Private wealth makes a play for agricultural property
Farming families contend with institutional investors amid record prices
High-net-worth families are increasingly competing with institutional investors for agricultural land in Australia, signalling a shift after a decade of dominance by corporate and institutional capital in the market.
Established families in Australia’s agricultural sector are taking advantage of low interest rates, strong commodity prices and equity in their existing holdings. Meanwhile, some institutional investors are being challenged by their backers in the deployment of funds due to the economic turbulence caused by COVID-19.
Land prices in Australia are at record highs. The A$35 million purchase of Nardoo Station, a 97,500 hectare cattle property in Queensland’s Gulf Country, by an Australian family for a record price is among a slew of such purchases in recent months.
Blue-chip cotton enterprise the Parkdale Aggregation, situated on the New South Wales and Queensland border, attracted over 40 expressions of interest and eight formal offers from institutional and private buyers, after 100 years of single ownership.
“Established families have amassed significant wealth over multiple generations and are now aggressively acquiring assets across numerous agricultural sectors and levels of value, undeterred by COVID-19,” says Chris Holgar, director – Agribusiness, JLL.”
The A$70 million acquisition of Tanumbirrini and Forrest Hill Stations in the Northern Territory by a private family in early 2020 also reflects the shift to private buyers.
A weak Australian dollar and other features of the economic climate are supporting the purchasing decisions of foreign investors, Holgar says.
“Alternative investments, including agriculture, look very attractive when you consider the volatility in other asset classes and low returns on risk-free assets such as government bonds.”
For private farming families who are well accustomed to riding out seasonal and market cycles, their purchases are driven by different motivations and they have a multi-generational investment horizon.
The national median of agricultural land prices has risen 13.5 percent per year over the five years to December 2019, according to the Rural Bank.
In Western Australia alone, which has been relatively unaffected by drought, the median price per hectare soared by 28.2 percent in 2019 and is now A$2,569 per hectare.
Agri holds up during COVID
Growing global demand for high quality animal and plant protein (Australian farmers export 75 percent of what they produce according to the National Farmers Federation), combined with Australia’s large area of crop-growing land and high biosecurity status, plus the non-discretionary nature of many agri-business products are helping maintain investor interest in Australia’s agricultural sector.
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And this year, a break in Australia’s drought, consumer panic-buying at the height of the coronavirus pandemic, and the fact that the sector has held up during the health and economic crisis, is further boosting its appeal.
The sector’s strong investment attributes have attracted a flood of corporate and foreign institutional capital over the past 10 years, which has helped with investment in new technology and driving efficiencies.
For these investors, agricultural property is considered a hedge against core property investments, as the drivers of land value are different.
Also, the logistical challenges for overseas buyers of viewing properties during COVID-19 travel restrictions to carry out due diligence, combined with adjustments in their portfolio pricing triggered by the economic downturn, are thought to be slowing down their purchasing decisions and creating an opportunity for private families who have an ability to transact on often shorter time frames.
Overseas buyers are also being hindered by the Australian government’s decision in March to lower the threshold for purchases to trigger scrutiny by the Foreign Investment Review Board to zero from a cumulative A$15 million. This has proven to delay the settlement of some assets.
However, this hasn’t dented appetite, Holgar says.
“There’s nothing we're seeing that indicates activity is about to stop any time soon, especially with high commodity prices and low interest rates continuing to fuel the market.”
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