WA farmland prices rose fastest in Australia, Rural Bank report shows

Prices shot up 36.3 per cent during the year to a median of $4178 a hectare, the biggest WA price rise in dollar terms ever recorded in the 27-year history of Rural Bank's Australian Farmland Values 2022 report.

The stellar growth came on top of a 19.3pc gain in 2020 and took the 2021 median price to $4178/ha. That's more than double the median price of just three years ago.

None of the regions were left behind, with median prices in all five jumping at least 28pc.

Heading the pack was the south-west with a remarkable 46.6pc growth rate.

WA's northern, at 38.7pc, and eastern, 31.7pc, regions both lifted for a second year in a row.

The central and south-coast regions were the slowest in the state at 28.8pc and 28.5pc respectively but were still ahead of most regions across Australia.

Rural Bank senior agricultural analyst and report author Michael Curtis said the lower growth in the two regions could be a result of longer-term growth trends.

The Australian Farmland Values report showed 2021 was the fifth consecutive year of growth in central Western Australia and the fourth for the South Coast.

Rural Bank Perth's Garry Harvey said central WA was a highly competitive market that drew multiple buyers for most offerings.

"Typically, it was bigger operators who secured land," he said.

"Improving balance sheets from favourable seasons and commodity prices, low interest rates, and the strong performance of farmland as an asset class all encouraged further investment in land.

"Fewer farmland transactions were also likely due to lower appetite to sell given those exiting the industry were often opting to lease land due to strong investment returns, rather than sell and convert the asset to cash."

A drop in supply was likely a factor across the state. The number of transactions in Western Australia fell for a third year in a row to well below the 10-year average.

Demand was also strong, thanks to low interest rates, good seasons and commodity prices.

"It's a strong result for WA and coming off another good cropping season as well, so producers right across WA seem really well placed to be thinking about expanding and capitalising on a couple of good operating years," Mr Curtis said.

But it wasn't all about agricultural returns. The lifestyle segment as a particularly powerful performer.

In 2021, the 50-200ha parcel size range accounted for half of the state's transactions, up from 39 per cent in 2020.

At the same time, the number of properties over 600ha dropped by about a third.

Because smaller parcel sizes generally have higher prices per hectare, the shift had a significant impact on prices.

That was particularly important in the south-west, which accounted for 39 per cent of the state's 50-200ha transactions.

Nationally, farmland prices grew 20pc in 2021.

The median price per hectare soared to $7087 a hectare in 2021, making it the biggest national price rise in dollar terms ever recorded in the 27-year history of Rural Bank's Australian Farmland Values report. It's also the largest rise in percentage terms since 2005.

Western Australia led the pack at 36.3pc, Queensland came in second at 31.3pc and Victoria wasn't far behind at 30.4pc.

Markets were far less bullish in NSW at 8.3pc and Tasmania, 7.6pc. The Northern Territory was the only place where land prices fell, down 18pc.

Rural Bank general manager sales partnerships and marketing Simon Dundon said the long-term performance of the market was impressive.

"Overall, growth in farmland values has exceeded residential property prices in Australian capital cities, which have had a lower compound annual growth rate of 5.4pc over the past 18 years," Mr Dundon said.

"Farmland value growth also outperformed the ASX 200 over the past 20 years, which has CAGR of 4.0pc, making a strong case for farmland to be seen as an asset class in its own right."

Rural Bank predicted a rosy national outlook.

"Our overall view for 2022 is that there's still plenty of demand to sustain what's been a competitive marketplace, coming off the harvest of a record winter crop at pretty good prices and the livestock sector is going really strongly as well," Mr Curtis said.

However, he said, rising interest rates and higher input costs would both dampen price growth.

"We'll maybe start to see the market slow down a bit but, at the same time, there's still plenty of demand," Mr Curtis said.

"I don't think supply is going to rise again, as it did in the last couple of years, so that points to another increase in values from a national perspective but regional trends can always be a little bit different."