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Median farm prices collapse 40% in two years; dairy farm sales crash 78%
Farm prices and sales volumes have collapsed in the last two years as the withdrawal of easy bank lending has dried up farmers' appetites for capital gains, fresh figures show.
The slump in the number of transactions is expected to ripple out through the rural and provincial economies, given the surge in lending and activity through 2006 to 2008 helped drive spending on coastal and provincial residential property.
The national median farm sale price was NZ$1.045 million in the three months to February, down 40% from the NZ$1.75 million seen in the three months to February 2008, Real Estate Institute of New Zealand figures show.
There were 11 dairy farm sales in February and 34 in the three months to February, which is down 78% from the 158 seen in the three months to February 2008, which was seen as the peak of the dairy boom. A sharp drop in the forecast Fonterra payout and a much more rigorous approach to farm lending by banks has triggered the collapse.
REINZ President Peter McDonald said there were "still reasonable levels of inquiries for all types of farms, but they do not seem to be resulting in completed transactions."
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Here is more detail below from REINZ's release:
The total number of farms sold in the three months to February was 205, down from 276 a year earlier and 713 farms two years earlier.
Average price per hectare for the eleven dairy farms sold in February was $43,970 and the average size was 87.85ha, with an average of $47/kg of milk solids. The average milk solid production for these farms was 903kg/ha.
On a regional basis the greatest number of farm sales during the three months to February was 29 in the Waikato followed by 28 in Canterbury. Grazing properties accounted for the largest number of farms by type, with 89 sales recorded throughout the country in the three months to February 2010.
But while farm sales are down, Mr McDonald says lifestyle properties continue to be standout performers, with turnover and prices bucking the trends in the residential dwelling and other rural markets. The national median selling price for lifestyle properties in the three months to February 2010 was $438,000, down $17,000 on the median price for the three months to January 2010 of $455,000. This compares with $445,000 and $455,000 in the three months to February 2009 and 2008 respectively.
Median prices were highest in Auckland at $700,000, with the most modest prices for lifestyle properties to be found on the West Coast ($150,000). Five regions experienced an increase in the median selling price for a lifestyle property, while eight districts recorded decreases, and the median remained the same in the Hawkes Bay.
A total of 1,105 lifestyle properties were sold in the three months to February 2010 compared with 1,213 in the three months to January 2010; well up on the 877 sold in the three months to February 2009.
22 Comments
REINZ President Peter McDonald said
REINZ President Peter McDonald said there were “still reasonable levels of inquiries for all types of farms, but they do not seem to be resulting in completed transactions.”
It's time for a celebration folks !! REINZ has finally commented on a situation and NOT put a "spin" on it, as above. The rose tinted glasses must of come off over the weekend. I just wish they were just as honest with residential property .... but I am not holding my breath.
Median sales prices do not,
Median sales prices do not, IMHO, give an accurate picture of what is happening.
As a person who has been trying to buy a grazing farm for 2 years, I doubt that prices are down by more than 20%.
Plenty of farmers are trying to sell of "bits and pieces" to raise some cash to keep the bank manager from the door, and these small sales (artificially) depressing the median.
The lack of transparency on sales number makes it difficult to understand what's going on.
Do any of your readers know where reliable, online, farm sales figures can be obtained?
DavidH, Do any of your
DavidH, Do any of your readers know where reliable, online, farm sales figures can be obtained?
If you know any valuers or RE agents they can give you a list of recent sales in your area (if any) This should include address, land use and land area etc. Shouldn't be too hard, with a bit of driving round to check out the condition of sold properties to get a picture of local values.
Cheers.
A mirror image of what
A mirror image of what fools in the residential ponzi scheme can expect to lose.
Isn't the price per hectare
Isn't the price per hectare the more meaningful figure (doesn't look that low for dairy?).
Dairy farm prices are very
Dairy farm prices are very important for financiers exposed to these assets such as Allied Nationwide and South Canterbury Finance. For South Canterbury Finance, there is about $140m tied up in just two investments in large herd corporate farmers. One exposure is an equity exposure to a highly leveraged large herd corporate dairy farmer, Dairy Holdings, and the other is a subordinated loan (3rd mortgage?) over another. See http://www.lostsoulblog.com/2010/03/growing-list-of-uncertainties-for-so... for more details. I'd be interested in more comments if anyone knows about the likely value of these investments today.
David, The sale of a
David, The sale of a property development companies assets that the local power company put into receivership in HB is going badly. I hear some of he sales have been very poor for SCF the financier of the projects.
I talked to a mate yesterday he said that lots of dairy farmers have been asked by their banks to refinance but as no other banks are lending they have no choice but to go back to the banks and say that they cannot. At present the outlook for next year is up to a 1$ below this years payout. He thinks the banks will continue to sit on these farms as there is no market for farms at present. This is because costs have exceeded income in many cases,he expects that councils will come under pressure to reduce rates as farmers are unable to cope with the huge increase in costs over the last few years. He was very negative about the future outlook for dairying due to the increase in milk production now expected in the USA and the milk mountain in Europe.
Financiers seem to be sitting
Financiers seem to be sitting on unwanted exposures they can't shift. Are they also increasing the interest rates (or spreads over risk free rates)? How badly does a farm business have to be operating before the financiers call in the receivers? How much debt to assets is considered prudent? risky? hopeless?
Just talked to one of
Just talked to one of my dairyfriends over the weekend. Things are really tough at the moment. He was expecting a 1 mil $ profit for this season and the bank wants him to use it all for debt reduction. He was willing to put one of his farms on the market but only for the right price.
My hart is bleeding, and he is always welcome to park his 200k car in my drive and I will have a bed and a feed for him.
E K S the banks
E K S
the banks know whats coming next season.
Banks sitting on unwanted exposures
Banks sitting on unwanted exposures re farms in receivership, can shift these farms but not at the money they require to cover their exposure and not without causing the rural market to implode, banks are focused on their capital ratios at the moment - if farm prices tumble to far then they have serious problems.
There are buyers for farms out there but only at realistic prices - capital gains doesnt/wont feature for many years therefore were back to farming for a yield (5-10% to cover climate and market risk would be nice, ask the northland boys how theyre feeling at the moment) which unfortunately means farm values still have a way to fall.
Its not about Capital gain
Its not about Capital gain its about how low will they go.
On top of this many larger farms will have ETS costs of over 100k pa. better to wait till the dust settles.
Ex Rural Banker: what sort
Ex Rural Banker: what sort of loan to value ratios are now considered prudent? imprudent? hopeless?
How low? http://www.lostsoulblog.com/2010/03/growing-list-of-unc
How low?
http://www.lostsoulblog.com/2010/03/growing-list-of-uncertainties-for-so...
Dairy Holdings shares. This is also an associate company, SCF's holding is 33.59%. Assets $666m, liabilities $408m, revenue $56m, profit -$66m. For a dairy farmer, this is considered very highly geared.
E K S Farmer, Your
E K S Farmer,
Your dairy friend may have made $1 million, but the bank knows that their security against lending has likely fallen at least $5 million. I too would want the debt reduction.
No worries with dairy farms.
No worries with dairy farms.
Micky Mouse and Homer Simpson have a printing bress in the back room of fonterra.
Last time they used it the suckers were falling over each other to get there hands on some of the garbage.
Use the cash to pump up the price of milk solids and build more storage to keep the festering crap in because nobody can afford to buy it.
Banks that I have been
Banks that I have been talking to say they will take over farms and run them with share milkers or lease them out untill things improve before selling them. Sounds like a couple of years ago when they said cocikes had plenty of equity and they will keep lending untill the up swing.
Could be interesting .......
Stevel, Sounds like delusions predicated
Stevel,
Sounds like delusions predicated on an eventual recovery of asset values. If we get significant deflation banks will be insolvent and visibly so.
I'd like to see how
I'd like to see how they get around the capital adequacy implications of that plan!
Stevel - banks have got
Stevel - banks have got no option but to do this as they wont accept fair value based on a fair yield - if they did this farm values would need to fall another 50%.
Why would you buy a farm for a 3% yield when the western world is at the start a long deleveraging period as a result of excessive credit over the last decade - surely this has to result in asset deflation (the paper says farm values are down 40%? already) as investors adjust their expected returns for the fact that the easy credit drove yields down and capital prices up and the reverse shall apply.
We are all kidding ourselves if we think capital gains around the corner - the sooner the banks wake up to the fact they are also part of the cause of this problem then the sooner we can move ahead.
Until we see farm values across the board achieving a yield (before Capital Gain) of 5% (top Waikato Country) through to 8-12% (hard, isolated steep country) then we are are going to see the demise of the industry as our young talented people move offshore to better paying jobs and investment opportunities. Clearly this is seen in the Universities where the new enrollments of Agricultural degrees are still dropping through the floor - the industry isnt attractive to young entrants that dont have the money backing to get into the industry.
IanC Be careful when appointing
IanC
Be careful when appointing your auditor.
Maybe landcorp will help! http://www.nzfarmersweekly.co.nz/artic
Maybe landcorp will help!
http://www.nzfarmersweekly.co.nz/article/8066.html
He said there had been a smooth transition to Landcorp management and he couldn't understand suggestions the SOE had bailed out the "triangle" of partners involved with the properties.
lovely waste of tax dollars...
......landcorp is a loss making soe.