“The market is driven by volatility… in 2000-2007 the market was driven by the payout; it doesn’t matter what the payout does now,” he says.
Farm prices instead reflect location, the productivity history of the farm, the contour, the capital improvement and risk aversion – how much uncertainty is measured into the equation, he told a Warkworth seminar on the future of agriculture.
“People have become more risk-averse. They would like to know that if they bought a property today they wouldn’t lose much money,” he says. “If it needs new fences or new sheds, it is not a perfect farm so those boxes won’t be ticked and therefore that property will be discounted compared to others to hedge that risk.”
Barnett says many farmers think farms are not selling at present but is not the case; they have recorded a 32% increase in sales from last year to this year. He has seen more active buyers in the market but listings are short. “We have plenty of buyers but we don’t have the stock to show them.”
People always say spring is the best time to sell a farm when it looks its best, but statistically more farms transact in autumn. Often a farm is seen in spring but goes unconditional in autumn.
Buyers these days are looking at farms 365 days of the year. The corporate equity market in particular is unconcerned about the seasons, because they buy a farm and keep it running whatever time of year.
Meanwhile the Real Estate Institute of New Zealand this month introduced a dairy farm price index to complement the all-farm price index launched at the end of July. The new dairy farm price index is based on the same methodology as the all-farm price index and is focused only on sales of dairy farms.
This new index will give farmers and investors in the dairy sector a more accurate guide to the direction of dairy farm prices, excluding the impacts of location and farm size, says REINZ rural market spokesman Brian Peacock.
“The all-farm price index has been well received and this new tool will provide additional insight into the trends and direction of dairy farm sales.”
See www.johnbarnett.co.nz and www.realestate.co.nz
