Syndication group targets more South Island dairy properties

Investment company MyFarm aims to buy up to half a dozen dairy farms in Canterbury and Southland this year as farmer-owners with too much debt are forced to sell.

The Feilding-based company sees the two South Island provinces as showing "better investment" returns via its syndication model.

Director Andrew Watters said Canterbury and South Canterbury in particular were targets, though MyFarm also made purchases in the North Island and Australia.

The syndication group now had 27 mainly dairy farms on its books and was seeking at least another four to five in 2010 within an environment of "reasonably flat" land prices.

"In terms of supply of properties for sale, there will be a trickle of farms that will come up for sale because people have a bit much debt," Watters said.

He said the pressure from banks had eased with the increase in the Fonterra dairy payout forecast.

MyFarm was still in the process of syndicating the Sakura Pastoral Limited Partnership 202-hectare dairy farm near Dunsandel, south of Christchurch, which had been bought for around $5.95m. It was still seeking $750,000 of new investment for that farm.

One agriculture industry commentator sounded a note of caution about the MyFarm model for investors, but said the company had the upper hand in purchases at the moment given its ability to raise equity.

"There's a lot of farms on the market at the moment [but] the reality is it's very hard to put a value on [land] ... because there's so few sales occurring," he said.

"The sales aren't occurring because (a) people are uncertain as to what is going to happen, and (b) the banks are lending to different [harder] criteria."

Banks were lending, but were favouring buyers who had higher levels of equity – which favoured the syndication model, the commentator added.

The most recent Real Estate Institute of New Zealand rural sales figures show some confidence returning to the market.

The total number of New Zealand farms sold in the three months to November 2009 was 223 – the highest number of sales for several months, according to REINZ.

However, this compared to 348 farms sold in the three months to November 2008 and 684 in the three months to November 2007.

Watters said farm prices had generally fallen between 25 per cent and 30 per cent from the peak land values of late 2007 and early 2008.

MyFarm investors tended to have a good knowledge of rural New Zealand. They included expat Kiwis living abroad.

Other investors included meat or crop farmers who wanted to diversify indirectly into dairy, as well as professional advisers to the rural sector such as lawyers and accountants.

MyFarm was generally seeking $500,000 or more from each investor, who then got a monthly dividend on their investment, he said.

The company's aim was to give them a 6 per cent to 7 per cent per annum return in the short term and a 10 per cent per annum return in the longer term helped by property value gains.

For the Sakura property, investors were exposed to a $29,430 per hectare purchase, which was 27.5 per cent lower than the vendor's 2008 purchase price.

MyFarm – owned by Watters, Grant Rowan and Cliff King – also had a 25,000 stock grazing unit near Taihape ready for syndication.

- © Fairfax NZ News