Increased Share Of Farm Sales Signals Market Shift

Rural Service Company’s Increased Share Of Farm Sales Signals Market Shift

With farm sales at a low ebb, rural service company PGG Wrightson has increased its market share in transactions of economically viable farms, demonstrating a shift in the way the market is operating, says the company’s general manager for real estate Stuart Cooper.

“Although the volume of farm sales is the lowest it has been for a generation, in difficult conditions PGG Wrightson has increased market share. For the 12 months to the end of January, we transacted 37 per cent of all farms worth $2 million or more, up from 31 per cent for the equivalent period to January 2009.

“Good farms are still being listed and still selling, albeit at lower volumes, but whereas previously purchasers were mostly debt funded, banks have tightened lending criteria, so that option has largely dried up and investors are finding alternative ways to underwrite purchases,” he said.

Following two to three years of buoyant sales, the global economic crisis caused an abrupt fall in the rural property market around 18 months ago.

Dairy farm sales were among the hardest hit after the global credit meltdown, dropping on a unit basis by 65 per cent last year from their mid 2008 level, in turn driving overall farm sales in 2009 to 39 per cent below the long run average for the past 15 years.

Stuart Cooper says a number of potential buyers and sellers of farms are waiting to see where the market correction that is presently playing out will leave the level of farm prices.

“On such a low volume of sales it is difficult to quantify realistic current values, though clearly the market is settling at a new level compared to the over-heated environment of 18 months ago. When buyers and sellers become confident of what that level is, the volume of transactions will start to rise again, but it will be a gradual rise,” he said.

According to Stuart Cooper, a number of corporate buyers now view the rural sector as an attractive medium to long-term investment.

“These buyers are very thorough in their due diligence and do detailed homework prior to making any commitments.

“Many of these purchasers do not want to farm themselves: they will be passive investors, placing management in the farms to run them on their behalf. These buyers view an investment in agriculture as part of maintaining an overall balanced investment portfolio. This will actually be good for the industry as it will bring in long term committed funds and new levels of expertise, which can only be positive for the rural sector overall,” he said.

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