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Simon Anderson, Bayleys.
A drop in the primary produce commodity price index will scarcely affect land prices, says the real estate industry.
Bayleys national manager Simon Anderson says farming’s lower revenues will little influence how farmers estimate future revenues. Farmers use revenue data, costs of production and debt servicing to figure what they should spend to buy a new property.
“Farmers, and more importantly their banks, are taking a long-term view of commodity prices. Long-term the outlook is strong for sheep, beef, and diary prices,” Anderson says.
“So while Fonterra is budgeting for a farmgate milk price of $4.70/kgMS for the next season, the banks take a longer term view – more around $6.30.
“There’s nothing new about the cycles of the rural market, but banks and farmers take a more flat-line approach to their revenue forecasts, working instead on long-term rolling averages rather than historical high and low positions which can fluctuate markedly in the short term.”
Bayleys notes more corporate buying rural property: high-equity farmers are looking to develop economies of scale by buying extra properties close to those they now own.
“Bigger… farmers can take advantage of fertiliser input, pasture management, seed or crop planting, feed production and staff management over nearby properties.
“While commodity prices are the same for all… economies of scale benefits vary depending on a farmer’s experience, equity, location and business plan.”
Buoyed by strong forecasts for milk prices and a renewed demand for dairy assets, the South Island rural real estate market has begun the year with positive momentum, according to Colliers.
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