Australian farm prices fell slightly quarter-on-quarter during the first three months of 2022, however Elders’ Mark Barber said rural property prices should remain relatively strong.

Barber, the Head of Agribusiness Investment Services at Elders, told the Australian Property Institute’s NT and SA Rural Snapshots event that the national median price per hectare fell by 2.5% from Q4 2021 to Q1 2022.

“We don’t read too much into quarter-on-quarter changes. What we’re looking for in this analysis is to pick up the trends, but we typically see a bit of a fall away of property volumes coming onto the market in the first quarter,” Barber said.

“It’s a shorter quarter in terms of business days, and people are on holidays and other things like that. Typically, farmers don’t tend to put their properties onto the market in the summer and autumn – they wait for a winter-spring flush to come through and present the properties better.”

Barber said it was too soon to say if the QOQ value change was an indication of recent interest rate changes and broader market volatility.

Looking at last year’s performance, he said the national rural property market appreciated by 18.4% in 2021.

“On a five-year average annual growth rate, it achieved 8.3%,” he said.  

“So it’s demonstrably a good investment for family farmers, obviously, but it’s also attracting a lot of new entrants to the market as well. Overwhelmingly, farmland in Australia is owned by family farmers, but we do see greater interest from corporate and institutional investors in the market, often investing alongside Australian farmers. And I think that’s only going to increase as Australian family farmers get better, get bigger, and they become more investment-ready and attractive to corporate institutional investors.” 

Bigger farmland deals 

Barber said a great deal of the farm-gate productivity gains that had been made over the last 20 to 30 years had been from consolidation and improving economies of scale and scope of management. 

“The number of transactions between $10 million and $20 million has doubled in the last four years,” he said.  

“We’re seeing a significant increase in the size of transactions. That’s driven, in part, by larger areas and larger farms coming onto the market, but also there’s a significant contribution of price or land value appreciation in that. The volume of properties coming onto the market has increased by 3.4% during the calendar year, compared to the previous calendar year. But there is a lot of volatility in that, and a lot of it is seasonal. But there’s an inverse relationship, we think, between the prospects of farm performance in any one year and the number of properties coming onto the market. 

“Farmers, if they anticipate a good year or a couple of good years, they’re more likely to say, ‘well, I’ll stay on the farm and reap the benefits of that and the work that I’ve put in over the years developing my farm’. But there are also farm sales that have occurred because of a range of other reasons as well.” 

In 2021, there were $13.3 billion in national rural property sales, up 11% year-on-year. 

Greater investment market segmentation 

Barber said the higher liquidity in the market and larger transaction sizes were leading to greater investment market segmentation.   

“We’re seeing specialist financial providers and capital providers looking at the different segments, like the development phase of a property investment, the operational phase, or the exit,” he said.  

“There are passive and active investments. There are a number of corporate institutional players that are looking at investing in property for leasing to farmers and taking very little operational exposure. There are certainly investors looking at taking direct operational exposure and owning the whole enterprise, including the land assets.  

“We’re also seeing more hybrid investment opportunities for producers as well, where the investors are looking to partner with the better-performing, in fact, the top-performing rural producers, to help grow their business by acquiring the assets that they would take much longer to fund using traditional sources of finance at prudent levels, or growing organically. 

“This segmentation is leading to greater levels of specialisation of funding and capital providers, which I think, over time, will lead to greater levels or better pricing of risk. As these specialist providers come in and understand those segments, they will price their products based on their knowledge and expertise and experience of the sector. So it’ll be an interesting space to follow and I think it’s a great positive for Australian agriculture that it’s reached this sort of level of maturity and liquidity.” 

Looking ahead, Barber said rural property prices were likely to remain strong. 

“I think we’re probably going to see a continuation of relatively strong property prices, particularly if those commodities remain strong and the fundamentals remain strong. And the fundamentals are perceived to be remaining strong by investors in the sector,” Barber said.