IN our first weekly property review of the year, industry experts take a look at what lies ahead for 2022.
The underlying trading environment is little changed from last year’s highs, with commodity prices remaining at or near last year’s record highs, and seasonal conditions in many domains build trust on both the buying and selling side.
Here’s what the experts think:
Tom Russo, Managing Director of Elders Real Estate
After meteoric capital growth in 2021, Elders boss Tom Russo said the logical question was how long could this last and what could this year’s report look like?
At the most basic level, Mr. Russo wondered if the dynamics of supply and demand will rebalance and, if so, when can stakeholders expect the balance to return. moves in favor of buyers?
Below, he examines the main variables behind this.
Market Sentiment: Russo said market sentiment remained undeniably buoyant, driven in large part by strong long-term fundamentals for agricultural commodity demand and the resulting outlook for commodity prices.
“While GDP could be hit in the short to medium term, human populations continue to grow and there are more and more mouths to feed. Add to that an excellent break in the season which is building confidence and demand for livestock.
“We are seeing this flow ripple through the farmland market as producers seek to acquire more land to expand their herds, which in turn ripples through land values,” he said. .
Cost of capital: Mr Russo said interest rates were at record highs and it would take a brave person to initiate a sharp rise anytime soon as investors’ return expectations were more cautious due to the cost of funds being so low.
Access to capital
Debt: Discussions with major banks indicate that Australian agriculture is a safe haven.
Farmer Equity is solid due to the performance of the existing real estate portfolio and historically low agricultural debt.
Investment Scale Market: Great fund managers are well placed with excellent national leadership and operational management teams, as well as strong investor support. This market has matured and continues to grow as investors seek controlled exposure to the Australian commodity boom.
Mr Russo said that, with that in mind, there remains a heavy weight of capital looking for a home in the Australian farmland market, from more pools of capital than ever before.
“These range from local farmers to Australian and offshore farms and institutional investors accessing the market through well-established intermediaries who now have strong track records justifying further investment.”
Russo wonders if increased liquidity can absorb this demand.
“There has been an average increase of 15% in farmland transactions in Australia in 2020 and prices have continued to appreciate rapidly. I think the increased liquidity will not materially rebalance supply and demand, and it will be a seller’s market for some time.
Willingness to pay
So, will the weight of capital always be ready to pay at rising values? Russo thinks there will come a time when investment returns slow the rapid appreciation in land value.
“If we take a holistic view, the reality is that the ability and willingness to pay is determined by productivity and profit. The more profitable the industry, the more people can invest in the underlying assets and earn an acceptable return through a combination of operational returns and capital growth.
He said that between 2007 and 2018 there had been around 500 per cent growth in cash income from farms in Australia, before the drought.
“In 2020-21, improving seasonal conditions across much of Australia have led to a turnaround in farm financial performance from these recent drought-affected results.”
“Average farm cash income for all large-acreage farms is expected to increase by 18% in 2020-21 and farm income is expected to increase by about 37% as good rainfall helps boost agricultural production,” did he declare.
Russo said farm incomes have risen and commodity price growth has largely tracked land value appreciation.
“In recent years, a gap has grown between the two – but low interest rates and higher levels of productivity have offset that.”
Farm management deposits had also increased and debt-to-equity ratios had on average not budged, let alone tended to reach dangerous levels.
“So the balance sheet of our collective farm in Australia still has some firepower,” Mr Russo said.
Chris Meares, Meares & Associates
Chris Meares thinks the 2022/23 deal space looks extremely promising.
“Rabobank expects a further 10% increase in rural ownership this year, with another 8% increase the following year. This is on top of excellent crop yields which have seen most good farms post a total return of at least 20-30%, and up to 40% in some cases.
Mr Meares said as a result, farmers’ equity levels had improved significantly, as they now represented one of the largest sections of the market looking to buy additional rural property.
“This, coupled with the Reserve Bank’s statement that interest rates will remain virtually at current levels for the next 12 to 24 months, has further boosted the confidence of the banking system and potential investors.”
However, he noted two negatives for the new year.
“Rising farm input costs and labor shortages are negative – which is the case for almost every sector of the Australian economy at the moment.”
While opportunities to invest in quality farms in the rural sector will continue to be limited this coming year, Mr Meares said he has already been appointed to market some exceptional investments in early 2022.
Jesse Manual, Colliers Agribusiness
Manager Jesse Manuel said the supply of grazing properties was limited in 2021, leading to considerable competition among buyers for the assets, with prices setting record after record.
“All the planets have aligned over the year with record beef prices, historically low interest rates and very few buying opportunities and we expect the momentum to continue into 2022.”
Mr Manuel believes the recent rains will revive the Central Australian property market.
“The Centre’s ability to access a diverse range of markets, coupled with the abundant supply emerging in many areas, will keep the region well positioned for stations entering the market.
He said premiums will continue to be paid for large stand-alone properties.
“Whether the buyers are family businesses or corporations, everyone is looking for scale. The last 12 months have shown that these types of opportunities are increasingly being held, particularly in Victoria, South Australia and Tasmania, where the market is dominated by successful multi-generational family operators.
Richie Inglis, Inglis Country Property
Richie Inglis does not believe there will be a cooling of the rural real estate market anytime soon.
“Areas such as the South West Slopes, Riverina, Eastern River of New South Wales will continue to fetch high prices,” he said.
Mr. Inglis thinks there is some catching up to do in the rest of the state.
“The Midwest looks undervalued relative to what’s happening in the south, so I predict movement in that market if the stock becomes available.”
Geoff Warriner, JLL
JLL’s Geoff Warriner expects a good start to the year and a continuation of the same trends seen in 2021.
“JLL expects the corporate market to play a bigger role in 2022 and beyond, with institutional players more comfortable coming out of COVID, with greater ability to perform due diligence and transact on assets.”
Mr. Warriner predicts that supply will remain limited.
“It’s definitely a seller’s market. We also expect to see the recycling of capital. After a few big and notable deals this year, we expect to see the money looking to find a home in agriculture.