Farmland buyer caution growing

Marian Macdonald
By Marian Macdonald
April 10 2022 - 9:00pm
PRICE CURVE: Prices have gone down before and will again, says Herron Todd White commercial, agribusiness and advisory national client manager Tim Lane.

You'd be hard pressed to find anyone who thinks Australian farmland prices are about to plummet but caution is beginning to seep into the sentiment of many.

Ray White chief economist Nerida Conisbee said sales data showed homes were taking longer to sell.



There was no comparable figures for farmland, which she said was still selling fast although buyer attitudes had changed.

"Buyers are being far more careful. It's not that markets have evaporated but they're far more cautious because conditions have changed so much," Ms Conisbee said.

"I think pricing has been reset. I don't think we're heading for a kind of mass sell-off panic, it's just a gradual shifting in sentiment.

"It had to come because price growth has been so extreme and it couldn't continue at that rate."


Prices, she said, were more likely to plateau than fall.

"I can't really see things dropping but I think there will be quite a prolonged period where we see far more stable conditions, which isn't bad. I think we tend to celebrate price growth, but it does lock out first-time buyers," Ms Conisbee said.

"I think the people that will ultimately come out the best through this boom will be people selling the family farm to downsize."

Herron Todd White commercial, agribusiness and advisory national client manager Tim Lane said a reversal of the interest rates, seasonal conditions, input costs and commodity prices that drove the boom would also be what finished it.

"I think any one of those in isolation, the market can sort of handle," he said. "When there's a combination of two or three of those things at once, the market will become more circumspect.

Mr Lane said rising interest rates in the next one to two years would likely see demand match supply and there was little risk of farmland prices falling in the short term.

"It's a case of what happens sort of year three onwards, and whether that combination of increasing price pressures and costs of production, of which interest is one, has businesses in a situation where they need to start to consider scaling down the asset base to manage risk," he said.

"Farmers don't like to sell anything, so it takes a while for that to kick in but it's happened before, it will happen again."

Agribusiness valuations and agricultural economics consultant Sam Paton was more direct, likening the sentiment surrounding the farmland market to the surge of money that flowed into managed investment schemes to establish bluegum plantations.

"All those clouds are gathering, quietly, and subtly," Mr Paton said.

"Smart people are starting to say, 'Can I get a return out of this commensurate with my expectations? I can't afford the price my neighbour's asking because I won't get that return and things are going to change'.



"But it's amazing how that residential property mindset has sort of blended into the rural attitude as well."

Traditional farmer mindsets were likely to be a buffer for land prices, agricultural economist Dr Julian Morison said.

He said farmers remembered the prices land fetched at the top of the market and were often reluctant to sell for less, even when conditions changed.

"It takes quite a bit for people to accept a lower price and so they'll tend not to sell if they're getting offered something less than what they think it's worth," Dr Morison said.

Dr Morison said the property market was driven by fundamentals tied to profitability, but also by much more short-term sentiment, which created a cycle of investment.

"You get good prices and rain for a couple of years and then some people think it's the new norm and they're willing to pay over the odds," he said.



"Like any asset market, once there's a bit of momentum, people see it as an investment on an upward trend and sentiment will drive people to invest in that land rather than looking at the fundamentals of the profits it's generating.

"That's probably part of what's happened over the last five or six years."

It didn't mean buying now was necessarily a bad idea, Dr Morison said, especially if farmers were adding smaller areas to well-established holdings.

"You'd be taking on some risk because there is a likelihood prices will flatten out or decline over time," he said.

"But if you've got a very long time horizon, or if you've got that intergenerational view of your investment and your business, opportunities might come up that, even though you might be paying seemingly above the odds, might be good for your business in the very long term."

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Marian Macdonald

Marian Macdonald

National rural property writer

Writing for farmers in the Stock & Land, The Land, Queensland Country Life, Stock Journal and FarmWeekly, farming in Gippsland.

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