2015 is shaping up as a market-defining year for the grazing land property market, especially in northern Australia, judging by comments issued by a specialist rural property agency this week.

Colliers International sees rural properties with economies-of-scale and value-adding opportunities as being particularly sought-after next year.

A depreciating Australian dollar, Free Trade deals with major trading partners, and prospects of substantially higher cattle prices will all have an influence on property trends next year – particularly if the drought cycle evident across large parts of Queensland, NSW and Victoria is broken.

For potential foreign investors in the beef sector, the A$ now at four-year lows against the US currency was adding considerable attraction to investment in the Australian beef supply chain, Colliers’ rural division’s Rawdon Briggs said.

“The fact that the dollar has declined 11 or 12pc over the past six months means a foreign investor’s average cost of entry has come down that much, to start with – but there is also the added attraction of a yield upside, in the greater competitiveness of Australian commodities exported into international markets,” he said.

“The benefit is two-fold, and the general consensus is that the dollar will fall further.”

Weather would still play a critical role in grazing property transaction activity next year, and it was perhaps one reason why there had been more recent sales completed in the Northern Territory than there had been in Queensland.

Most of the NT transactions over the past six months had been in the +1000mm average annual rainfall belt, and the Territory, apart from areas of the Barkly, had generally had better seasonal conditions than northern Queensland this year.

So would an average, or better than average summer rainfall season across Queensland stimulate foreign investment interest in the state next year?

“There’s little doubt it would,” Mr Briggs said.

“There was a property in the Julia Creek district that went to contract as recently as yesterday, where foreign interests were involved – European based.”

“But rain would help enormously with buyer confidence, full stop – regardless of whether it was overseas or domestic interest.”

“But in an El Nino year like this, conditions can be very patchy. There’s country around Chinchilla that has had 125mm of storm rain in the past week or so, but you do not have to go far to find bone dry paddocks.”

Mr Briggs said any momentum in domestic buyer confidence for cattle land next year would equally have to be reflected in lending confidence among the banks.

“There are farm loans for land being written in the mid-four percent interest rate range now -we are getting back to a position where it really starts to make sense for ag investment,” he said.

“There was common lending at around 8pc only two years ago. That means it’s come down 300 basis points, or more, since 2012.”

“Finance wise, from the macro point of view, it’s probably one of the best lending environments we’ve seen in 20 or 30 years. But borrowers still have to look at their own patch, and make decisions on their own balance sheet. It’s really got to get down to the fundamentals of weightgain and production potential off each individual operation.”

Mr Briggs thought it might not be before mid-June that property activity really started to ‘crank-up’, because of the need to have weightgain in cattle, out the door.

“Most operators will like to see the end of the financial year in a better position before they make any major moves,” he said.

 

Stock numbers will influence buyers

He agreed with Beef Central’s suggestion that the level of stocking held on a grazing property would have a significant bearing on attractiveness to buyers next year. Properties stocked closer to capacity would inevitably be more attractive to buyers than those understocked, or offered bare.

“It will depend, though, on whether the vendor is pricing the stock at this year’s (drought depressed) price, or next year’s,” Mr Briggs said.

“Gaining a contract on a northern stocked property right now (before rain), is probably one of the    smarter things a buyer could do,” he said. “Go to contract in March next year, after widespread rain, and it could be a very different picture, if the country has already experienced a rainfall spike.”

Mr Briggs said he had some clients who were entering due diligence on properties now, in response to that.

As Colliers pulled off the first-ever sale of a Northern Australian extensive grazing asset to Chinese interests during this year (click here to read Beef Central’s earlier report on Elizabeth Downs), we asked Mr Briggs about prospects for further similar investments in 2015.

“We’d anticipate more Chinese interest in the region, at least for the next couple of years, just as we’ve seen interest from the US, the UK and others in the past. It won’t necessarily all be Chinese in origin though. A bit of competitive tension over live exports with Indonesia could see further buying interest from that region, and nor would I discount interest from a country like Japan.”

 

Property review

Colliers’ rural property outlook for 2015 released yesterday suggests the Australian property market (all sectors, not just beef) had remained steady over the last 12 months, with the strongest interest focused on horticulture, wine assets and large cropping enterprises in assured rainfall areas.

Buying strength this year had been shown from multi-family office and institutional investors – particularly offshore-based funds.

“These buyers are prepared to take a longer-term view on agricultural investment. They also typically recognise benefits such as a depreciating A$, our geographic position close to Asian trading partners, and the generally positive global outlook for primary production as attractive investment attributes,” Colliers director of research, Mark Courtney said.

“Moving into 2015, we expect demand to focus on larger rural and agribusiness assets offering either economies of scale or value-add opportunities through vertical chain ownership.”

“Beef prices have risen to record highs with increased demand from trading partners, depleted herd numbers and the A$ recent depreciation to around US83c.”

The prospect of substantial beef and live cattle export growth arising from an FTA with China represented a significant potential benefit for the sector over the long term, Mr Courtney said.

“It is notable that the recent increase in live cattle prices is leading to value resetting in northern property sale negotiations. Next year, 2015, is shaping up as a strong year for the Northern beef property market,” he said.

Colliers pointed to the rise in land value in agricultural and forestry land assets in the majority of Australia’s global competitor nations (US, Canada, Eastern Europe, Brazil) in recent years – some of which had recorded double digit growth rates.

“It is considered that most of these have now peaked,” Mr Courtney said.

“Meanwhile, Australian agricultural land assets represent a low deflation risk, a corrected market place with potential upside on both cash and capital returns.”

 

Land prices to consolidate

Importantly, market confidence is a critical component and improved sentiment was steadily building at a neighbour-to-neighbour level.

“Looking forward, a growing volume of activity at the fund and corporate level is expected,” he said. “This is occurring as the recognition grows that we are probably past the bottom of the market in many regions. However, there are still some areas that have yet to stabilise, with significant portions of Queensland and areas of Northern NSW still experiencing very poor seasonal conditions.”