Optimism Tinged with Caution

News Release 15 December 2016

Optimism Tinged with Caution

Summary

Data released today by the Real Estate Institute of NZ (“REINZ”) shows there were 31 more farm sales (+7.4%) for the three months ended November 2016 than for the three months ended November 2015. Overall, there were 447 farm sales in the three months ended November 2016, compared to 353 farm sales for the three months ended October 2016 (+26.6%), and 416 farm sales for the three months ended November 2015. 1,803 farms were sold in the year to November 2016, 1.9% more than were sold in the year to November 2015, with 21% fewer dairy farms and 6% fewer grazing farms sold over the same period.

The median price per hectare for all farms sold in the three months to November 2016 was $26,348 compared to $28,671 recorded for three months ended November 2015 (-8.1%). The median price per hectare rose 1.4% compared to October.

The REINZ All Farm Price Index rose 3.8% in the three months to November 2016 compared to the three months to October. Compared to November 2015 the REINZ All Farm Price Index rose 4.9%. The REINZ All Farm Price Index adjusts for differences in farm size, location and farming type, unlike the median price per hectare, which does not adjust for these factors.

10 regions recorded increases in sales volume for the three months ended November 2016 compared to the three months ended November 2015. Otago recorded the largest increase in sales (+15 sales), followed by Northland (+14 sales), and Canterbury (+11 sales). Compared to the three months ended October 2016, 11 regions recorded an increase in sales.

“An increase in volumes of farm sales in the three months ending November 2016 reflects improving conditions in the rural market, but the predominant comment in the marketplace is that a mood of caution prevails,” says REINZ Rural Spokesman Brian Peacocke.

“This is evidenced by detailed pre-purchase due diligence investigations, and a level of concern amongst purchasers regarding volatility of income.”

“Whilst the increase in the milk pay out is great news and has extended the lifeline for some, it is clear financial institutions are maintaining expenditure restrictions on their client base, and as would be expected, are insisting on fiscal prudence. The above factors are contributing to a lack of confidence in some areas.”

Highlights include:

· Northland – a steady market with smaller volumes of farms attracting interest from across the country; insufficient numbers of properties available to satisfy the enquiry for good sheep and beef farms; smaller attractive, well-located finishing units are appealing to Auckland purchasers.

· Waikato – solid sales activity across the region with some particularly strong sales of both dairy farms and smaller finishing units. Uncertainty surrounding the Waikato Regional Council Healthy Rivers Plan Change One is impacting to varying degrees on drystock and dairy support units where nitrogen reference points have not been able to be determined within the timeframe required.

· Bay of Plenty – very strong demand for top quality kiwifruit orchards with reports of the best of those with the gold variety reaching towards $800,000 per canopy hectare. Intermittent dairy farm sales throughout the central Plateau where listings are steady but the gap between vendors and purchasers confirms caution prevails.

· Taranaki – good quality dairy farms are selling strongly but the general tone remains cautious. Listings are in good supply but the lesser quality farms are struggling to attract purchasers. Confidence is an issue and it would appear the mood has not caught up with the increased pay out. Ongoing activity is evident on the steeper, store country with sales at around $3,000 per hectare to the manuka honey industry.

· Manawatu / Wanganui – good sales volumes for finishing and grazing properties but light activity on dairy farms.

· Wairarapa – an active market for sheep and beef properties with reports of values easing 15%; some activity on arable farms but quiet in the dairy sector.

· Nelson / Marlborough – steady sales across the range of finishing, grazing and horticultural properties; some activity on small forestry blocks.

· Canterbury – light volumes in the dairy sector but very strong sales volumes and prices in the finishing, grazing and arable sectors.

· Otago – very similar results to their northern neighbours with very satisfactory sales volumes amongst finishing and grazing properties.

· Southland – early days in the dairy farm sales season with only two sales recorded for the month; reports indicate a gap of 5% to 10% between firm vendors and predominantly local purchasers with results being achieved on quality farms where vendors recognise the reality of the marketplace. Levels of listings are good but the undercurrent of debt within the province is causing banks to apply restrictions where margins are thin.

Grazing properties accounted for the largest number of sales with a 36% share of all sales over the three months to November 2016, Finishing properties accounted for 24%, Horticulture properties accounted for 16% and Dairy properties accounted for 10% of all sales. These four property types accounted for 85% of all sales during the three months ended November 2016.

Dairy Farms

For the three months ended November 2016 the median sales price per hectare for dairy farms was $47,385 (45 properties), compared to $40,716 for the three months ended October 2016 (17 properties), and $35,554 (42 properties) for the three months ended November 2015. The median price per hectare for dairy farms has risen 33% over the past 12 months. The median dairy farm size for the three months ended November 2016 was 98 hectares.

On a price per kilo of milk solids basis the median sales price was $41.05 per kg of milk solids for the three months ended November 2016, compared to $34.64 per kg of milk solids for the three months ended October 2016 (+18.5%), and $34.83 per kg of milk solids for the three months ended November 2015 (+17.9%).

The REINZ Dairy Farm Price Index rose 1.7% in the three months to November 2016 compared to the three months to October. Compared to November 2015, the REINZ Dairy Farm Price Index rose 4.1%. The REINZ Dairy Farm Price Index adjusts for differences in farm size and location compared to the median price per hectare, which does not adjust for these factors.

Finishing Farms

For the three months ended November 2016 the median sale price per hectare for finishing farms was $29,751 (106 properties), compared to $26,834 for the three months ended October 2016 (72 properties), and $24,409 (86 properties) for the three months ended November 2015. The median price per hectare for finishing farms has risen 22% over the past 12 months. The median finishing farm size for the three months ended November 2016 was 35 hectares.

Grazing Farms

For the three months ended November 2016 the median sales price per hectare for grazing farms was $12,573 (159 properties) compared to $15,242 for the three months ended October 2016 (143 properties), and $16,949 (161 properties) for the three months ended November 2015. The median price per hectare for grazing farms has fallen 26% over the past 12 months. The median grazing farm size for the three months ended November 2016 was 75 hectares.

Horticulture Farms

For the three months ended November 2016 the median sales price per hectare for horticulture farms was $189,916 (70 properties) compared to $182,584 (65 properties) for the three months ended October 2016, and $176,783 (67 properties) for the three months ended November 2015. The median price per hectare for horticulture farms has risen 7% over the past 12 months. The median horticulture farm size for the three months ended November 2016 was eight hectares.

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