month in review · 2020. 8. 9. · month in review august 2020 ceo a message from our ceo we’re...
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Month in ReviewRuralAugust 2020The Month in Review identifies the latest movements and trends for property markets across Australia.
Month in ReviewAugust 2020
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A message from our CEOWe’re now into month eight of this very testing year and as we adopt national and states-based strategies to tackle infections, our economy continues to operate in a push-pull fashion. As at the time of writing, metropolitan Victoria was under a stage 4 lockdown, NSW is on the verge of implementing stricter measures and Queensland closed its border to the southern states.
While circumstances can feel overwhelming, these are also the moments when our nation’s mettle comes to the fore. Resilience in the face of challenge is a hallmark of our industry too.
With the shutdown likely to extend for some weeks in Victoria, Herron Todd White stands ready to offer support. Property valuation has been deemed an essential service in the state given its crucial role in the finance sector. We are grateful our business can continue to operate, that our people are safe, and that we have practices and procedures to ensure neither the quality of our advice nor the health of the public are compromised.
It’s during these testing times the steadying guidance of experienced professionals is invaluable.
One approach to help us all endure is to focus on the future. By making important decisions founded on long-term expectations, we can choose options today that will pay dividends over two or three market cycles.
This month, our rural valuers present a market update with particular attention paid to foreign investment in their sector.
Apart from the volatile global economic environment, federal changes applied to FIRB guidelines will have fallout in the sector, and our team are best placed to guide you through the implications.
Please enjoy this month’s issue of Month In Review.
Gary Brinkworth CEO
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MilduraFarmer confidence levels are remaining relatively high, even though the rest of the economy is feeling the effects of Covid related uncertainty. There are still some rural sales occurring, and there does not appear to be any initial signs of any reduction in value.
However, agents are reporting that the tighter border restrictions are limiting the ability of corporate buyers to inspect and do their due diligence. While the internet can provide a good overall sense of a property, buyers still want to ‘kick the dirt’. We are aware of at least one case where this inability to cross borders is holding up a sale negotiation.
This restriction is exacerbated when international buyers are involved, and it is currently difficult to see how any international travel will be possible in the next 18 months.
Meanwhile the reduction in the Foreign Investment Review Board (FIRB) threshold down to $0 caught many by surprise. There is a significant cost and also time delays involved with navigating FIRB requirements, and this cost becomes more significant as the property value reduces. We are also aware of a one case where the change has delayed a sale.
Whilst we are aware of a number of sales which have been negotiated in the ‘Covid-19’ period across a number of industries, we are not at liberty to disclose finite details as yet until such sales are finalised and settled. A table grape sale in the Robinvale area, a small citrus orchard in the Nangiloc area and a dried fruit property within the Mildura Irrigation area suggest that value levels have remained firm at pre-Covid levels. We are also aware of a large dryland cropping holding which
has transacted (not settled) to the north-east of Mildura in New south Wales which will show levels slightly firmer than pre-Covid values.
Darling DownsDespite drier conditions, the rural property markets across southern and south-western Queensland continue to throw up market leading sales. As we have reported in recent months, there is an increase in property listings with the pent-up demand for both farming and grazing holdings still driving value growth.
It is expected that as the pool of active buyers reduces with increasing supply, values may begin to stabilise. The buyer profiles range from adjoining and nearby owners and private farming companies to interstate sheep and cattle graziers seeking to diversify their exposure to weather patterns.
Properties that provide good fencing and water improvements are keenly sought-after as are farming holdings with soft Brigalow/Belah soils.
Recent sales include “Wallamba” at Westmar which is reported as under contract for $9.5 million for a 2801.64 hectare grazing holding with 38.5 hectare under pivot, 156 hectare of Leucaena flood irrigation and 1,199 megalites of water allocations. “Mt Lonsdale” at Mungallala sold for $8.5 million and comprises an 8146 ha grazing holding. “Welltown” via Goondiwindi recently sold for $31.5 million to a private farming company from a nearby district.
Each of these sales reflect strong land values and reinforce the strength of the market despite broader economic uncertainty.
North and North West QldNorth and North West Queensland grazing property values continue to push through to new levels. All grazing property market districts are now equal to or well above the previous cycle peak in 2008/09.
There has been a lot happening particularly in the Charters Towers/Greenvale area in recent years. This is typically a small to mid-scale forest breeding property market segment. This market segment pushed through the historic peak in the last 18 to 24 months.
Of all the grazing property market segments in the region, the downs country to the south of Hughenden to Cloncurry equaled the 2008/09 peak type value rates in the last 3 to 6 months.
In general, the market is trading at a factor of 1.5 times the value rates of the peak of the last cycle in 2008/09.
The recovery phases of the general market cycle are indicating a factor of 2.2 times since the bottom of the cycle in say 2012 through to about 2014/16. (Remember, these are blended factors across the market spectrum)
The following graph shows the various market segments across the north. This graph maps out the top and bottom hectare rate ranges for each market segment at each phase of the property market cycle to date.
Despite drier conditions, the rural property markets across southern and south-western Queensland continue to throw up market leading sales.
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$6000 per beast AE. It showed around 40 per cent increase in value from the previous sale in 2017, although the previous sale was considered a little low at the time. The current buyer is a larger scale local grazier from the Atherton Tablelands seeking a larger scale grower block.
SugarMSF Sugar is currently in the process of selling down is Queensland sugar cane farm assets and the sale of 247 Silkwood Japoon Road, Silkwood represents one of the most recent transactions. The sale price was $3.1 million inclusive of the current crop and an extensive inventory of machinery. The sale analysed to near $11,000 per developed cane hectare excluding structures for about 165 hectares of cane land. This level of value represents a slight reduction from what the property previously sold for in 2012. The current purchaser is a cane farming family based in north Queensland that is looking to expand.
Cane farm values in localities close to Cairns are running against the trend of softening farm values in other north Queensland growing districts. A small cane farm at Aloomba is currently under contract for around $30,000 per developed cane hectare ex-structures. This represents a near 20 per cent increase from established values of three to five years ago. The purchaser was an existing local cane farmer and cane harvesting contractor seeking to expand. Markets in localities within 30 minutes of Cairns City are considered to be seller’s markets, where demand far exceeds supply. Farms in these localities are tightly held and recent sales indicate that values have no correlation with world sugar price trends.
Bananas The market for banana land in Tully and surrounding localities is considered to be a
Far North QueenslandGrazing Resales of grazing properties on the Atherton Tablelands continue to be a market highlight in far north Queensland. The recent sale of a 67-hectare property with an irrigation licence is a good example. The property previously sold for $900,000 in 2015 and is now under contract for $1.35 million after capital expenditure of about $50,000 on fencing infrastructure and other minor land development. This represents a 30 per cent increase over five years. Interesting to note that both parties involved in the 2015 transaction were local farmers. The current buyer is Queensland based however he is purchasing for rural lifestyle purposes.
The sale of ‘Wyvruri’ at Bramston Beach south of Cairns is nearing settlement for near $5.6 million. It comprises a good quality breeder block of 529 developed hectares on mixed coastal flats and red hillslopes country with a reported carrying capacity of 600 breeders. The sale analysed to $7500 per developed hectare ex-structures or about
At the far right is the blended market cycle showing the peak of the last cycle, bottom of market cycle and the current market condition.
The downs country ranges and their respective dynamics are not surprising. The downs country to the north of the Hughenden to Cloncurry line is outpacing the growth profile of the previous peak.
The major change lies in the better quality or better located (top end of the range) Small to Mid-Scale forest breeding property market segment. This is reflective of the Charters Towers/Greenvale sales activity. The top of the range hectare rate is at about double what it was at the last peak.
Values are in unprecedented territory. There are a number of prudent local Graziers’ who are ready to buy reasonable quality breeding stations at present. Not every purchaser is going to pay silly money though. In some instances, purchasers are drawing a line in the soil as to what they are willing to offer. It’s up to the vendor to take the offers now or play for the higher game.
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and make it over FIRB hurdles.
A notable sale of note was the 42,390 hectare “King River” property which exchanged in late June for $8.75 million after around two years of fairly solid marketing. The purchaser was a large-scale mango grower and pastoralist from the district. This mixed commercial hay farming and cattle growing/trading enterprise 40 kilometres south east of Katherine has good frontage to the Stuart Highway and permanent holes along the King River which runs through the property. Reliable stock water from the Jinducken and Tindal Aquifers however limited irrigation development potential. Whilst around 30 per cent of the property is Freehold, the balance is Perpetual Crown Lease (purpose: mixed farming, livestock production, cropping and horticulture). A bit over 1400 hectares has been cleared at various stages over the last decade and the majority of the cleared country has been improved for fodder/hay production. This is a reasonably solid sale showing around $2700 per hectare for the cleared and improved dryland country and around $1800/AE for around 250 square kilometres of timbered grazing country.
In other news the NT Government has released a report on developing the Gunn Point Peninsula around an hour’s drive east of Darwin.
Gunn Point Development AreaAn extensive two-year study of water, soil and biodiversity surveys of the area concluded that of the 71,300 hectares investigated (in reportedly the most comprehensive biophysical resource assessment ever undertaken in the NT) approximately 33,000 hectares has moderate to good potential for general development including dryland agriculture and forestry. The report also indicated that of the 19,000 hectares potentially suitable for irrigation, a sustainable groundwater
vineyards that continue to work through the short term pressures created by the COVID 19’s shut down of global high end restaurants and the high value bottled wine generally consumed when out to dinner. Conversely, more low-end wine is being consumed at home and sold online or at bottle shops during times of restrictions. These factors, along with smoke taint across many of Australia’s other major wine regions from this 2020 harvest continue to play on market participants minds and impact fruit pricing and are likely to start to be factored into property market pricing over the next twelve months.
On the FIRB front, the recent $40.4 million-dollar purchase of ASX listed Beston’s Global Foods dairy assets near Mount Gambier has recently been given the green light by FIRB following the purchaser ‘Aurora Dairys’ being largely funded by a Canadian Pension Fund. The FIRB approval has now moved the sale to unconditional terms and will see the assets settle in August 2020. The sale benefits Beston’s processing facilities by securing a 17 million litre/10-year milk supply agreement from these farms plus an additional 24 million litre milk supply agreement from Aurora’s other farms, shoring up future supply for Beston’s planned new skim milk lactoferrin facility.
Northern TerritoryThere’s been fairly limited sales activity in the NT and Kimberley which involved international buyers – actual or potential – so it’s a little difficult for us to comment on the recent tightening of FIRB rules whereby all potential foreign buyers will need to try
buyer’s market, predominantly due to the adverse effects of the Panama TR4 banana fungus disease outbreak, which has severely weakened demand for going concern banana farms in these localities. A case in point is 288 Collins Road, Lower Tully, which is a mixed banana and sugar cane farm currently under contract for $1.065 million inclusive of the current crop and an extensive inventory of machinery. The sale analysed to $8500 per developed mixed cane and banana hectare ex-structures, which basically showed no premium for nearly 20 hectares of planted banana stools including irrigation infrastructure, albeit the banana stools were not in good condition. At this value level the current crop and machinery was also acquired far below current market value. The agent reported that the farm had been for sale for an extended period however buyers were reluctant due to its proximity to the Tully Valley outbreak. The purchaser was a local banana farmer looking to expand and at this value level has acquired an asset well below market levels of 2015-16.
We have been involved in a reasonable number of recent sales of cane, banana and grazing properties in far north Queensland. The majority of these sales have been of assets in the sub-$5 million value range. We note that nearly all purchasers have been Australian citizens, with most purchasers Queensland based. We don’t anticipate that the proposed changes to Australia’s FIRB regime to address national security risks and ensure greater compliance with FIRB approval conditions will have any effect on the rural market in far north Queensland.
South East South Australia.The market in south east South Australia continues to remain strong for the majority of rural assets with the exception of premium wineries and
The market in south east South Australia continues to remain strong.
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The Gunn Point Peninsula development proposal comes on the back of a similar NT Government proposed land release in late June for: 67,500 hectare on the NT side of the WA border (near Legune Station) called the Keep River Plains Agricultural Development Area; a proposed 26,000 hectare release to be known as the Wildman Agriculture Precinct approximately 135 kilometres east of Darwin (80 kilometres as the crow flies south east of Gunn Point), and finally the proposed 5712 hectare Larrimah Agricultural Precinct around 180 kilometres south of Katherine. We are currently working on an analysis of this much larger, combined land release proposal, bringing current real values into consideration, for the next Month in Review.
A final direction on the potential future development of Gunn Point won’t be available until after submissions to the proposal (closing 28 August) are assessed. As we have seen with the opening up of new farming country in the past in the NT (thinking Douglas Daly, Venn, and the ORIA near Kununurra) it will be interesting to see where the initial $/ha for the undeveloped land come to rest once cost of development is taken into account. The starting point of the calculation for potential investors really needs to be at the historic prices paid for developed country in the region with proven production history. We know that prices paid for developed dryland (rain fed) cropping country for areas of say, 150 to 350 hectares have been between $2500 and $3000 per hectare in the recent past, developed irrigation country (including infrastructure and water licence) has made between $9000 and $12,500 per hectare (for areas of say 100 to 300 hectares), and between $25,000 and $35,000 per hectare for mature mango plantations of say, 100 to 200 hectares in size.
supply from the underlying Koolpinyah Dolostone Aquifer will allow for 3600 megalitre allocation for around 720 hecatres of new horticultural land (equating to approximately five megaltres per hectare). This would potentially increase the total irrigated horticultural land supply in the Litchfield Municipality (which contributes $122 million per annum to the economy) by between 10 and 15 per cent. The study identified the most suitable horticultural crops might include mangoes, dragon fruit, citrus, avocadoes, bananas and cashews, all of which have been successfully grown in the region in the past. If the agricultural and horticultural development of the peninsula proceeds, it will likely do so against the potential planning backdrop of a new satellite city: population around 36,000 and to be called Murrumujuk which would be around the sized of Darwin’s current satellite city, Palmerston. Nearby Glyde Point has also been identified as a potential site for a second deep-water port once Darwin’s current deep-water port at East Arm is maxed out.
Gunn Point Development Source: NT Department of Natural Resources
Telephone 1300 880 [email protected]
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