Property Brokers general manager rural Conrad Wilkshire says based on Real Estate Institute of NZ (REINZ) data for the 12 months to January this year, 157 dairy farms 20ha and over were sold for a total of about $663 million, compared to the same period the year before when there were 101 sales for about $436m.
The biggest increases were in October, November and December, which saw increases of $75m, $105m and almost $102m respectively on the same months a year earlier.
Dairy real estate sales for the current season are up $308m to the end of January compared to the same period last year.
That is in stark contrast to the first half of 2020, which was more than $91m back on a year before.
Wilkshire says one of the reasons for the change is that properties listed this season have actually been on the market, rather than vendors dipping their toe in to see what interest was like.
That’s been helped by food production being more highly valued as a result of covid, reinforced by the strength of international dairy prices.
Underlying returns on dairy sector investment are very favourable, he says, which may create more interest from investor syndicates.
Horticulture land sales have benefitted from outside third-party investment in recent years and there is a similar opportunity for dairy, especially if properties are sold with leases in place.
Wilkshire says the advantage of that model is that it attracts investment without relying on debt to make it work.
It provides good returns for both the landowner and the farmer operating a business on the property, allowing them to each focus on their own enterprise.
Bayleys general manager Waikato and country manager Mark Dawe says inquiries in the Waikato dairy market during spring were strong, but has since slowed.
Although spring is the time when most dairy farms are listed, autumn is also traditionally popular, albeit to a lesser extent, but Dawe says in Waikato at least, that hasn’t yet been the case this year, with not much coming on to the market.
His office was processing two conditional contracts during the first week of March, so there is interest out there.
A 15% rise in the Global Dairy Trade (GDT) index last week means it’s at a seven-year high, which has resulted in plenty of positive sentiment around the sector.
However, Dawe does not expect that to translate into significant increases in the prices paid for dairy farms.
At $431m, horticulture land sales for the year ending January are very similar to the year before, which was $434m. That was on the back of a favourable swing back of $105m in the second half of the year compared to the same period a year before.
Whilkshire says horticulture real estate sales are expected to increase in value and volume this year.
There’s also plenty of interest in sheep and beef farm sales, with return on capital ahead of financing costs.
Alternative land-use, particularly the demand for permanent forests is now a real factor in the market.
That’s not going to change in the next 12 months.
However, he says there is an opportunity for farmers to take a more strategic approach by identifying parts of the farm, or two or three farms in the same area, that are less productive and consider putting them into forestry or permanent forest.
That way the most productive areas are retained in the pastoral sector, while the more marginal areas are utilised where they are better suited.
He says as farmers become more comfortable about the concept of carbon and where it fits, there could be opportunities for them to invest in permanent forests or forestry.
Areas where back country land can be retired into forestry while the rest of the property is retained for farming could offer significant upsides for farm succession plans, rather than seeing whole properties sold into forestry.
“It does not have to be an all or nothing strategy,” Wilkshire said.
He says it’s important that enough land is retained to support the national sheep flock as it cannot be allowed to drop too much further.
“There’s no question that we can ill afford it to drop below 20 million ewes if we want to continue to support our supply chains,” he said.
Looking ahead, Wilkshire says the level of the turnaround in the rural property market – which continues to track at $2.4 billion a year on 1100-plus sales – shows the importance of keeping the long-term in mind as recoveries often come faster than expected.
“Focus on the future,” he said.
