Resurgence evident in rural property market

News release

Resurgence evident as rural property market approaches a busy spring

Sales of economically viable farms have been on an upward trend for the past six months, which is set to continue, says a leader in the rural property market.

General manager of PGG Wrightson Real Estate Limited Stuart Cooper says the market has begun to recover since the start of this year and will continue to do so as the traditionally busy spring marketing season commences.

"Over the past six months the market has shown signs of sustained activity for the first time since the global financial crisis in October 2008.

"While the overall figures are ambivalent, in the crucial $2 million plus category, which are farms classed as self-sustaining and economically viable, the picture is much more positive, with a definite increase in sales activity.

"Since March this year, after remaining at around 30 per cent of the pre-2008 boom period for more than two years, farm sales started to swing back up Although it is not spectacular, and has come off a modest base, the recovery has sustained through the winter, and judging by the conditional sales that we see now, seems set to continue. We are now sitting at 50 per cent of the pre-2008 sales activity for farms in this $2 million plus category," he said.

According to Stuart Cooper, rural debt is coming down while the market rises.

"Post-October 2008, banks and other lending institutions have set strict criteria around providing finance to farmers, who are obliged to have significantly more equity up front and to clearly demonstrate the sustained profitability of any farm they wish to purchase before a banker will loan them money.

"Reserve Bank data shows that, between December 2000 and July 2009, lending to agriculture by New Zealand banks grew from $12.7 billion to $46.6 billion. In the two years since, the graph has sat on a plateau, even dipping slightly in recent months, which is very unusual at a time when the market is rising. Normally when there is any increase in sales, especially in the $2 million plus category, rural debt would go up. It is not now.

"With debt no longer readily available to fund farm purchases, equity is replacing it, though it took over two years for this change to play out. A key reason for the long time it has taken for the shift to eventuate is the attitude of equity-based buyers, compared to those funded via debt. In the current climate, those with equity are more cautious, and more thorough in due diligence prior to committing to any purchase.

"This is again evident in the numbers. Prior to the global financial crisis, the average time a farm would spend on the market, from initial listing to completion of a sale, was around 90 days, whereas it is currently between 180 and 200 days, a change that is now well embedded in the market," he said.

Stuart Cooper says in most areas prospects for new rural property listings coming onto the market in the spring are good.

"Some areas are a still little light, although those tend to be the regions where spring arrives later, which is not unusual.

"While international uncertainty is not helpful, the fundamentals for New Zealand agriculture remain positive, and are the main underlying driver for the rural property market. For many investors, agriculture has strong appeal and solid underlying fundamentals. To a number of investors it is a new sector, so they approach it cautiously, which is understandable in the current economic climate.

"Interest in New Zealand farms has again been evident over the past few weeks, both from local and overseas investors seeking to take advantage of the positive tale our primary production sector has to tell. With the quality listings that are now coming onto the market and a level of buyer interest that remained consistent over winter, when it would normally drop away, it appears the resurgence we have seen in the past six months is set to continue through the spring.

" While a long way off a boom, it is the most sustained market improvement since the global financial crisis in 2008, and the figures point to it continuing through spring," he said.

ends

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