Property

Weekly property review: 2016 shaping as the two-tiered property market

Property editor Linda Rowley, 01/06/2016

SELLING is all about knowing your buyers, something that rural property agency CBRE believes has led to the development of a two-tiered rural property market this year.

This occurs when a certain type of property appeals to foreign and institutional investors, while others appeals to local investors, or the so-called farmer-to-farmer market.

Statistically, the farmer-to-farmer market is where most transactions occur, but it also achieves the lower prices. On the other hand, the institutional market targets the higher end of the market where properties sell from $20 million upwards.

In March, CBRE Agribusiness regional director Danny Thomas explained that there was a lot more demand for properties in the top price bracket.

“It doesn’t seem logical, but it is easier to sell a $20 million property in the current market, than it is to sell a $2 million to $5 million property. So, properties with some institutional appeal are able to sell regardless of whether they have or haven’t had rainfall,” he said at the time.

Momentum in farmer-to-farmer sales

However, Mr Thomas predicted it wouldn’t take long for the farmer-to-farmer market to catch up to the institutional market.

“Money is cheap and farm deposits are relatively high. As people repair their balance sheets and assuming we get some further widespread rainfall, an increasing number of buyers are likely to return to the property market.”

Ten weeks later, the two market segments are neck-and-neck, or the balance may now indeed be slightly in favour of the domestic buyer market, according to Mr Thomas.

“Farmer-investors are back with a vengeance. Some balance sheets have been repaired, bank lending is on the rise, there’s a new norm in beef prices, sheepmeat prices are good and in southern Australia at least, it looks like we have a season coming together. All this could create a perfect storm.”

Mr Thomas believes the farmer-to-market has been catching the institutional market due to the risk of involvement by the Foreign Investment Review Board in some transactions.

“If there are two bids for a property and one is from a foreign institution and one’s from a local, the vendor will choose the local due to fear of settlement risk,” he said.

Col Medway, CBRE agribusiness manager for NSW & ACT agrees.   

“The locals are now more nimble. They have less hoops to jump through, provided they have their finance sorted and they conduct their due diligence in a quicker fashion,” Mr Medway said.

This was well-demonstrated earlier this year when seven Western Victorian farming families purchased a 5200ha cropping and grazing aggregation in a deal worth $30m.

See our earlier Beef Central story here.

The portfolio, owned by Demeter Farming Australia (predominately owned by foreign investors) comprised 10 farms spread over a 75km radius from Skipton to Ararat in the highly sought-after Western District of Victoria.

Given its size and scale, the large parcel of land was being marketed directly to the corporate sector by CBRE in an off-market campaign, with a sales price expectation of more than $29m.

Mr Thomas said another good example of a domestic beating a corporate to the table was the purchase of Naringal Station, an iconic 2200ha Western District landholding, also in Victoria.

The highly productive livestock and cropping enterprise boasted an intensive cattle finishing system turning off 5000 head per annum, 12,000 breeding ewes for fat lamb production, a 350 sow piggery turning off 7000 progeny per annum, 500ha sown to winter cereal crops and 250ha for hay production.

Mr Thomas said the property was sold in just three weeks. “The buyer was a silver medallist – he had missed out on purchasing part of Demeter. He beat the other interested foreign investors and came in with a cash settlement of 60 days.”

Merrill

Buying interest in NSW Southern Tablelands 940ha property Merrill, which sold late last year, was from existing grazing families looking at expansion.

Mr Medway said interestingly, interest in the NSW Southern Tablelands 940ha property Merrill, which sold late last year, was from existing grazing families looking at expansion.

Established in 1856, Merrill was one of the first settled properties in the Gunning District and was once home to a renowned Merino stud and commercial Merino flock. Since 2003 management at Merrill has focused on cattle breeding, trading and agistment based on holistic management principles. Improvements have seen the carrying capacity shift from 11,000 DSE in 2000 to the dry cattle cattle equivalent of 14,000 DSE in 2015.

Mr Medway said the Gunning property was due to go to auction, but once the locals got wind of it he was inundated with calls. “Within 10 days we had a knockout offer and Merrill was withdrawn from auction. The price was a new level for that district. The locals know the good properties and when they come up, they pounce.”

He said most long-term successful farming families recognise the need for successive purchases.

“Unless a generational family farming business purchases a new property every generation, the business will go backwards. They are seeing the time as being right to make the next move.”

Dry conditions prompting grass sales in CQ

Long serving Rockhampton-based Elders rural property specialist Virgil Kenny blamed poor seasonal conditions across the region as the reason why big-end graziers in Queensland were being forced to buy larger properties to agist their cattle or to give their better country a spell.

“Most are buying other properties to support their ongoing businesses to assist them through the tough times. If it was a normal season and everyone had some grass, it wouldn’t happen. The reality is graziers have built up their cattle numbers, the season’s got away from them and they don’t want to sacrifice their cattle. That’s where the competition is coming from – graziers who want to buy a property that will run 500 to 1000 breeders.”

However Mr Kenny said locals leading the property market were also in a much better financial position.

“They have weathered the storm. Five or six years ago, they locked-in interest rates at eight percent. At the time it was considered a very good deal. Those loans have now come to maturity and those same people are rewriting the loans at half that interest rate. They can see a chance to step up, double their cattle numbers, still carry the same amount of interest debt, but double the size of their holdings.”

 

Next week: Will the two markets remain neck and neck and are they impacting land values?

 

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