Farm sales and property values drop

18/09/2010

The volume of farm sales and prices paid dropped in the three months to August.

From a high of $4,650,000 in August 2008 the three month median price for dairying properties is down by a third to $3,100,000 in the latest REINZ Rural Market Report statistics released today.

Only 17 dairy farms were sold in the three months to August, one less than in the same period last year and significantly below the 67 transactions in the three months to August 2008. Just three dairy farms sold in August at an average price of $2,543,333, and the average price per hectare decreased to $31,598 from $36,435 in July. The average price per kilogram of milk solids has fallen further to $33 from $37 in July, $40 in June and $45 in May.

From a peak of $90,125 in August 2009, the average price per hectare of all types of farms has fallen to $29,739. The 192 farms sold in the three months to the end of August is an increase on the 183 in the same period last year, but less than the 516 transactions in the three months to August 2008.

The national median farm sale price eased up from $1,118,500 for the three months to July to $1,127,754 for the three months to August 2010. Well down on the median of $1,742,500 for the equivalent period in 2008, the latest August figure is fractionally above the median for all farms of $1,000,000 for the same three months in 2009. However with the low number of sales currently occurring, price fluctuations, both upwards and downwards, can be impacted by the range of prices of the mix of properties being sold.

On a regional basis the largest number of farm sales during the three months to August was 31 in Canterbury, 24 of them grazing properties, and 27 in Southland, 11 of them grazing properties.

During the past year median prices for farms have declined in eight out of the 14 districts. In the three months to August 2010 compared with the corresponding period in 2009, farm sale prices were down in Waikato from $1,663,655 to $1,187,500, Bay of Plenty from $1,000,000 to $920,000, Hawkes Bay from $1,800,000 to $945,000, Manawatu/Wanganui from $1,275,000 to $1,200,000, Wellington from $3,005,000 to $1,935,000, Canterbury from $1,300,000 to $1,200,000, Otago from $937,500 to $712,000, and Southland from $1,200,000 to $1,125,000.

There was another decrease in the number of sales of lifestyle properties from 1088 at the end of July to 1066 in the three months to the end of August, and the national median selling price eased from $447,500 at the end of July to $436,750 last month. While the August 2010 median is still up on $430,000 for the same three month period in 2009 it is below the August 2008 median of $450,000.

The decline in sales and prices is due to both the recession and the boom which preceded it.

Farm prices for all properties soared on the back of increasing dairy prices until it was cheaper to buy an existing dairy farm than to purchase sheep or cropping land and convert it.

There used to be a rule of thumb that you should never pay more than three to five times the value of a property’s gross income when buying a farm. That was disregarded for not just dairy properties but sheep and beef ones with much less earning potential.

The value of a property is most important when you’re buying or selling or if it’s highly mortgaged.

Lower prices may make it easier for people to get in to farming or increase their land holding, although credit is still pretty tight. But they will also be causing older farmers to re-think their retirement plans and they will be having a detrimental impact on equity of those with mortgages.

That won’t matter if the people can cover interest payments and ride out the current downturn. But it will put pressure on people who were struggling before prices dropped.

However, banks will be mindful that there’s no point pushing for sales when prices are dropping.

The protracted process of the sale of the Crafar properties won’t be helping farm sales and that’s when it’s possible for overseas investors to own farms.

The volume of sales and property prices would drop even more if farm ownership was restricted to New Zealanders.


Farm prices falling

17/11/2008

The boom in farm prices couldn’t last and the value of farm land is now expected to drop by about 10%.

The Reserve Bank of New Zealand has warned of the possibility “of a sharp decline in farm values” and Errol Saunders , the managing director Canterbury-based Ford Baker Valuation, said a 10% contraction would not surprise him, due to stable prices, an increase in farms for sale and a longer time to sell them.

Fuelled initially by demand for dairy land and latterly by a resurgence in the fortunes of the cropping sector, land prices reached unprecedented levels, with $55,000 a ha paid for some of the premium farms.

Mr Saunders said prices for those same farms could ease to between $40,000 and $50,000 a ha in the next year.

Grazing land prices peaked at between $600 to $800 a stock unit, not the $1000 a stock unit some were expecting, he said.

A fall in the value of land by itself  isn’t a problem if the owners can meet their mortgage commitments and aren’t wanting to sell. However, capital gain has always been a factor in farm viability.

Farm accountants said that some sheep and beef clients were going backwards last season because higher costs and lower returns meant their annual losses were outpacing the gains in the value of the land so their equity was decreasing. While returns for meat are looking brighter for the coming season they’ll be negated by falling land values.

The Real Estate Institute of New Zealand rural spokesman Peter McDonald said a lack of finance was preventing some sales being completed, but despite that the national median price of farm sales in the three months to October was $1.5 million, compared to $1.3 million from August to October 2007.

Fewer farms sold between August and October this year: 390 compared to 582 in the same period last year and 470 in 2006

While the median price for sales nationwide rose slightly, the median price of Otago and Southland farms sold fell last month.

REINZ figures show the median price for the 30 farms sold in Otago was $1.83 million for the month, down from $2.2 million in September for the 40 farms sold . . . 

The median farm price in Southland fell from $2.2 million in September to $1.75 million in October.

Sales in the region slowed too. Last month 66 farms sold, 6 fewer than in September and well down on the 112 farm sales last October.

Rising prices in recent years made it difficult for new entrants but falling prices may not improve affordability because credit will be harder to get.


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