Australian land price growth to remain robust – Rabobank

Agricultural land prices in Australia are set to keep growing for at least the next five years, according to new analysis from Rabobank.

The bank said in the latest edition of its annual Agricultural Land Price Outlook that Australia’s farmland market would “continue on a growth trajectory” that peaks in 2023, thanks to a strong agricultural economy and a limited supply of land.

“Not in the last 30 years have the macro settings been so supportive” of price growth, the report said, with strong commodity prices and favorable seasonal conditions also contributing to the outlook.

“Strong production years and high commodity prices, alongside record low interest rates, have boosted farmers’ purchasing power,” Rabobank senior analyst and report author Wes Lefroy said.

“Nationally, our research is showing that farmer purchasing intentions are at the highest point in at least the past five years, with 9 percent of Australian farmers reporting that they intend to buy land within 12 months.”

Rabobank found that the median price for agricultural land in Australia rose by 6 percent in 2020, with double-digit growth recorded in four of the country’s six states.

Growth was strongest in Tasmania, where the median price rose by 28.3 percent, while in Victoria prices grew by 15.8 percent. Queensland saw a rise of 15 percent and Western Australia also saw robust growth of 14.1 percent.

Prices rose more slowly in New South Wales (6.1 percent) and South Australia (1 percent).

Lefroy said the macroeconomic fundamentals supporting this trend were likely to continue for some time.

“We think it’s likely that commodity prices will remain supportive for the next 24 months, while we expect interest rates will stay at record lows until at least 2024. For land price growth to reduce, or even for a downward correction to occur, we would need to see a multi-year interruption to a combination of commodity prices, production, or interest rates,” he said.

Despite higher prices and relatively fewer properties coming to market in 2021 than in previous years, opportunities still existed for savvy buyers.

“Markets have got tight, but not all are equally tight. Not all regions have seen prices rise at the same pace and while demand continues to outweigh the number of properties on the market, the demand-supply balance is not the same in all regions,” Lefroy said.

“For those buyers who do their homework and have the flexibility within their business to seek inter-regional purchases, there may be greater productive value to be had for their capital investment. We expect to see and increasing number of farmers broaden their expansion horizons in coming years, prompted by limited opportunities, and variations in the price per unit of rainfall and productive capacity.”

A report published earlier this year by Rural Bank found that 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, bringing the 20-year compound annual growth rate to 7.6 percent.

The bank said that farmland prices had experienced “unwavering growth” during the pandemic despite the shocks seen in other asset classes.

CBRE Agribusiness managing director David Goodfellow told Agri Investor in September that competition for farmland assets had increased, with more family farmers re-entering the market to compete with corporates and institutional investors.