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Rural Insight: Subdivision opens up farm equity options

Tags: Rural Rural Insight

Subdividing part of the family farm may be a valuable and unconsidered option for farming families wanting to unlock some of their farm's capital value, without selling the entire farm to do so.

Bayleys national country manager Simon Anderson said the appeal of subdivision has never been stronger when put in context of an extremely buoyant rural lifestyle market nationally.

“Real Estate Institute of New Zealand sales data to the end of 2016 highlighted just how strong this market is.

“Lifestyle blocks have taken a significant lift in value on the back of the buoyant housing market, with values up $33,000 for the three months to the end of December, a 6% lift in values and a record high. The rising tide of residential property is lifting all boats in the market,” he said.

Long-time Waikato rural valuer Ron Lockwood of Fergusson Lockwood and Associates said often farming clients may be unaware they are sitting on multi-titled properties that lend themselves to creating extra value, with some being able to be sold off separately if extra capital is required.

”Often farming clients may be unaware they are sitting on multi-tilted properties that lend themselves to creating extra value.”

“Increasingly though farmers are also realising how volatile their businesses have become, and realise they can create some extra value through subdivision to help cushion against that, without necessarily compromising the productivity of their remaining farm business.”

As farm debt levels creep higher, having the buffer of being able to sell some farm area provides some peace of mind, and reduces risk.

“It’s almost a piece of rainy day insurance if you are able to do it.”

He said the extremely buoyant urban property market in most of the main centres was flowing through to the lifestyle block market, and in areas not always associated with strong property values.

Growth in the “golden triangle” of Auckland-Hamilton-Tauranga meant small rural centres like Huntly and Te Kauwhata were benefitting after years of languishing.

These centres were often also benefitting from subdivision opportunities on neighbouring farm land thanks to an influx of people seeking cheaper housing or rural lifestyle opportunities within proximity of Auckland or Hamilton.

Bayleys Tauranga agent Jeremy Pryor urged land owners tossing up about subdividing some of their property to seek out good advice before even turning the first sod on their project.  

For landowners tossing up about subdividing some of their property, be sure to seek out good advice before even turning the first sod on the project.

Changes in district plan regulations can mean that what was once suitable for subdividing a couple of years ago may no longer be the case today.

“It also pays to look really hard at just how many sections you are going to get from the piece of land you may be subdividing if you are considering a residential type project on the farm. Roading area chews up sections, you may lose two or three section equivalents with that, and that may be your profit on the project.”

The government is proposing changes to the Resource Management Act that will speed up subdivision processes in order to help address housing shortages.

At present subdivision is usually restricted unless permitted in a plan. But it is proposed this be reversed, enabling subdivision to go ahead unless it contravenes a national environment standard, or a specific rule in a plan that does not authorise the resource consent to do so.

Jeremy Pryor also urges anyone considering subdivision to put some time and emphasis upon the project’s appearance and marketing. “Rather than looking at a rough paddock and some plans of what will eventually be there, it will always be a better looking proposition with good edging, entryways and fencing.”

Getting good advice on a project can also help reveal more than just planning constraints.

Mike Stott, director of surveying company Lysaght Consultants said the presence of contaminated land can be a banana skin intended subdivisions trip upon.

“This has come out of the National Environmental Standard for assessing and managing contaminants in Soil to Protect Human Health.

“They will have to get a site investigation done before subdividing. Areas that have had orchards that have used sprays may be affected, and even larger rural blocks that may have had sheep dips upon them.”

While rarely stopping a subdivision in its tracks, the reports and discovery of contaminated soil can add considerable and unforeseen costs to a project.

 “Good advice before embarking on a subdivision project is vital, and while it may cost something up front, the returns for doing it properly make it a really viable choice for landowners looking to maximise the returns from their subdivision,” said Simon Anderson.

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