Banks re-entering the market, vendor finance, helps drive spike in dairy farm sales, the REINZ says

Banks "re-entering the market" helped drive a total of 30 dairy farm sales in December almost matching the 31 dairy farms sold in the six months from June to November last year, the Real Estate Institute of New Zealand's (REINZ) latest rural market report reveals.

The 30 dairy farms sold in December was the most in one month since 41 in May 2008. REINZ said a total of 96 farms sold in December, up from 93 in December 2009 but down from 128 in December 2008.

REINZ rural market spokesman Peter McDonald said the "rush" of dairy property deals in December had helped lift the median farm sale price to its highest level of 2010. He said the sales rise was due to banks re-entering the market although they were showing a strong preference for supporting substantial purchasers at the top end of the market. Vendors leaving in finance had also helped make many of the sales happen.

"From NZ$968,500 at the end of November 2010, the national median farm sale price rose to NZ$1,150,000 for the three months to December 2010. This is a 15% increase on the median of NZ$1,000,000 for the last three months of 2009, but still below the median of NZ$1,525,000 for the equivalent period in 2008," said McDonald.

Based on the median price of NZ$3.59 million, the 30 dairy farm sales were worth more than NZ$108 million.

McDonald said the 30 dairy farms sold in December was "a huge boost" for the rural sector.

“It marks a return to confidence in dairying which is more than justified by the positive returns being achieved,” he said.

McDonald said the price per kilogramme of milkfat solids averaged NZ$41 in December, up NZ$4 per kilogramme from November figure, although it ranged from NZ$29 per kilogramme to NZ$63 across the country.

“There was also a huge variance in the price per hectare with two farms in Taranaki selling for approximately NZ$58,000 per hectare and others for less than NZ$25,000 per hectare. This wide variation in prices was experienced throughout the country.”

Fonterra said last month it expects to pay its dairy farmers NZ$6.90 per kilogram of milksolids in the 2010-11 dairy season. The dairy co-operative said that means a 100% share backed farmer should earn, on average, the equivalent of NZ$7.30-NZ$7.40 before retentions, comprising milk price (per kgMS production) plus distributable profit (per share held).

"On a cash basis, the same farmer is forecast to receive a total of NZ$7.15-NZ$7.25, comprising milk price (per kgMS) and dividend (per share) - with the balance of the profit being retained by the Co-operative," Fonterra said.

That follows a 2009-10 payout of NZ$6.70 before retentions, up from $5.21 in the previous year.

See REINZ's rural market statistics here and read REINZ's statement below:

A rush of dairy property transactions in December has helped lift the median farm sale price to the highest level of the year in the latest Real Estate Institute of New Zealand (REINZ) Rural Market statistics released today.

“The 30 dairy farms sold in December is a huge boost for the rural sector and has brought about a significant improvement in the market,” says Real Estate Institute of New Zealand rural market spokesman Peter McDonald. “It marks a return to confidence in dairying which is more than justified by the positive returns being achieved.”

From $968,500 at the end of November 2010, the national median farm sale price rose to $1,150,000 for the three months to December 2010. This is a 15 per cent increase on the median of $1,000,000 for the last three months of 2009, but still below the median of $1,525,000 for the equivalent period in 2008.

“The price per kilogramme of milkfat solids averaged 41 dollars in December, up 4 dollars per kg on the November figure, but across the country ranged from 29 per kg up to $63 per kg,” says Peter McDonald. “There was also a huge variance in the price per hectare with two farms in Taranaki selling for approximately $58,000 per hectare and others for less than $25,000 per hectare. This wide variation in prices was experienced throughout the country.”

With the highest price paid $18.2 Million, the average size of the dairy farms sold in December was approximately 146ha, with an average milk solid production of 982kg/ha. The average price per hectare was $38,479, almost $5,700 up on the per hectare price for dairy farms in November.

In the last three months of 2010 there were 213 farm sales, an increase on the 170 sold in the three months to the end of November, but still down on the 241 sales in the three months to December 2009.

“The upturn in sales is due to the banks re-entering the market” says Peter McDonald. “However they are showing a strong preference for supporting substantial purchasers at the top end of the market. Vendors leaving in finance has also helped make many of the transactions happen.”

Compared to the last three months of 2009, the dairy farm sales raised median prices in Southland from $916,594 to $3,422,125 and in Taranaki from $2,125,000 to $2,664,438 for the three months to the end of December 2010. In other districts there have been median price increases on the same period in the previous year from $491,000 to $662,500 in Northland, $812,500 to $880,000 in Manawatu/Wanganui, $817,269 to $1,705,000 in Nelson, $520,000 to $2,800,000 in West Coast, $1,200,000 to $1,682,750 in Canterbury, and from $630,000 to $747,500 in Otago.  But compared to December 2009,  median farm sale prices at the end of last month were down in Auckland from $1,110,000 to $856,2500, Waikato from $1,550,000 to $1,500,000, Bay of Plenty from $997,500 to $875,000, Gisborne from $712,500 to $510,000, Hawkes Bay from $1,122,500 to $853,000, and Wellington from $575,500 to $525,000.  

Purchases of grazing and dairy support blocks were lower than last year but Peter McDonald expects buyer interest to improve as a consequence of the upswing in the market for dairy farms.    

The national median selling price for a lifestyle property in the three months to December 2010 was $445,000, which is up on the median of $431,750 for the three months to November 2009 but down on the median of  $464,000 for the last three months of 2009. The median prices for lifestyle properties were highest in Auckland at $720,000, and lowest on the West Coast at $210,000.

 A total of 1,089 lifestyle properties were purchased in the three months to December 2009 which is an increase on 1,076 in the three months to November 2010, but fewer than the 1359 sold in the three months to December 2009.