Australian farmland values grew 12.9% in 2020 – Rural Bank

The value of Australian farmland grew for the seventh consecutive year in 2020, according to Rural Bank’s Australian Farmland Values 2021 report, with expectations that valuations will continue to rise in coming years.

The median price per hectare of Australian farmland increased by 12.9 percent in 2020 to A$5,907 ($4,596; €3,809) per hectare, Rural Bank found, bringing the 20-year compound annual growth rate to 7.6 percent.

Last year was also the first time in 15 years that all states and territories individually recorded an increase in the median price per ha of farmland.

“The 2020 calendar year can be best described by three key themes: improved seasonal conditions, high buying power and robust commodity prices,” said Matt Ough, senior analyst, insights, at Rural Bank in a virtual event launching the report.

“In 2020, farmland demonstrated unwavering growth despite market shocks in other asset classes. [If you] look at the 20-year CAGR and compare performance against other asset classes, farmland as an asset class has not only grown at a rate comparable to others but has shown a low level of volatility.”

Historical trends

Ough described the historical trajectory of farmland values in Australia, separating the growth of values into several phases.

“In the 1990s, farmland was appreciating at a slower rate than it is currently, going up by 3.4 percent on average per year. The landscape was quite stable in terms of supply and demand, and we weren’t as globalized as we are today,” he said.

The period from 2001 to 2007 was the first steep growth phase, he said, with the median price per ha increasing at 14.4 percent per year, higher than the current phase of growth. This was due to a strong Australian economy as the mining boom took off, higher commodity prices, and the period of the Millennium Drought leading to a greater proportion of higher-value transactions.

“Then we hit a period post-2008 and the global financial crisis when things flattened right off. From 2008-12, the median price per ha at a national level was growing just 0.9 percent per year. Commodity prices bounced around all over the place due to uncertainty in the market, but also due to supply growth late in that period when the drought broke,” Ough said.

From 2013 to present, farmland values have appreciated by 9.6 percent per year, according to Rural Bank’s data, driven by growth in export markets (particularly for lamb and beef), interest rates trending downwards, and generally favorable seasonal conditions (notwithstanding recent periods of drought).

“The other factor that’s important to consider is scarcity. Transaction volume has been gradually tailing off, which corresponds with the industry trend to a decreasing number of farm businesses,” Ough said, reflecting the increasing prevalence of corporate farmers and institutional owners of farmland.

In the report, Rural Bank said: “Keeping in line with the long-term trend, we expect farmland values will continue to rise, underpinned by strong demand for agricultural assets, increasing profitability of farming operations in an environment of low interest rates as well as strong commodity prices.”

Breaking down land price growth by state and territory, Rural Bank found that, in 2020, the Northern Territory experienced the highest level of growth, with the median price per ha rising by 65.2 percent, following a decline of 53.9 percent in 2019. The rise was largely down to the low number of transactions and a higher proportion of properties traded in the Top End region, which usually sell for much higher values than those in the NT’s cattle region.

Tasmania was the next-highest grower, with the median price per ha rising by 25.3 percent to A$13,691 – the highest on record. The state saw a shift in sales towards the higher-priced end of the market, with the proportion of transactions priced at more than A$12,000 per ha rising to 58 percent. This was also partly the result of a greater number of smaller land parcels being sold, where the price per ha is usually higher.

New South Wales and Queensland both saw the median price per ha grow significantly, by 15.6 percent and 11.8 percent, respectively, despite both also seeing transaction volumes rise by more than 20 percent.

In Queensland the number of transactions in 2020 increased by 20.1 percent to 1,904, which is the highest since 2008 and above the 10-year average. The median price per ha was driven higher by an increase in smaller parcels of land being traded, similar to Tasmania in that respect.

In NSW the number of transactions increased by 24.8 percent to 3,073, and prices remained high thanks to favorable seasonal conditions coupled with high commodity prices and strong buying power for good farmland thanks to continuing low interest rates.

All other states and territories recorded growth, with Victoria recording the lowest rise at 6.9 percent.

Commenting on the findings, Elders general manager, real estate, Tom Russo said: “The question is: are we reaching a point where acceptable returns on investment will not allow people to continue to acquire properties at ever-increasing prices? How willing will this market be to continue to pay these increasing prices?

“Last year I proffered a view that we’d see subdued growth for this reason – I’m happy to say I was wrong. But I still believe this remains our critical question. In a year or two to come, will we see people say: ‘I can’t generate an acceptable return at these prices, so I’m going to step out of the market’? When that point is remains to be seen.”