The Rotorua Lakes Council reviews the value of properties in the district every three years. These revaluations are "required by law to provide councils with a uniform basis for levying rates", and are conducted by independent property valuers.
The most recent Rotorua revaluations were carried out by the Tauranga-based company Landmass, and were completed by July 1, 2014.
Landmass co-director Garth Laing explained that the revaluations were based on sales of dairy farms recorded up until the date of valuation, but could not take into account events after then.
And since last winter, the fortunes of New Zealand's dairy farmers have taken a turn for the worse.
Fonterra posted a record farmgate price of $8.40 per kg of milk solids in May 2014, signalling a healthy domestic industry that could attract investors. But, in the past 12 months, a number of factors have caused global milk prices to shudder and slide.
Fonterra chairman John Wilson said, last December, that "falling oil prices, geopolitical uncertainty in Russia and Ukraine, and subdued demand from China" had all contributed to "ongoing volatility and weak demand".
According to the Rotorua Lakes Council chief financial officer Thomas Colle, changing milk pay-outs in the valuation period had factored into the significant rise in capital value of Rotorua dairy farms. Mr Colle said that 70 per cent of dairy farm properties within the district had increased in capital value between 15 and 35 per cent, and noted that valuations for all other categories had decreased.
However, Mr Colle said the the values are still below the highs of recent years. "Investors appear to be taking a longer term perspective of the industry, particularly in view of the increasing frequency in the change of the pay-out and the anticipated impact on production of further development nutrient discharge restrictions."
Reality check
Fonterra's most recent forecast for the 2014/2015 farmgate milk price was $4.70 per/kg - compared to last year, this represents a $6.1 billion fall in farm income, equivalent to 2.7 per cent of GDP.
In the first three months of this year, the Real Institute of New Zealand reported a 15 per cent drop in the average price paid per hectare on dairy farms. With less farms also being sold than in the same period the previous year, DairyNZ senior economist Matthew Newman said this drop could be seen as a "reality check" in response to the current adverse conditions in the industry.
While the revaluations of Rotorua dairy farms were based on last winter's market conditions, Garth Laing of Landmass believed investors would take industry shifts into account when deciding where to place their money.
But Mr Newman said there might be other factors at play in the capital value spike of Rotorua dairy farms. "It's a big movement, probably reflective of a particularly buoyant property market at the moment."
This could be good news for local dairy farmers. Mr Newman said that although the milk pay-out was low, high property prices meant that dairy farmers still retained large amounts of equity.
But he conceded this could make it more difficult for sharemilkers and new buyers to enter the industry.
For those existing owners set to experience rates increases on their properties, it was hard to be certain where the industry was headed.
"At the moment you are not seeing that [improvement in the milk payout], but you know that we are in a very volatile situation with milk prices. Who knows where we will be in six months' time."
