LAWD boss says farmers can’t resist the best buying deals in generations | Queensland country life
Good seasons and good commodity prices help a lot, but cheap debt is the real driver of Australia’s booming rural property market.
According to Danny Thomas, the identity of agricultural real estate marketing, not only are interest rates still extraordinarily cheap, despite recent increases in borrowing costs, but more than $3 billion in unspent investment funds remain. on the table after many potential buyers missed out on farmland acquisitions last year.
Potentially, an additional $2 billion in fresh funds (mostly foreign) had already been added to this buying pool for 2022, according to the senior director of rural real estate marketing group LAWD.
“There’s no doubt about it, this market is absolutely hot in all geographies and showing every sign of continuation,” Mr Thomas told the NSW Farm Writers Lunch Forum last week.
Despite speculation over how long the sector could sustain the bull run in the farmland market, he believed the depth and strength of buyer interest, particularly for grazing and arable land, would remain strong and would even strengthen this year.
The horticulture, development of new nut plantations, timber and white meat production sectors also attracted unusual levels of investment interest.
A key factor supporting the market surge was that most borrowers still had access to funds at remarkably low interest rates, from lows of around 1.5% to 2.9% – well below rate of more than 4% from three to five years ago.
Farmers’ appetite for borrowing money has also been bolstered by the doubling of the value of their pasture and cropland in the past five years, as well as major productivity and price gains after the drought.
Foreign investor activity remained very strong, but Thomas noted that some larger farm family partnerships were doing their accounts and committing to spend $20 million, $50 million or even $100 million.
A multi-generational family patriarch he sat with recently talked about borrowing more than $200 million.
There was “an incredible amount of debt that they are able to sustain” thanks to current financial, market and seasonal fundamentals.
Despite exorbitant prices being paid above current book values for some farms, many producers were valuing their purchase options not just as a one-generation chance to dramatically expand and sustain their farming capabilities, but perhaps as the best time in three generations. .
At current rates, on an interest-only basis, they calculate they will only pay $15,000 to $25,000 a year for every million they borrow.
“At current rates, on an interest-only basis, they calculate they will only pay $15,000 to $25,000 a year for every million they borrow,” he said.
“Last year they even locked in loans for new properties at record rates for up to 10 years – or maybe five years now.
“It gave them plenty of time and confidence to get the most out of their investment before repayment terms changed.”
Throw away the rulebook
Mr Thomas said that although he was sometimes accused of embellishing the property’s history, it was relatively easy to justify why neighboring and adjacent landlords were “throwing the rule book” on established land prices and raising prices. district values to unprecedented levels.
He highlighted LAWD’s recent sale of US group Corinella’s portfolio of around 50 Victorian and South Australian properties covering over 22,000 hectares.
Individual farmers or farmer syndicates seized the opportunity to carve out the lion’s share of the 27 deals involved.
In the case of one parcel, bids for the assembly hall of three different family groups reached a district record of $14,820/ha ($6,000/acre), then jumped another $2,000 to finally reach $18,525/ha.
Two of the bidders had ultimately chosen to team up in order to close the deal.
The entire Corinella portfolio had been put on the market with a book value of $280 million, but family farmers were so eager to buy it that it actually sold for $390 million.
The Foiled Strangers
Foreign buyers were still active investors, but they were often outwitted by determined locals.
“Demand from local families is exceptionally strong,” he said, noting that they have sometimes secured a purchase before the property officially hits the market.
“They’ve done their homework, they’re ready with banker’s funds lined up to make deals on cash terms, quick settlement periods and guarantees and light contracts.
“And they don’t have to wait for Foreign Investment Review Board approvals.
“Large institutional investors are struggling to compete in these circumstances.”
However, Australia still represented good value for overseas buyers without the challenges of sovereign risk political instability and rule of law, title risk and due diligence uncertainties that were realities in many countries. other attractive agricultural regions in Africa, South America or parts of Europe.
Mr Thomas, who already made a name for himself in rural property with US commercial property giant CBRE before joining newcomer LAWD last year, said he knew an investor who added Western Australian property to a global portfolio that also included significant and productive holdings in the Black Sea region.
“Unless you want to grow missiles, I doubt Ukraine’s good soils, climate, and dual-crop opportunities are all that appealing these days.”
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The story Cheap debt will keep the price of our farmland soaring in 2022 first appeared on Farm Online.