Farmland values soar

By Jared Loughnan

The values of farmland in the district have more than doubled over the last two decades and larger farmers are becoming bigger. A recent report by Rural Bank indicates that northern Victoria values have soared from under $2,000 per hectare in 1997 to well over $5,000 per hectare in 2017.  In Southern NSW farmland has soured from around $1,000 per hectare to almost $4,000 per hectare in the same period. 

The value of farmland has more than doubled over the last two decades and the larger farmers are becoming bigger.

Based on Rural Bank’s third annual Australian Farmland Values Report northern Victoria values have soared from under $2,000 per hectare in 1997 to well over $5,000 per hectare in 2017. 

Southern NSW farmland has soured from around $1,000 per hectare almost to $4,000 per hectare in the same period.

Northern Victoria recorded an average annual median price growth of 7 per cent over the five year period.  In Southern NSW, the figure was 6.9 per cent.

Elders Yarrawonga Real Estate manager Rod Leslie said the prices in the Yarrawonga area have recently been at the higher end of $5,000 per hectare and north of Mulwala closer to $5,000 per hectare.

Mr Leslie said the farmland prices were reflective of demand in the area consistent with other areas in the region.

“In my experience the majority of sales were local farmers looking to increase their holdings but outside interest is also strong,” he said.

“Much of the interest is around local farmers needing the land to justify their larger machinery and they are happy to secure a premium price.

“North East Victoria farmland is highly regarded due to the area’s consistent climate and returns,” Mr Leslie said.

Ray White Yarrawonga Director Rikk Donlen said that good export and domestic markets have also contributed to a continual increase in farm values.

Mr Donlen also said some interest has come from international superannuation groups buying in large numbers.

“Low interest rates are certainly helping the international and corporate buyers who are looking at the mid to long term return on capital, then we have our domestic clients who have also benefited from lower rates to buy and upgrade machinery.

“Demand is extremely high for good farming opportunists as we see majority of rural properties put to the market are selling within 30 to 60 days across all price ranges,” he said.

“Five years ago we saw very strong buying demand for the larger consortiums who wanted large scale properties with minimal infrastructure and located.within commutable distance for machinery transport between properties. This has slowed some but they remain active for the right property.

“Local buyers are still very strong, whether it be neighbours buying to shore up their holdings or district farmers again looking to grow but cannot secure land adjoins their current holding.”

Victorian Farmers Federation Grains President Ross Johns described the jump in the median prices across the region as “outstanding” and believed it was largely driven by farmers with sizeable landholdings and corporate entities wanting to consolidate.

“I think these land values are also a reflection of the extremely low interest rates we have. The cost of capital is so low at the moment and if that changes we’ll see an impact on asset values,” he said.

The surge in land values means farmers now have access to greater equity, but it is also likely to create a few rate-hike headaches.

Councils are revaluing properties close to those recently sold for record prices, pushing up their capital improved values and rates.

In Federation Council’s 2017/18 budget rural rates rose sharply, primarily based on land valuations which showed up to 23% increase in farm land values. Council limited the rate increase to 14.9%.

Unusually, rural rates (mainly the former Corowa Shire) in the Federation Council area increased well above the level of residential rates with many were in the order of 7% and 1.5% for the former Corowa and Urana Shires respectively, following council’s full analysis of valuation and application of rate increases.

Council received many submissions from farmers, particularly from farmers in the southern end of the council area, concerned about the significant increase in rates.

At that time, Federation Council Administrator Mike Eden said: “But taking into account land values that went up over 20 per cent and by as much as 28 per cent, the rate increases are reasonable. Farmers are able to claim a tax deduction when running a business.”   

As a result, Federation Council made a conscious decision to ensure substantial financial commitment to rural roads as evidence of the importance of the rural sector, with increased emphasis on roads used by farmers to get their crops to silos.

Rural Bank managing director and chief executive Alexandra Gartmann said the 2017 report reinforced the importance of taking a long-term view.

“Volatile climate and market conditions characterise farming across the country and as a result, it is inevitable these, alongside many other factors, will contribute to fluctuations in farmland values,” she said.

Rural valuation specialist and agricultural economist Sam Paton of Agribusiness Valuations Australia said while the news was good for those wanting to sell, the market could become overheated with land prices not really justified by enterprise returns.

He said returns on the money invested in land and stock were barely 2 per cent in dairying, beef and cropping in south-west Victoria, for example, while 10 years ago expectations would have been a 10 per cent return on capital.

He warned the strong rise in land values was at odds with the low rate of returns.

Mr Paton said the high land prices were frustrating for those wishing to expand their holdings and new farmers wanting a start.

“Ideally we should have a nice balance between nominal capital gain and the ability of family farmers, who I believe are the backbone of Australian agriculture, to be able to expand at realistic prices,” he said.

The Rural Bank analysis is based on the sale of 8480 rural properties nationally in 2017, including 1827 rural sales in Victoria, 3690 in NSW, 241 in Tasmania, 325 in SA, 1720 in Queensland and 677 in WA.