Property

Rain likely to lift spring property transactions, says valuer

Beef Central, 06/09/2015

RECENT and in some places unexpected rain has seen an increase in sentiment in the current grazing property market and this is now starting to filter-through into more transactions across the country, rural valuer Herron Todd White says in its latest September monthly property market report.

Tim Lane HTW

HTW’s Tim Lane

“Of course there are still areas in Queensland and New South Wales along with parts of Western Victoria and into South Australia that have not had strong winter rainfall, but it will be interesting to see what the grain off take will be this year,” HTW’s national rural director Tim Lane said.

“Global commodity prices in many soft commodities are falling, and yet our domestic pricing is holding up relatively well, much of it on the back of the falling A$.  It serves to highlight the sensitivity for agricultural commodities,” he said.

So will the falling dollar also be an incentive for foreign capital to further invest in the Australian food and fibre story?

“It does look in part that way,” Mr Lane said. “We have fielded recent enquiry for services from Asia, Europe, US and other countries looking for everything from beef in the north to horticulture in southern Australia,” he said.

While the current A$ level was a positive for these enquiries, it appears more coincidence, as the investments and discussions were more strategically focused and also with investment horizons out to 35 years, which “sat very well with Australian agriculture,” Mr Lane said.

“Such investors in many cases are seeking a level of scale, locality and integration with a supply chain before stepping into investments. Given the profile for some of this capital, it will be interesting to see where it does land and how much will move into the traditional family-owned space (either joint ventures or outright ownership) versus what has been more common where corporates have sold to other corporates.”

“If it is the former, that would be a positive influence in the medium-term for grazing land values as new money moving into the sector, often replacing debt, creates a new liquidity in the market and that will influence local buyer activity.”

For now though, Mr Lane said there was still a caution about the sales that were occurring, and the trend in the overall market.

“The signs are positive generally and value ranges have stabilised in most markets of late, it appears. Indeed there are some positive trends in areas of higher intensity agriculture, with smaller-sized properties being acquired as bolt-on blocks to existing holdings.”

“If I were being asked where we sit in the property cycle if viewed as the ‘property clock’, I would suggest about 6.30 and trending towards 7 o’clock on a macro Australian wide-view,” Mr Lane said.

 

Regional property roundup:

 

NSW North Coast: 

Five former Forest Enterprises Australia forestry plantations located at Mummulgum, Baryugil, Hogarth Range and Unumgar in northern NSW were to be put to auction on 27 August.

This follows the successful auction in July of four similar-use properties. Cattle graziers are seeking these properties to rehabilitate to the prior cattle grazing use. Strong local cattle prices have improved market confidence for beef cattle grazing land in the area.

 

Central and northern NSW:

Continued rainfall across central and northern NSW is enhancing the overall underlying market sentiment at present. It is HTW’s opinion that the current positive cash flows that have been experienced over the past 12 months have been funnelled into debt consolidation rather than any expansionary movements. There has been a change in this situation over the past three to six months, and there is now growing interest coming from average property holders in the region looking to expand and also for additional country to lease.

The recent auction of the 9235ha property Carramar, 10 km south of Brewarrina, typifies the current sentiment. This property was improved with homestead, shearing shed, sheep and cattle yards. Soils were a mixture of soft grey cracking soils and some alluvial loams, timbered with coolibah, blackbox rosewood and some leopard wood. The property was auctioned in Dubbo where about 60 people attended and a number of bidders actively participating.

This property sold under the hammer for $262/hectare overall which is considered a strong result.

An encouraging aspect of the sale was that the purchaser was a large local landholder looking to expand.

“Despite the general noise in the print media regarding corporate purchases and general activities, our belief is that general farmer-to-farmer sales within the system form the backbone of the market,” HTW said. “While some corporate purchasers may act as a lead in determining values in certain areas, it will be the general landholder that will determine whether these type of values can be supported within the broader market or not.”

Another NSW property 160km west of Dubbo, that was previously under contract for $2.45 million early last year, is now under contract at $2.8m. Again the purchaser is a large local landholder looking to expand and typifies the improving sentiment within the current market and also the appetite for debt that is re-emerging.

 

North Queensland:

There has been a substantial shift in industry sentiment with the strengthening cattle market in the region. This is despite drought conditions and following some years of apparently highly-geared balance sheets and industry debt issues.

Those with cattle to sell are quickly working to fill orders and lock in good sale prices. With the changes in live export orders from Indonesia, the end of this year is looking good for graziers with cattle to sell.

While this sounds good, there are those who do not have cattle left and perspective on this issue will need to be managed, particularly on how the restocking phase is entered into if there is a reasonable wet season this coming year.

Like the cattle market and the contrasting situation that graziers are in, the region’s property market has been much the same. There have been good sales this year to the south of Charters Towers, with five good sales of stations that are well-regarded and improved blocks with grass. Croydon has seen some good activity too, with three settled sales and one currently under contract.

Again, these blocks were well-presented, with some grass and browse for cattle to eat.

“Property watchers would recall that only a year ago, the stations offered to the market in the region were being discriminated against for any issue that the buyer could pick on. There was a range of stations offered to the market last year – some had grass, some had run-down fencing, some had poison heartleaf and others had unfortunate vendor circumstances,” HTW said.

“Despite the buyer’s market of the day, Swans Lagoon was well received by the market and met a contested auction, just like the sales this year to the south of Charters Towers had been.”

This year, the stations offered had been well received by the market. There were a range of vendor circumstances involved, however the market appeared to have been indiscriminate this year in this regard.

“Unlike last year, there has not been a run-down or droughted block offered for sale this year where the market can discriminate. These types of situations have been withheld from going to market this year,” HTW said.

“But rational perspective must be maintained. This year has seen a better offering of stations than last year. Market values have not risen, but simply the composition of the blocks offered for sale has improved from last year,” it said.

 

Strong demand for Taroom/Wandoan scrub country

The strong cattle market is yet to generally have any impact on the property market in south Queensland and northern NSW.

This is not unexpected for this time of the year as the winter months are normally the quietest time of the year. As such, the market in the south has remained broadly subdued with the exception of the good Taroom/Wandoan scrub country.

This area in recent months has seen an increase in activity. Strong demand has emerged with a number of transactions occurring, mainly involving existing local producers at levels of value relative to the 2005/2006 period: still 10 to 15pc below the peaks of 2007/2008, but with the odd transaction at close to the peak.

The testing time for the market will be when the spring selling season opens up, HTW said.

“At that time we will gain a real appreciation of whether the good demand currently being experienced in the north will be replicated through southern Queensland and northern NSW,” it said.

 

Kidman sale will test depth of cattle property market

The anticipated sale of Kidman & Co in late 2015 will help identify the depth of the market going forward, HTW’s report said.

“While the portfolio of country varies somewhat from the country involved within the Stanbroke sell-off in 2003, current market conditions and sentiments are not dissimilar to those that were evident leading into the 2003 sale process of that portfolio,” it said.

“The aggregate sale of Stanbroke and the way surplus parts were disposed-of subsequent to 2003 was the catalyst for the exceptionally strong growth in land values that was experienced up until 2008,” HTW said. “It is hoped that the lessons of that time have been heard and learnt by all.”

 

Mildura/Sunraysia:

There has also been some movement in the pastoral sector of the Western Division of NSW, with recent sales including Winnathee Station, a 71,100ha 90km west of Milparinka, which has recently sold for close to $2 million. It comprises a blend of open plains and red sand dunes and including some valuable flood-out country. HTW said it was also aware of pending sales of Mount Stuart Station and Mount Browne Station in the Tibooburra and Milparinka areas respectively.

The sales of several grazing properties located between Wentworth and Broken Hill were currently being negotiated with the expected sale prices likely to show strong levels.

 

Northern Territory/Kimberley region

Property sales activity continues in the Kimberley region with the recent deal struck for Napier Downs in the Derby district (widely reported in the press) which is reportedly due to settle in the first half of September to a private holding company owned by Western Australian businessman Kerry Stokes.

This acquisition follows on the heels of Hancock Prospecting’s Fossil Downs acquisition last month. These two transactions still require thorough analysis of the eventual settled price to verify the $/AE (beast area value) attributable to these properties which are considered to sit in the ‘trophy’ category for this vast and remote northern pastoral region. After initial analysis however, both deals appear to reflect a strengthening market for this class of station.

There was no doubt that the ongoing resilience and strong outlook for northern cattle prices has been the impetus behind these two decisions to buy in the Kimberley, HTW said.

“We note that despite the seemingly disastrous quarter 3 Indonesian quota of only 50,000 head, which would normally have seen a price slump back here in the NT and Kimberley, prices have remained strong.”

“Northern pastoralists are seeing the benefits of an undersupply with high demand situation which has developed (domestically and internationally) giving rise to an increasing range of market options for northern cattleman. This looks set to continue into the foreseeable future – subject to northern herds getting the seasons they need to rebuild.”

Another likely driver will have been the potential for uplift in value throughout parts of the Kimberley.

Momentum to explore the significant land and water opportunities in the Kimberley has been building over the past decade, but more recently there has been a surge of interest that probably ties in with the planned delivery of the Northern White Paper (transformation of the north for the good of greater productivity).

“The Kimberley definitely has some significant pockets of development potential and we are aware of several cases where the productivity of pastoral land has been amplified many times over, for example through development for wet season cropping,” HTW said.

“Farming on pastoral land is taking place under the laws governing diversification (see permits under the Land Administration Act 1997 WA). We sight large areas cropped for sorghum at Gogo and Beefwood Park stations in the Fitzroy Crossing District,” it’s September report said.

Gogo has also recently signed a Memorandum of Understanding with the Gooniyandi Aboriginal Corporation (GAC) to investigate possible agricultural developments on the pastoral lease, as well as the real opportunity to discuss land tenure reform.

“This is potentially a game-changer for the region, however the emphasis in the Gogo example needs to be on the apparent good work done between the pastoralists of Gogo and the GAC, with the aim of mutual benefit over the long-term,” HTW said.

“There is the potential for more examples of land tenure reform, particularly relating to Native Title issues, if similar successful, win-win negotiations can be achieved with large areas of country required for the Ord River Irrigation Area expansion (WA and NT side of the border).

Meanwhile, back over in the Territory, enquiry remains strong for a broadening range of cattle stations. While medium to large-scale runs (say 15,000 head and up) located anywhere north of Tennant Creek seemed to have been the main items on the wanted-list for a while, now land agents representing the southern half of the Territory are reporting increasing enquiry from a mix of interstate and foreign potential buyers.

Apparently the good rains earlier this year which transformed large areas of the region into valuable grass for agistment cattle (mainly from Queensland) did the job in highlighting once again the time tested benefits of the natural centralian rangelends.

Despite the inevitability of major droughts, if managed sustainably, this region’s pastoral lands are some of the most cost-effective and profitable (dollar per kilogram of beef produced) in the north of the continent.

“Subsequently, we are aware of another two stations in advanced stages of negotiations that will follow on from the sales this year of Aileron, Mount Ebenezer and Derwent/Glen Helen,” HTW said.

 

South West WA

Confidence continues to increase in Western Australia as rain events and strong commodity prices have strengthened future prospects.

This confidence has now been converted into dollars, with private investment in the northern pastoral regions reaching unprecedented levels with Australian billionaires purchasing stations in the Kimberley and Gascoyne pastoral regions.

This recent investment which is reported to be over $60 million in total is significant in that it indicates a high level of confidence in the future of Australian agriculture and that now is a good time to invest.

It is heartening to see this confidence reinvigorating the industry and this year is likely to see a significant increase in sales activity. It is however likely that purchasers will link land values with production as more emphasis is placed on productive capacity of properties.

 

 

 

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