NZ Rural Land Sector: Farm prices collapse as easy money dries up
March 29th, 2010
Farmers and rural investors hoping to cash in on what seemed like the relentless rise in rural land prices have been brought down to earth with farm prices and sales collapsing as banks get tough on lending. The price and sales slump has ramifications for regional economies. However bringing down the stratospheric recent prices for farms could reduce the cost for new entrants and help improve the longer term cost structure of an industry saddled with spiralling bank debt.
The national median farm sale price was $1.045m in the three months to February, down 40% from the $1.75m seen in the three months to February 2008. Real Estate Institute of NZ figures show 205 farms were sold nationally in the three month period compared with 276 for the same period in 2009 and 713 for the three months to February 2008. Waikato (29) and Canterbury (28) headed the regional sales lists. Grazing property sales at 89 accounted for the greatest proportion of sales. There were just 11 dairy farm sales in February and 34 in the three months to February, down 78% from the 158 sold in the three months to February 2008 at the peak of the dairy boom.
One of the side effects of the price and sales slump is rural real estate companies are now targeting corporate buyers with strong balance sheets. PGG Wrightson confirms the trend saying the company is looking to attract “a new type of equity” rather than buyers who rely on debt to purchase properties. Meanwhile Reserve Bank figures show lending to the rural sector dropped $315m between the end of September and December 31 2009 to $46.916bn.
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