Farm sales stay low in Feb, but banks appear to be regaining confidence in rural sector, REINZ says

There is ancedotal evidence banks are starting to have greater confidence in the rural sector, although there are still constraints on farm buyers looking to secure finance, the Real Estate Institute of New Zealand (REINZ) says.

There were 56 farm sales nationwide in February, up from 52 in January but down from 66 a year ago, according to figures released by the REINZ. Sales are down from 75 in February 2009, 272 in 2008 and 154 in 2007.

“There is certainly buyer interest in farm properties across the country with plenty of evidence of rising farm returns; however, buyers are also being cautious and securing finance to complete transactions has remained a constraint for most of the past three months,” REINZ rural market spokesman Peter McDonald said.

“Anecdotal evidence suggests banks may be starting to have greater confidence in the rural sector,” McDonald said.

The latest figures from the Reserve Bank suggest banks have been cautious with agribusiness lending in recent months. Figures for January show agriculture lending fell in that month for the third of the last four months to NZ$47.803 billion, down from its peak of NZ$48.262 billion in September last year. See more in Garteth Vaughan's article here.

Thirteen dairy farms sold in February, up from seven in January and 11 a year ago. Last month McDonald said a considerable number of dairy properties were being marketed by tender or auction nationwide and demand seemed to be growing, meaning there could be significantly more sales in March and April. See last month's farm sales article here.

The dairy industry received welcome news from Fonterra in February that the co-op had hiked its forecast payout for the 2010/11 year by 60 cents to what would be a record NZ$7.90 to NZ$8.00 per kg of milk solids. However, wholesale milk powder prices fell 11% this morning in Fonterra's latest on-line auction, the first fall in seven auctions. See more in Bernard Hickey's article here.

Here is the release from the REINZ, starting with figures for the three months to February:

The were 204 farm sales in the three months ended February 2011 compared to 219 in the three months ended January 2011 and 205 in the three months to February 2010 continuing the trend of low farm sales over the past three years.

“There is certainly buyer interest in farm properties across the country with plenty of evidence of rising farm returns, however, buyers are also being cautious and securing finance to complete transactions has remained a constraint for most of the past three months,” says REINZ Rural Market Spokesman Peter McDonald.  “Anecdotal evidence suggests banks may be starting to have greater confidence in the rural sector.”

Included in sales for the month of February were 13 dairy farms at an average sale value of $35,000 per hectare and $38 per kg of milk solids (MS).  There was considerable variability in these numbers with the values ranging from $26 per kg of MS in Oamaru to $52 per kg of MS in Taranaki.  The average farm size was 138 hectares with a range of 52 hectares in Taranaki to 536 hectares in Hawkes Bay.  The average production per hectare across all farms sold in February was 942 kgs.  Also of interest was the sale of a 1,000 hectare fattening property in the Hawkes Bay sold during February 2011 for in excess of $9 million; the first such sale of this size for some time. 

Grazing properties accounted for the largest number of sales with 41.2% share of all sales over the three months.  Dairy properties accounted for 24.5%, Horticulture properties 10.6% and Finishing properties 8.8%.  These four property types accounted for 85.1% of all sales during the three months ended February 2011.

“The utility of the median price has become more challenging with the much lower volume of sales being completed.  By way of comparison the number of sales in the three months to February 2008 was 713, whereas the number of sales in the three months to February 2011 was less than 30% of this total,” says Peter McDonald.  “Because of these low volumes the median figures should be treated with some caution.”

The median prices across the four major farm types were little changed between January 2011 and February 2011.  The dairy farm median was unchanged at $3,574,450, the Finishing median rose $50,000 to $1,200,000, the Grazing median was unchanged at $1,000,000 and the Horticulture median rose $10,000 to $785,000.  Compared to February 2010, the Dairy median rose $524,000, the Finishing median rose $247,000, the Grazing median rose $100,000 and the Horticulture median fell $165,000

The lifestyle property market also saw a contraction in median prices and volumes in the three months to February 2011.  The national median price was $435,500 for the three months to February 2011, down $4,500 compared to the three months to January 2011, and down $2,500 compared to the three months ended February 2010.  Total sales completed for the three months to February 2011 were 930, down 55 (5.6%) compared to the three months ended January 2011, and down 175 (15.8%) compared to the three months ended February 2010.

Commenting on the lifestyle property market statistics Peter McDonald said, “The ongoing stability in the median prices for lifestyle properties continues a trend apparent over the past few years.  While other types of property have seen noticeable changes in median prices the lifestyle market has remained relatively stable”.

“Looking forward the improvement in farm returns will be encouraging buyers and motivating vendors to complete transactions.  Given that farm sales have been at historical lows for three years there is likely to be pent up pressure on both sides. There is also interest emerging in dairy support blocks, which have been very quiet for the past three years”, said Peter McDonald.