The stars have aligned for anyone who has either dreamed of owning a farm or simply whether to add one to an investment portfolio. Farmland values are tracking at their best levels in years at rates that have far outpaced residential property and stock market returns. The Rural Bank’s most recent annual analysis of national farm sales over the past year found agricultural land values have risen more than 15% in every state and territory for the first time in 30 years and pushed median farmland values to $8506 per hectare.
Fresh pastures winning premium prices
An increase in landholders willing to pay premium prices to expand their operations has been a major driver of the healthy rise in values. Competition has been particularly strong for quality neighbouring or nearby farmland. The scenario has involved the full spectrum of buyers and sellers, from local small-time farmers to Australia’s longest established and best-known farming families. One of the more significant rural sales in NSW this year was that of the landmark 3817-hectare Central Tablelands’ grazing property Checkers near Cargo in May. Owned by the previous family for 45 years, it was snapped up for a reported $30 million by a Corowa-based family.
The rural sector has also been blessed in recent years by the dovetailing of favourable conditions. Lenders and rural agents list the period of extended low interest rates pre-May 2022 coupled with high commodity prices as initial factors, followed by good weather. In high rainfall areas for instance, median farmland prices shot up 125% between 2020 and 2022 to $9000 per hectare according one leading property analysis firm.
Favourable weather and subsequent growing conditions led to solid productivity gains – especially in the dairy, grain, beef and sheep meat industries – boosting buyer appeal for farmland while making farmers enjoying their protracted period of prosperity far less likely to sell. The high demand and low supply has driven values even further and pushed farmland into the ranks of the country’s most tightly held, coveted real estate.
Rural Bank's head of agribusiness development Andrew Smith said conditions simply became, and still are in many cases, too positive for farmers to sell. "With conditions being so good a lot of farmers decided to continue to farm rather than exit the industry, so we did see a reduction in the number of properties offered for sale,” Mr Smith said.
What’s on the horizon?
All property sectors are subject to cycles and farmland is no exception: Mr Smith forecasts buyer demand to taper off within 12 months, farmland values to “reach an inflection point” after several years of consistent growth before finding a new level.
"We think we'll continue to see growth in 2023, which would make it 10 years of continuous farmland value growth, but not at the same level,” Mr Smith said, pointing to a 30% drop in the cattle market since last year and the nation’s grain and oilseed industries coming off the boil. Institutional investors are also on the rise, with one of Queensland’s biggest rural sales this year being the $65 million purchase of the 4389ha Gemfield portfolio near Emerald, reportedly by a Canadian investment group in conjunction with a local buyer.
Playing the long game
Even if economic conditions rub a touch of gloss off farmland values next year, industry stakeholders hail the sector as one of the most resilient for long term investment. Rural Bank research utilising official figures from the Reserve Bank of Australia, Australian Bureau of Statistics, investing.com, Digital Agriculture Services and Pricefinder show farmland outperforming residential property and the share market not only in recent times but consistently over time. According to Rural Bank data, rural land values have displayed a trend of long-term growth with a rise in the national median price over the last 20 years at a compound annual growth rate, or CAGR, of 8.5%. Recently, growth was even stronger, farmland values recording a five-year CAGR of 15.2% and a 10-year CAGR of 10.1%, Rural Bank analysis shows.