Weekly property review: Head north for better parking

Property editor Linda Rowley, 17/08/2016

INVESTORS from outside the cattle sector or overseas are setting the tone for strong buying decisions in northern cattle properties at present, leaving many local producers perplexed at the amount of money being paid, and what’s justifying it.

Valuer Roger Hill from Herron Todd White North Queensland offers some explanation for the reasons behind the outside investor activity in the northern cattle industry.

Roger Hill

HTW’s Roger Hill, based in Townsville

“In years gone by, when economic uncertainty prevailed, gold was often seen as the best safe-haven for capital,” Mr Hill said

“We think the cattle price movement is exciting, however gold has been strong too – albeit as a defensive investment,” he said.

“Gold was about US$1060 per ounce in December, and as this year has moved higher. Economic uncertainty has increased, and following the Brexit vote, it reached US$1330 per ounce. This is a clear example of how global investors are worried at present, hence the growing interest in parking capital in Australian agricultural assets – and given the gold price movement, there is likely to be even more interest.”

Mr Hill said with the global economic uncertainty, the option of parking capital for a term in a North Queensland ‘investment-grade’ cattle station was being seen as one of the better options/strategies to protect or minimise the risk that the money is being, or likely to be, exposed to where it is presently invested.

“North Queensland had less volatility than the Northern Territory during the debt crisis, and beef export crisis of 2012,” he said.

“During that time, the NT property market experienced a ‘whiplash’ effect that has now dissipated. The reason was North Queensland had more domestic slaughter cattle market exposure and more diversity.”

The concept of ‘Strong money’

Mr Hill said properties occasionally sell to investor-type buyers for what locally might be described as ‘strong money’.

“The local grazing market may not be aware of the buyer’s reasons for offering the money they do for a holding. From a global perspective, the front-of-mind reason for such a competitive offer may be ‘capital protection’ – not just breeding cattle,” he said.

“Investors are looking for places to park their wealth, to protect it and preserve it from possible government intervention.”

Mr Hill said the typical domestic grazier, be they a family or an investment grade entity, perceives ‘strong money’ as over and above what they could justify to purchase the same property.

“When ‘strong money’ has been paid, the general market quite often claims to have run the numbers and claim it can’t make it pay at that price. But what the local grazing market hasn’t done is sat back and thought about the underlying reasons behind the purchase.”

“Is their real motivation about the yield off the cattle, is it for capital protection and parking, or is it both?”

Mr Hill said similar market perceptions could emerge when a neighbouring landholder paid ‘strong money’ for a property.

“There are market examples of buyer premiums being paid due to purchaser circumstances – strategic value in owning neighbouring land, or buyers chasing grass because their other holdings are under seasonal pressure – but there are often market perceptions of foreign investors paying between 10 and 25 percent more than market expectations,” he said.

This appears to be the case for the benchmark Gulf Country cattle station Neumayer Valley, which sold earlier this year. The 143,000ha property, offered with 15,560 branded cattle, was purchased by a Swiss investor for around $41m. At the time, the domestic market gossip pegged Neumayer’s value at between $27m and $31m, WIWO.

Currently, Mr Hill has clients from Asia who are willing to pay what Australia perceives to be ‘strong money’ to park their wealth in good cattle assets.

He said there are a number of reasons why foreign investors are motivated for the purpose of capital protection. These include:

  • sovereign volatility
  • retirement/superannuation funds
  • portfolio diversification, and
  • development upside/profitability.

Mr Hill said the grass roots of investment decisions was in the matching of desired investor or purchaser ‘internal rate of returns’ with the current asset risk profiles.

“For example, a North Queensland investment-grade cattle station property cycle moves at contrasting rates and timing to that of an institutional-grade Southern Queensland cotton asset – which has greater volatility or higher risk, and different value drivers. Both suit differing investor profiles and objectives,” he said.

Mr Hill said one of the current drivers of ‘strong money’ was the Australian dollar, and while the currency is relatively low (in comparison with above parity rates with the US$ as recently as 2014) , our assets appear affordable to foreign investors.

So what makes a property appealing to an investor-type buyer?

Not all properties are of a class or type that will ‘get up a gallop’ and appeal to an investment-type buyer, according to the valuer.

northern-property-genericMr Hill said there was a range of assets in the north – starter blocks at the smaller end, the mums and dads in the centre, and the larger family or corporate activity at the upper end. Only some of which would appeal to investor-type buyers.

“The investment-grade market (above 10,000 adult equivalents) segment in North Queensland is smaller than what people might perceive. There are not that many ‘blue ribbon’ properties for sale; they tend to be tightly-held and generally sit in areas like the zone between Cloncurry, Julia Creek and the Gulf,” he said.

Neumayer Valley was an example of a ‘blue ribbon’ asset that sold recently, while the 399,000ha Esmeralda Station (280km north of Richmond) was deemed by Mr Hill as a ‘green ribbon’ asset.

There was a common perception that every Gulf cattle station would sell to a hungry buyer. However, Mr Hill explained the skew was to identify which properties were likely to achieve a premium.

“The Gulf has a reputation of being ‘the address’, but that doesn’t mean every property is going to gallop, because not every place or class of asset in the Gulf will appeal to a domestic buyer or an offshore or investment-grade investor,” he said.

For example, in June, the 179,144ha Gulf property Morella was prudently marketed, yet neither an offshore investor nor a domestic buyer purchased it.

Mr Hill said the result of the Morella auction flew in the face of speculation or innuendos that ‘just any’ Gulf station was now subject to strong and booming demand.

“The Gulf has some very good, world-class stations, however not every place is the same.”

While investors have certainly set the tone in parking investment capital in North Queensland cattle stations recently, the market has demonstrated wide variation in the type of properties suitable for this approach.

According to HTW, vendors also face the reality that there are not large numbers of local buyers currently ready to purchase. It said local buyers are certainly doing the sums, but not a lot of deals are going to contract or settling in the current market environment.




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  1. Michael J. Vail, 17/08/2016

    Well said, Roger, and well-reported, Linda.

    It must be remembered that it is not the entry, but the exit, which is most important; and return on invested capital, must still be greater than the cost of that capital.
    Capital Gain comes and goes, but operating profit is still the most important thing in an investment into pastoral grazing country.
    If a ‘store of wealth’ is your focus (through inflationary fears), you better have a long investment horizon: because inflation is non-existent now, and all pundits believe it will stay that way for a very long time.
    Many overseas buyers come in, look at the price of land compared to the cost back ‘home’, and are pre-conditioned to pay more.

    This is the driest Continent on Earth … Be careful not to pay too much; especially if you must borrow.

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