Local and international interest in the New Zealand rural real estate market remains extremely strong, defying suggestions demand could soften in the face of the lower Fonterra payout to farmers.
Shane O’Brien, national director of Colliers Rural & Agribusiness division, said buyers were taking the medium to long-term view of the dairy industry and were still keenly contesting quality land.
“We’re still getting strong enquiry both from local buyers wanting to expand their land holdings as well as from international funds and private investors.”
He said international funds wanted to invest in New Zealand farming as part of the global trend to secure food production for emerging Asian economies.
“New Zealand has an excellent international reputation for food production, we have world class infrastructure to support on-going investment and we’re close to the burgeoning markets of Asia and India. After Denmark, we’re considered one of the safest economies in the world in which to conduct business.”
Colliers Rural & Agribusiness had recently negotiated three substantial off market sales in Canterbury to local buyers. While the deals were confidential, O’Brien said prices were equal to levels achieved over the past two years, reflecting continued confidence in the dairy industry.
Buyers were increasingly sophisticated in their requirements, seeking reliable and good quality irrigation along with detailed information on nutrient management status of any given property.
O’Brien said Australia’s Free Trade Agreement with China, coupled with its strong government support for investment in the dairy industry in both land and infrastructure, had yet to impact on the New Zealand rural real estate market.
“Australia is looking for around $10 billion worth of external investment in their dairy industry and has government support to enable this – they don’t have the same Overseas Investment Office regulations that New Zealand has and their new Free Trade Agreement with China gives their whole industry some confidence along with their comparatively lower land values.”
Hayley Moynihan, Rabobank’s Director of Dairy Research for New Zealand and Asia, said that rural land prices traditionally tended to move less than commodity prices.
“From our perspective, we very much take a long term view across all of our rural business. We specialise in global agriculture so we look beyond short term movements whether they are high or low variances.”
The most recent quarterly Rabobank Rural Confidence Survey, released late last year, showed that farmers in the upper South Island (Canterbury north) remained relatively confident. A quarter of farmers surveyed expected to increase their investment (covering land, plant and stock) in the next year. This compared with 35% in the previous corresponding period in 2013.
“That’s still a strong sentiment and tends to correlate with anecdotal feedback that farmers are looking to the longer term trends. The current period of lower Fonterra pricing will pass, after which we expect it will take 12-18 months to see a significant lift in confidence,” Moynihan said.
The survey found that 41% of farmers in the upper South Island expected their business to perform similarly in the next year, while 32% tipped an improvement and 24% predicted it to worsen. When asked how they expected the broader agricultural economy to perform in the next 12 months, 24% forecast an improvement, 36% saw more of the same and 39% anticipated it to worsen.
Moynihan said the reasons given for expecting the agricultural economy to worsen were primarily falling commodity and milk prices. The reasons for expecting an improvement were longer term global demand for food, and an improvement in beef prices.