Encouraging ag investment

10 Jun, 2015 02:00 AM
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We feel allowing SMSFs to invest in ag will give them diversity within their property portfolio

A NEW investment business, DomaCom, is setting up an agricultural arm within its portfolio of product offerings to encourage investment in the farming space.

Peter Walch, an agricultural property consultant and Patchewollock farmer, said the idea was to get more investment, primarily from self-managed superannuation funds (SMSFs).

“We feel allowing SMSFs to invest in agriculture will give them diversity within their property portfolio,” he said.

“Rather than owning one house or a unit and finding the yield there isn’t what they hoped for, they can spread their risk with an investment in agricultural land.

“Financial advisers and planners are reading the same articles we are in the agricultural sector about the potential for rates of return in agriculture above those in other property sectors, so this gives them a chance to participate in that growth.”

Mr Walch said the concept would be of particular benefit to growers looking to expand.

“There are a lot of farmers out there who want to expand to generate economies of scale but don’t have the capacity to do so. “Bringing investors in will allow them a chance to start farming more acres, and there is a secure long term lease involved, so farmers can participate knowing they will have the ground for a reasonable period of time.

“This is probably an improvement on most leasing arrangements, which generally run for three years.”

Mr Walch said the DomaCom concept could be used in a number of ways.

“For example, someone may have half the capital to buy some land, and then use DomaCom to raise the other half. Or a farmer may choose to sell some of his land to DomaCom and lease it back, freeing up capital for other areas, perhaps machinery or infrastructure such as on-farm storage.”

However, he said he was encouraging farmers looking at working with DomaCom to take a stake themselves.

“I think that would encourage would-be investors if they saw the farmer put in for a 10 per cent or 20pc stake and have an investment in the asset themselves.”

From the investment point of view, investors have to put a minimum of $20,000 to invest with the company, which can be split into lots as small as $2000 for individual properties, although Mr Walch said $10,000 was probably a more workable figure.

If DomaCom attracts enough investor interest in a property listed, it would proceed with the purchase, with a group of investors who would own the specific parcels involved in the administration of the land.

A sub-fund would be set up and those investors would all hold units representing their interest in the property in a structure similar to a syndicate.

“Generally, the land cannot be sold for five years, and it may be extended if by an ordinary resolution of Unit Holders in that specific sub-fund, subject to new investors coming in to replace exiting investors,” Mr Walch said.

(The exception to this would be if unit holders in the specific sub-fund holding at least 75pc of all units on issue in that sub-fund voted for an earlier termination.)

If an individual shareholder wants to get out at any time beforehand, they can sell to another DomaCom investor.

The titles for the properties are ring-fenced from DomaCom itself and held by an externally appointed custodian on trust for the fund.

The land is also valued annually by properly qualified valuers.

“The small investment stake means investors can spread their risk across the various agricultural sectors, they can have some exposure to the dairy sector, the grains sector or whatever they choose.”

Mr Walch said investors would have a closer connection to their investment compared to other products.

“Investors will know where their investment is (and) they will be able to physically drive past it, as opposed to other schemes where it is just part of a portfolio they do not know the specifics of.”

He said after hearing about DomaCom in the residential sector he realised how the scheme could work in the agricultural space.

“I asked them about including agricultural property on their platform and eventually convinced them to include it, which they have done and I am very excited by the opportunity for both the farming community and investors”, he said.

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FarmOnline
Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
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READER COMMENTS

Qlander
12/06/2015 6:57:30 AM

Sounds good, of cause the devil is in the detail. Fees and charges expectation of yield ect.
John Hine
12/06/2015 6:30:40 PM

If farmers want investment, they need business structures that will allow an equity investment. The only other way to invest in agriculture is to buy the whole farm. Equity investors of course want a say in farm management........
Qlander
18/06/2015 7:41:07 AM

John Hine A: Not always B: That is not necessarily a bad thing. There's a lot to be said for having direct access to the 'in house' solicitor, when an agent is trying to fool you over a sales contract.

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