Real Estate plotted the national farm median sale prices for the years ended October since 1997 and produced the sort of graph a boardroom would be proud of. It noted that national sales volumes were growing and buyers did not appear to be holding back.

Bayleys, with an office in Hamilton, was not short of million-dollar farm sales for a rural market report which it issued just before Christmas. It rounded up six big deals from last year.

The biggest it cited was the $4.3 million sale of just 178ha of dairy farmland near Lake Karapiro, on land running 560 cows. "The property, regarded as one of Waikato's trophy farms, was bought by an Auckland investor," Bayleys said.

Errwood Farm at Reporoa went for $4 million. It was sold to a Bay of Plenty investment trust which intends to continue with the sharemilking operation. The farm has 635 cows.

Matakohe Farm in Northland, a 691ha dry-stock farm, sold for $3.2 million, well above its valuation for rating purposes of $1.1 million.

Another deal earning a mention was the $2.25 million sale of a 122ha dairy farm in Te Awamutu, bought by a former Waikato dairy farmer who had left the region and is now farming near Invercargill. This farm runs 300 cows.

A 109ha dairy farm on State Highway 27 at Morrinsville sold for $2.6 million. It has 340 cows.

A 52ha dairy farm at Waitoa sold for $1.6 million. Part of its attraction was that it supplies the Tatua Dairy Co-op, Bayleys said.

The Real Estate Institute's latest research found that the median price of a Waikato farm is now $1.2 million, compared with two years ago when it was just $995,000.

Much the same picture showed up in other areas when comparisons were made between the November medians of 2000 and last year. A Bay of Plenty farm will now cost around $615,000 ($446,000 in 2000), Taranaki $900,000 ($705,000 in 2000), Manawatu $635,000 ($410,000) and Nelson/Marlborough $735,000 ($375,000 in 2000).

Decreases in the median were recorded in some areas, but overall the median farm sale price rose from $572,500 in November 2000 to $757,500 in November last year.

As the institute said in its latest release on farms: "Rural property - the news is all good."

Real Estate Institute NZ

Massey University

National Bank

Century 21

Bayleys