More corporates than farmers buying rural land

More corporates and overseas buyers are buying farms than are farmers, rural real estate agents say.

With farm sale volumes at a historically low ebb, lenders and real estate firms are working hard to stimulate a bounce in sale numbers. Buyers are showing some increased interest in farm property, but that attention is not necessarily translating into sales, Real Estate Institute of New Zealand president Peter McDonald says.

PGG Wrightson Real Estate division general manager Stuart Cooper said the company was looking to attract a new type of equity, rather than debt-based buyers within the changed market.

There were fewer traditional farmer buyers and more corporate and investment-based buying. PGGW was looking to change the way it operated to take advantage of that, he said.

REINZ figures show February farm sale volumes remained at a generational low, with only 11 dairy farm sales nationally.

There were 205 farms sold in the three months to February, down from 276 sold in the previous year, and 713 sold in 2008.

The national median farm sale price for the three months to February was $1.045 million, up from $1m in the January period but well down on the $1.75m in the three months to February 2008.

On a regional basis the greatest number of farm sales during the three months to February was 29 in Waikato followed by 28 in Canterbury.

Grazing properties accounted for the largest number of farms by type, with 89 sales recorded throughout the country.

Cooper said the company's real estate division was taking a different stance within the low volume farm sale environment. It had won more market share in the area of "economically viable farms ... for the 12 months to the end of January, we transacted 37 per cent of all farms worth $2m or more, up from 31 per cent for the equivalent period to January 2009".

Recent Reserve Bank figures had shown a drop off in the amount of bank lending to the rural sector for the first time in nine years. "Reserve Bank figures show lending to farmers has dropped off $315m to $46.916 billion between the end of September last year and the end of December."

However, some of that reduced lending within the sector had been replaced by cash buyers from both the farmer and corporate sector, he said.

Corporate buyers were now viewing the rural sector as an attractive medium to long-term investment.

"You're starting to see more interest come through from investors – domestic, overseas the whole gamut. Some of them don't need any [bank lending] at all ..."

For the past 10 years farms had largely been debt-funded, whereas that funding base was now moving towards higher equity funding, Cooper said.

Rabobank New Zealand regional manager Don Kennedy said an earlier drop in the price of milk solids in 2009 had weighed on the cashflows of dairy farm operations, impacting potential buyers, but those milk solid prices had bounced back up.

The food and agribusiness specialist bank had not changed its criteria for rural lending from a pre-global financial crisis position. "Certainly I think there are potential buyers out there, and I think people are just sitting back and waiting for a meeting of the minds between buyers and sellers."

In terms of Rabobank's share of the rural lending sector it was less than half of National Bank which had about 40 per cent of the market. "We're effectively growing our book. With our triple-A credit rating the capacity for us to fund ongoing borrowing is really strong."

- © Fairfax NZ News