Financial pressure could lead to more sales

MURRAY WILSON/Manawatu Standard

CAPITAL GAINS ON HOLD: Hobson and Associates rural valuer Neil Hobson.

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Debt levels mean more farmers may have to sell land and leave the business, a rural valuer says, despite Fonterra announcing the second-highest payout in 10 years for dairy farmers.

The number of farms sold in the Manawatu-Whanganui region fell almost 60 per cent in 2009, compared with the year before.

There have been so few farm sales lately that valuers have found it difficult to put a value on some rural properties, and often need to use their experience to make judgment calls.

Hobson and Associates senior member of the Property Institute of New Zealand (PINZ), Neil Hobson, said only four dairy farms had been sold in Manawatu, Rangitikei and Horowhenua in the past 10 months. There had also been four "significant" sheep and beef farms sold.

"There are a number of buyers and sellers out there, but it is a matter of reaching prices that are acceptable to both parties and that are bankable for the purchaser and their financiers," he said.

Mr Hobson said that in the past, buyers could generally find a bank that was willing to lend to them. Even though farm earnings were volatile, increasing capital gain kept them afloat.

But that was not the case now, as capital gain had gone for the moment.

"I don't envisage capital growth for some time. It comes down to viability. Many farms will not service substantial debt levels."

So will prices fall further?

"I believe the market will decide that. At the end of the day, it is the buyers, sellers, and the financiers, who dictate the market. Remember we went through this in the 1980s and the market readjusted."

Mr Hobson said it was hard for a farmer whose property may have been worth $5 million and was now worth only $3.5 million.

He said some older farmers often carried little or manageable debt, and it was mostly younger farmers who had expanded and had taken on too much debt.

"Those with too much debt may have to sell property. I think we'll see some evidence of this – as the financial pressure comes on, some owners, across a variety of ages, will have to exit."

The Real Estate Institute said only seven dairy farms were sold nationwide during January, which was alarming.

It blamed rural lenders for a lack of confidence, saying there was a lot of interest in farms from prospective buyers, but they could not get finance.

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