Rural property values ‘transformational’

Property Brokers general manager rural Conrad Wilkshire spoke about a transformational change in farm values.

A breakfast meeting with a rural focus was held at Barracks in Whanganui on July 13, with guest speakers Conrad Wilkshire, general manager rural for Property Brokers, and Jared Brock, Property Brokers Tararua senior rural manager.

It was attended by business professionals, who were given an insight into the change in the market for rural property values and the drivers in the different sectors.

Ritesh Verma, Whanganui-Taranaki area manager for property Brokers, noted the company’s 27 per cent of the rural market in New Zealand, up from 6 per cent five years ago.

Farm sales

“Farm sales nationally are back a billion dollars this calendar year (five months to May 2023) which is almost half the same time last year,” said Wilkshire.

“By contrast, there has been over $100 million of farm sales in the Whanganui-Rangitikei this last 12 months with over $50m being 200ha-plus sales of sheep and beef farms in the Whanganui, three times the marker of the prior year as farmers took advantage of unprecedented exit opportunities. Nationally, we estimate 250,000ha of farmland has gone into forestry over the last five years.

Guest speaker Jared Brock, of Property Brokers Pahiatua, has sold more than half a billion dollars of real estate.

“Over on the East Coast the impact of Cyclone Gabrielle is still being felt, Tararua district is high volume for rural real estate transactions with $250m sales per annum,” said Jared Brock, of Property Brokers Taraura.

“We’ve had a massive event on the East Coast with Cyclone Gabrielle, severely impacting the market. Tier-one properties are selling very well. Tier-two and three properties aren’t getting any interest,” he said.

Market review

“Selling rural property is about putting people on the land, we have a real commitment to our rural business,” said Wilkshire. “Farm succession has been a challenge, given the threefold windfall gains with land revaluations for Hill Country as a result of competing land use options.

“With rural real estate, what’s been happening in the last five years is transformational. To see the type of land use change and its impact, you have to go back to the Muldoon era of the 70s to see land use change.

“Back then there were supplementary minimum prices, livestock incentive schemes, and land development encouragement loans run by the State Advances, and even with all that, it took 10 years to build those revaluations up.

“The change we’ve seen since 2017 with central government policy, specifically the billion trees and supporting Emissions Trading Scheme, has been massive. It has had repercussions, and NZ Inc is working through that right now.

“Staying ahead of the data now is not easy. I’m focusing on what’s happening in this calendar year, given the current contraction of the market, and the mixed signals that are going on with climate change settings and the knock-on effect on the carbon price.

“Meat returns on sheep and beef farms have been exceptional these last five years, but the forward outlook is flat at best. There are fewer sheep every year. In the mid-80s the national flock was 75 million, now it’s 25 million and dropping. If we drop too much further, our challenge of meeting supply chain contracts will become a factor.

“In addition, we have had unprecedented monetary policy changes with the Official Cash Rate (OCR.) The committee meets seven times a year, and in the last 12 consecutive meetings (excluding the last one) it has gone back to pre-GFC levels and that’s massive.

“The cost of finance impacting on rural businesses has been way more significant than central government appreciates, given such a short, compressed timeline.

“With Covid, the reliance on our primary sector to help New Zealand to get through economically has been significant at 83 per cent of export receipts. Our dairy sector particularly has led the export recovery over the last four years, up $7 billion in export receipts, and is forecast to gain a further $3b over the next three seasons.

“These gains have been off flat milk production since 2014, and reducing cow numbers. However, unlike Hill Country, dairy land values over the last 10 years dairy has seen no real uplift in revaluations.

“In fact, there are fewer dairy cows this year than last year. In the lower North Island, over recent seasons many highly improved dairy farms sold, have been decommissioned. Some of these are excellent tier-one dairy farms.

“NZ Dairy exports now generate $25b annually, controlled by fewer than 7000 dairy owners,

“If you had to pick a sector that was a good investment bet, where valuations have been artificially suppressed through regulatory threats, and the contribution to the national economy continues to grow with the social licence to operate more broadly understood, investing in New Zealand dairy assets looks to be a good idea.

“Further, the national policy statement on freshwater has massively impacted the ability to convert to a dairy farm, when trying for a new consent. So, the supply of new dairy farms will continue to be constrained as the sector grows in value.”

Forestry

“Forestry’s role in the primary sector economy is now having to account for its environmental impact like every other land use option and its underlying profitability without sufficient Emissions Trading Scheme (ETS) support continues to be under pressure. There is no question about Forestry’s $6.5b-plus contribution to exports, but it is hard to see it having such a dominant market position with land use change over the next five years. The fundamentals are just not there.

“Forestry has been associated with the green economy, its impact on the environment has had a completely free pass.

“Its licence to operate is under real challenge and recent weather events have made the environmental impact much more obvious and material.

“There’s still a lot of slash left on hillsides from forestry operations. It’s hard to see the momentum continue for forestry in a more regulated environment. We need sustainable forestry management, especially on the East Coast.

“The carbon credits price was $68.50 per tonne on December 21, estimated to be $110 in 2026. Now it’s trading at $30-$40 per tonne — pre-2015 levels.

“People are losing confidence in the ETS. The Climate Change Commission keeps making recommendations that aren’t being observed. Farms selling for $12,000/ha [to forestry] could be back as much as 50 per cent currently.

“The yoyo effect of the ETS since its inception [2008] continues to be a political football, it’s had a huge effect on confidence,” said Wilkshire.