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Are north Australian farmland prices set to bottom out?

As northern Australia recovers from years of hardship, there may be opportunities for investors.

Farmers in Australia have rarely had an easy ride, but in recent years they’ve had the global financial crisis and widespread seasonal downturns to contend with.

This has been especially true in northern Australia –much of Queensland, northern New South Wales and parts of the Northern Territory (NT)– a region where land values have taken a dramatic dive in the last five years, particularly in the wake of the ban on exporting live cattle to Indonesia. Since 2009, farmland prices in this region have fallen by as much as 35 per cent, with one NT property selling in 2013 at 50 per cent of its 2009 value.

“Northern Australia is primarily a beef production area and the live export ban in 2011 annihilated many farmers. The land market had spiked in 2007-08 which led to a lot of people buying at the top, and the subsequent decline left many farmers over exposed,” explained Sam Trethewey, agricultural consultant and Fairfax Agricultural Media correspondent.

Is the decline at an end?

After years of drought (in more ways than one), things now appear to be on the up. There has been excellent rainfall in the region recently, leading to increased grass, and with beef prices also improving thanks to the lifting of the live export ban and new free trade agreements with Asia, the market seems to be recovering from its long crisis of confidence.

This improvement is underpinning a firming-up of land-holding intentions and suggests a firming of land values in the future in most regions, according to Alan Hayes, Executive Chairman of Australian Pastoral Funds Management and Australian Pastoral Group.

“Prices for quality properties have held up in many regions and it has not been the situation of a ‘bottoming out’ generally across all properties in Australia,” said Hayes.

“However, the live export property market [in northern Australia] has virtually recovered following the lifting of the ban and sales may be expected to re-commence at more realistic values, given the single-market risk in these regions, [but] land prices in the north have rationalised despite the growing demand for live animal exports to Asia (cattle) and the Middle East (sheep),” observed Hayes. “With domestic and export demand remaining strong, a return to profitability is likely to create a sound, but somewhat lagged, increase in the demand for livestock producing land holdings.”

Andrew Hill, co-founder of Australian Agribusiness Partners, also believes land prices have hit or are nearing the bottom because the price of commodities, particularly cattle, has increased. Combine this with a falling Australian dollar, especially against the US dollar, and exports are once again valuable and in demand.

However, some commentators are still cautious.

“The decline could very well be at an end in northern Australia, but if banks start foreclosing and selling properties for their true value (not what’s owed on them, which in many cases is much more) the market may fall further,” predicted Trethewey.

Hill has seen similar trends. “Businesses that are mixed farming operations have held their prices quite strongly. Reduction in land value since 2009 has not been a reflection on all land values but rather the [more dramatic] reductions and deals [have been] driven by years of debt which has forced a lot of people to consolidate, either by their own hand or those of their financiers.”

It seems many agri investors are still proceeding with caution, despite recent improvements. Only last week, Aquila Capital Farms held the first close of its Australian dairy fund but did not disclose the amount because of the potential impact on farmland prices.

“This is starting to become more common,” observed Hill, whose company AAP works as an intermediary between potential overseas and local partners interested in both acquisition and leasing opportunities. “Funds are trying to establish and build products that investors feel comfortable investing into.”

The lower Australian dollar and low interest rates are also expected to encourage more agribusiness owners to pursue the sale and leaseback of their property and infrastructure assets.

Window of opportunity for investors

With the decline potentially at an end, will this lead to a rush to acquire land before prices go up?

“Some properties that have been on the market for some time are now moving, but I think it will be some time before we see values increase like we have in the past,” said Hill. “Agriculture within Australia is changing, very much driven by the next generation of farmers and for some, [agriculture] is now a commodity focused business rather than a land appreciation business.”

 

“Land values have been quite steady in much of Victoria, Tasmania, South Australia and New South Wales,” explained Trethewey. “Any region that has had rain or is within two to three hours of a major centre still commands a ‘real estate’ value rather than a rural land/production one. But the land’s potential to produce food is a big factor in deciding whether to invest.”

Commentators believe land values will appreciate as demand for Australian commodities continues to increase. “Land is strong security and prices aren’t an issue as long as there is value in what you’re purchasing,” said Hill.

APF’s Hayes also remains optimistic about prospects for investors. “I do not feel that land prices have been an issue with overseas investors in recent times, however, the recent correction in the Australian dollar would appear to provide a substantial discount to previous land and other asset prices and an obvious window of opportunity for acquisitions.”

Reporting by Philippa Moore.