Australian farmland among world's best

07 Apr, 2014 07:40 AM
Farmland in general has significantly outperformed residential and commercial assets

THE values of farmland worldwide have increased by an average of 20 per cent per year since 2002 with Australia not far off the pace, according to a new report.

The Global Farmland Index, created by Savills research in London, documented the extraordinary annual growth with the best results coming from the emerging markets where major improvements in infrastructure fuelled farm productivity.

Australian farmland recorded ­annualised growth over that time of about 15pc, behind New ­Zealand at about 17pc. The two countries were the best of the advanced economies.

Savills director of international land markets and author of the report, Hugh Coghill, said the regulatory environment for foreign investment of farmland was a major determinant in the demand for such property.

"The knowledge and understanding of the restrictions and policy on foreign ownership is crucial," Mr Coghill said. "For example, a new law recently introduced in Uruguay bans sovereign wealth funds but private investors will not be affected."

He said eastern European countries had experienced considerable change in their land market policy and had also seen very high rates of growth.

The highest rates were recorded in the emerging markets of Romania at 40pc, Hungary at 25pc and Brazil also at 25pc.

Savills forecasts Brazil and Romania to outperform the index at 40pc annualised average growth.

Savills head of research Ian Bailey said those countries with more flexible foreign ownership regulation were likely to see increased growth above and beyond other real estate sectors.

"With the exception of markets with regulatory constraints, farmland in general has significantly outperformed residential and commercial assets. That is a trend which we forecast will continue for the short to medium term," Mr Bailey said.

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7/04/2014 11:25:49 AM

In Australia we may be getting price and value mixed up again. The biggest contributor to higer prices was easy access to credit, this has almost no correlation with the productive capacity/profitability of an asset class. You don't make a country great by buying and selling farms to each other at massive gains, it becomes great because what you produce is best in class and conditions are equitable for all.
7/04/2014 5:48:32 PM

well said pete.
7/04/2014 8:10:30 PM

The report was a great read. Keep in mind Ag is a viable investment sector as well as a producer of product. Yields are determined by returns on production .The overall return to an investor /owner is both product yield and capital or land value. Australia has the best risk/reward profile along with Brazil globally. If you were an investor , your eyes would be firmly looking at Australia . This is good for the industry.
8/04/2014 3:12:46 AM

Its a mess when markets are being driven by capital gains, especially when you have the next generation not able to afford to rent these farms or houses. History will repeat itself, this has all happened before, the expansion of credit can only cover the underlying problem for so long.
Top Ender
8/04/2014 7:56:33 AM

I agree with Pete. While house prices are driven in part by the "Desire Factor" commercial land (and I can't for the life of me understand why farms aren't valued the same way - I can really but that still doesn't make rational sense) is valued on its potential to deliver a return. We need to bring this rational to farm land as well. Capital gain is what you get if you are prepared to hold the land for a period of time, and it is not always positive. What that land generates in income is what should be the only defining factor when assesing value - not what the farm next door sold for!
Roger Crook
10/04/2014 10:32:09 AM

We must not confuse the 'apparent' value of land and the 'actual' availability to finance. It is partly explained in: 1/self-inflicted-injury/
15/04/2014 7:30:12 AM

When assessing Australian Farmland values it is important to look at the Global Market (like we do for our commodities). The Savills' report of 14 comparable countries denotes that Aus farmland is the cheapest at $1631 USD per ha. Canada is nearly 3 x, Brazil 4 x , the US 5 x and NZ 17 x. In part, that is why Aus is currently subject to so much interest from overseas investors, particularly for those properties with reliable water. While we see our farmland as expensive, the rest of world views it as good value and this will continue to provide support to current valuations for prime land
17/04/2014 12:24:49 PM

wylinga, yeah but they have subsidies, we are second lowest on that ladder?
22/04/2014 11:53:33 AM

and new Zealand has very intensive operations on small land size such as dairying. please compare like with like
23/04/2014 11:25:20 AM

wtf, with respect, comparing 'like with like' is exactly the purpose of the Savills report ... That is is why NZ is 17x more expensive PER Ha than Australia. Which, is no doubt due to the points that you raise around size and intensity (and in the case of other countries, likely also subsidies). As such, I am unsure as to the point of your disagreement? Australian land is of the least value - about which you seem to be emphatically concurring - but in return, that surely makes it very hard to radically devalue? it is already worth less per ha than Zambia, one of the poorer nations on Earth
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