Benefits abound for leasing land

Leasing has proved popular this year on the back of climbing land values that have pushed some producers out of the buying market.

Elders Real Estate senior rural real estate executive, Simon Cheetham, said it was getting late to secure a new lease given seeding was imminent.

He said there were a few properties around the State where owners would consider either selling or leasing.

"A lot of growers are finding leasing attractive in general," Mr Cheetham said.

"Although lease values have been climbing alongside farmland sale values, the rising cost of capital has seen some preferring to lease land rather than buying."

Elders Real Estate agent at Albany, Simon Thomas, said there were many benefits of leasing land instead of buying.

"Leasing offers flexibility and is a good way to expand the size of the cropping or grazing operation without tying-up too much capital," Mr Thomas said.

"And for the person leasing out the farm, there is secure income coming in for the term of the lease."

Mr Thomas said the main drawback was that there was only a limited guaranteed tenure for a lease property for both parties.

And he said the leasee may spend too much on the lease for the return on investment, given current high input costs.

Last spring, Mr Thomas negotiated the big cropping aggregate held by New Forests for lease.

This was made up of 31 properties spread over 11,626ha in a 230 kilometre radius from Wellstead in the south to west of Kojonup in the north.

The land was previously used for bluegum plantations but has been reclaimed for cropping only (no sheep).

Mr Thomas said it had been a very successful expressions of interest campaign for sharefarming or leasing and all parcels got taken up by 15 partners.

"It attracted a lot of interest from a wide range of parties, mostly farmers," Mr Thomas said.

"There was especially strong interest in the Orchid Valley property west of Kojonup, which is prime cropping country and was hotly contested.

"A lot of the land parcels north around Kojonup went to sharefarming and a lot of the southern holdings closer to Albany were leased."

More recently, Mr Thomas has negotiated a lease of 2000ha east of Gnowangerup, which was also in strong demand.

This campaign started in November and has recently been finalised, with the leasee able to crop the holding or run sheep on it.

Mr Thomas said another lease property of 417ha arable north of Mt Barker, near Kendenup, had recently been finalised.

This property has no infrastructure or improvements and can only be cropped (no sheep).

Mr Thomas said leasing would become more popular in the short-term because the price of buying land was so high.

"Also, farmers want to hold their land assets because they are such a good investment, but they don't necessarily want to work them any more," he said.

"There is not a lot of land available for lease right now, but this will change come spring time."

Mr Thomas said leasing gave farmers the opportunity to expand - both in size and geographic location - without a massive capital outlay for buying land.

"There is less risk compared to buying at today's land values," he said.

"For the land owner, leasing allows them to hold their asset and maintain their investment for five or so years.

"It might just provide some breathing space if there is going to be a change in ownership down the generations."

Ray White Rural WA director Simon Wilding agreed that lease opportunities were slim right now as growers prepared for seeding.

He said there had been a slight correction to lease values this year due to the high costs of inputs such as fertiliser and chemicals.

Ray White Rural WA director Hugh Ness said his company had recently finalised some lease agreements for clients, mostly in the northern Wheatbelt.

He said lease values were determined by buyers based on whether they could generate a profit or not.

"The whole market seems to be taking a breath," Mr Ness said.

"Budgets are not quite meeting expectations and everyone is holding off a bit."

Mr Ness said leasees could use the lease or sharefarm arrangement to build-up cash and then purchase other properties in future years.

He said the main disadvantage of leasing was that it was often only for a short time.

Mr Ness said he expected cropping country would be in strong demand for leasing later this year, but sheep country may be subdued.

"It all comes down to being able to generate a profit," he said.

"The grazing sector is under stress value-wise and maximising profit will come with cropping rather than grazing."

Nutrien Harcourts WA - Narrogin licensee, Steve Wright, said in the buying space, motivated buyers were coming from all quarters, including offshore, interstate, local, corporate and family interests and investors.

"Buyers are particularly looking to the higher rainfall areas and have a long-term aim to produce grain," Mr Wright said.

He said when it came to leasing, lessors who were currently leasing their properties were starting to make contact with their real estate agent as their lease period drew to an end.

"They are especially keen to hear what their property is worth and where the market for selling may be heading," he said.

"Like many areas across WA, the rural market has seen some bullish returns for sellers during the past five years.

"But these highs may begin to level out as more lessors begin to offer their properties up for sale in what is a very strong market.

"As these properties start to appear, this will offer greater opportunity to those looking to buy and as such I believe that supply and demand will begin to have an effect on the market."

Mr Wright said there were some tips for those looking to lease their property.

These included negotiating a term no longer than three years, looking for few cropping restrictions, limiting the stipulation for hay production, being clear about controls around fertiliser applications, undertaking soil testing, ensuring summer weed control and looking at spraytopping pastures in the final year.

"Vet your tenant carefully, as they need to be able to service the rent as well as be good custodians of your property," he said.

"Collect all relevant records and offer no first right of refusal or option to purchase."

Mr Wright said it was his observation that leasing values in WA had not kept up with sales values.

He said this was understandable, as the term of the lease was finite and market conditions had an immediate effect - versus the longer term advantages of buying the land.