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Are we approaching the top of the property market cycle?

by Beef Central, 10 May 2017

The 2017 year for rural property is potentially shaping as quite different to last year, for a number of regions, Herron Todd White national director Tim Lane says.

Writing in HTW’s May rural property bulletin, Mr Lane says while the far north and NT/Kimberley had a good wet season, western parts of Queensland which missed out again in many areas, as did areas in the north-west of NSW.

“The southern states are generally going much better with rain, albeit unseasonal in some areas as well and the west is generally looking okay at a state level, but has patches that need some planting rain,” he said.

Coupled with the softer prices for grain, beef and lamb processors are finding stock hard to source this year and are reducing kills or shutting down plants.

“All this makes one wonder where we are in the cycle for the land market. The past 18 months or so has seen value movements in the order of 15pc to 25pc in some regions, which in the context of longer-term growth trends, is three to five years’ worth of growth,” Mr Lane said.

“Does this mean the cycle is towards a top or within sight of the top? In some regions it is hard not to consider this to be the case and the economics of the underlying commodity prices need to catch up to the value levels and farmers will need to prove the longer term returns are viable,” he said.

“This is the never ending challenge in the valuation profession – to understand and interpret the sustainability of the sale prices being reflected and how this relates to each property being assessed.

“The agents I have spoken to of late are suggesting that vendor expectations are optimistic in many cases. They also report that while enquiry is still there for quality assets, there appears to be a slight softening of the international interest given the economics and potential yields being sought which do not account for some of the variable risks that agriculture throws up.”

Mr Lane said he would stick with the term ‘cautious optimism’ to describe the current state of the property market, but suggested a watchful eye was necessary on factors which could start to impact the buyer appetite – not the least of which was rising interest rates.

“The official market has not changed, as we know, but the real market and that which affects every producer who has debt, is moving upwards albeit in small increments,” he said.

“The impact on debt servicing, cash flow management and therefore value as perceived in the eye of the purchaser starts to shift bias, and with a potential slowing of international capital as well, it may be that it is starting to look like we are indeed towards the top of the current cycle in the market,” he said.

Central Queensland outlook

Also commenting in HTW’s May rural review Rockhampton-based valuer Michael Chaplain said the first quarter of 2017 had continued on from the final quarter of 2016 in Central Queensland, with strong sales across all asset classes.

That was confirmed a fortnight ago with two strong sales of mixed farming and grazing blocks on the Central Highlands: Rickyl (1511ha, 18km east of Capella, predominantly grazing); and Park View (2075ha 15km west of Springsure, mixed farming and grazing).

Rickyl sold at auction for $3.1 million equating to $2052/ha, which indicated a similar dollar per hectare rate as the dryland farming property Matilda Downs, which sold in January at a rate of $2054/ha, Mr Chaplain said.

Meanwhile, Park View sold at auction for $4.5 million equating to $2169/ha.

“Both of these sales indicate a strengthening of values from sales of similar properties that occurred 12 to 24 months ago,” he said. “As a general statement, it appears that values for grazing and farming land (with similar land types) are level-pegging in the Central Queensland region.”

The upcoming sales of two genuine breeder blocks, Galloway Plains (13,076ha via Calliope, south of Rockhampton, being auctioned in Rockhampton tomorrow) and Develin Station (via Marlborough, north of Rockhampton) will be a good test of the demand for larger scale Central Queensland breeder country, which is a thinly traded market, primarily due to lack supply rather than lack of demand.

Reader's Comments

  • Wallace Gunthorpe May 10, 2017

    Valuers will always be 10% to 15% behind the market to cover themselves and sometimes more ! I see it as a pointless exercise that devalues your asset and you have to foot the bill !
    Last year we were valued and within two weeks of the valuation I was offered 25% more than the recent valuation !
    Six years earlier we had a similar experience with a house in town.
    Not worth the paper it is written on !

  • Alistair Gunthorpe May 12, 2017

    Hey Wally, with a quality last name like that you think you would have come across a good valuer in your time…i might know someone who consistently hits the mark !!

  • Wallace Gunthorpe May 12, 2017

    Who ?

    Hello Wallace and Jeff. Just to clarify, Alistair (Gunthorpe) is talking about himself – he’s a valuer with HTW. Editor

  • Michael John Vail May 13, 2017

    Value of an asset from an underlying and intrinsic view point will nearly alway be different to price (driven by emotion, bias, supply, and demand). If investors have an optimistic view of the expectations going forward, and looking through the lens of a 10-year cycle, and with an eye to economic returns, then they will pay a premium for an enterprise.

    The premium is always higher for smaller places inside, and closer to the coast; but mean reversion to long term trend happens eventually.

    Interest rates will rise; and probably faster than many expect.

    Farm gate prices for meat will settle back to long term trend again too as Brazil and USA eat Australia’s lunch via hard-won overseas markets. Another case of mean reversion.

    If you understand the long term intrinsic value of your beef/sheep pastoral grazing enterprise, and you are a seller, then test the market; and find out if you are a buyer or seller today.

    It all depends upon where you see yourself and your long-term expectations going forward.

    I believe that Tim Lane is correct in what he says above, and both a cyclical and secular correction is coming: and caused by many international, interacting factors at play. This is to be expected; and normal for all markets, including stocks/shares, and bond markets.

    The falling AUD/USD currency rate may save some players, as the USD becomes stronger; but a shake-out and correction is coming soon; and interest rates will rise soon too.

  • Jeff Forster May 13, 2017

    Alistair … so would I !

  • Wallace Gunthorpe May 13, 2017

    The best valuer is the bloke with the cheque book !
    If we follow Michaels line of thinking we find the current “price” and deduct 15% to arrive at the “value” !
    Editor,Alistair is my nephew and one that does do a good job !

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