A different message is highlighted in this article in the NZ Herald from the ANZ, than what bloggers are telling us how banks are forcing land values down.
How farmers buying more farms at values ahead of their productive value, will help the general economy, I'm not sure. Agriculture's high indebtedness needs to be addressed before farmers can reinvest in more land.
Latest real estate figures will make interesting reading, as it appears a property syndication group has been very active on dairy and dairy conversion purchases over the last two months, to the tune of $76 million dollars.
The issues investors need to carefully watch from promised returns with these type of investments, are the costs to supervise from the syndicate group, how much of the future return is calculated from capital growth, and exit options from these medium to long term projects.
The boost from high commodity prices and improved terms of trade are unlikely to be felt across the wider economy until farm values stabilise and improve, says ANZ bank. NZ's terms of trade is up 20% on a year ago but rural land prices - down 25 to 30% during the past two years - are limiting the upside, ANZ said. NZ's food exports made up 7.5% of gross domestic product - the highest of the 80 largest economies in the world. But the property bubble had now burst and that meant farmers were focused on "recapitalisation" which was diverting spending from the general economy.
The ANZ Commodity Price Index increased 2% last month to a record high. Meanwhile, farm values relative to underlying returns suggested the property market was not far off a floor, the report said. On-farm input costs had also increased 35 to 38% during the past 10 years. Farm buyers and sellers were in a Mexican stand-off as people look to deleverage and catch up on maintenance rather than splash out on property. "Weather and pasture conditions and talk of restrictions on foreign ownership are also not helping the market and will only lengthen the time before the market stabilises," ANZ said. "To end the stand-off and see land values increase will require sustained high commodity prices over several years, low interest rates, with a pinch of good weather to lift production and confidence."
The Real Estate Institute of New Zealand said last month there had been a small rise in the number of farm sales and the median sale price was up on the same time last year. Latest figures from the institute are due out this week but a spokesman said the December figures for dairy farms were very encouraging with considerably more properties sold compared with the same period in the past couple of years and strong reported interest throughout the country. DairyNZ's Mark Paine said "Farm property values have softened since then and people are making investment decisions based on the productive value of the farm rather than capital gain."