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NEW ZEALAND RURAL PROPERTY 1ST HALF 2006

Value Gains Consolidated as Market Slows

Farm values in the first quarter of 2006 have consolidated the gains achieved in 2005 when values soared according to the latest figures released by the Real Estate Institute of New Zealand (REINZ).

 

The March quarter average sales value was $1,645,000 just $5,000 down on the record levels set in the last quarter of 2005 which reflected an increase of $192,500 or 13% over the December 2004 figures.

 

The increase in values experienced in the last quarter of 2005, while being particularly pronounced, was merely a continuation of a trend evident since late 2002. Anecdotal evidence from agents across the country suggests that competition between a number of unsatisfied purchasers was heightened towards the end of 2005 as several high quality properties were brought to market.

 

 

The increase in sales values can, in part, be explained by the fact that farm sizes are generally increasing as a result of ongoing amalgamation. Further analysis of the sales figures, however, confirms that land values have also been trending up over recent years.

 

As the graphs show, values of grazing, fattening and dairy land have grown year on year since 2000 with the dairy sector performing particularly strongly with the average value of a hectare of land having increased by 94%.

 

While the average value of arable land fell back slightly in 2005 this was only after the sector had experienced a steep rise in values during 2004 and the 2005 figure still sits significantly above the level achieved in 2003.

 

As with arable land, the values for horticultural land have tended to fluctuate over the last two years. However, having fallen back in 2004 from 2003, they bounced back in 2005 to all but match the previous highs.

 

The early part of 2006 has been accompanied by generally downbeat assessments of the economy and in some respects forecasts for farm incomes. Measures of the economy suggest economic growth is easing with the New Zealand Institute of Economic Research (NZIER) forecasting sub 2% GDP growth for 2006 with a modest improvement in 2007, with growth increasing to between 2.8% and 3.3% by the end of the year. Business and consumer confidence is well down on last year. Commodity prices have weakened month on month since reaching their peak in March 2005, while the forecasted payout for milk solids is also down on that which was paid in the 2004/2005 season.

 

These conditions have resulted in a slowdown in activity in the market with total sales for January and February 2006 totalling 292 compared with 420 in the first two months of 2005. The slow down in sales, however, has not had a noticeably adverse impact on values with average sales prices for the opening two months of the year sitting at approximately $1,627,000, higher than at any time other than the December quarter in 2005 and this is confirmed by the increases in the value of land per hectare.

 

The fact that sales volumes are decreasing, indicates a caution amongst buyers who are adopting a “wait and see” approach as they assess the impact of the economic indicators. Set against the general economic slowdown is the fact that the Reserve Bank has indicated that the economy has probably reached the top of the current interest cycle and it is therefore unlikely that there will be any further increases in the Official Cash Rate (OCR). Also of benefit to farming is the fact that the New Zealand currency has since December, given up approximately 13% of its value against the US dollar, 12.75% against the UK Pound and 15% against the Euro, offsetting the decline in commodity prices.