Southern NSW experiencing unusually high rural yields: HTW

During the course of discussions with some corporate purchasing parties, valuation firm Herron Todd White are starting to see a change in the way the market is perceiving what can be achieved in terms of yield.

According to the latest rural report from Herron Todd White, yields are often at five per cent with some even getting to six per cent.

"With the strong increase in underlying land value seen over the past twelve months in particular, there is strong resistance from lessees to adjusting rates to reflect the original yield achieved when the lease was created," the report noted.

"This resistance is coming from the fact that general income from rural commodities, whilst still good, has not improved in line with the underlying land value."

Scott Fuller, a valuer at HTW, suggested the situation is a repeat of the 2006 to 2008 period where we also saw strong growth in underlying value.

"At this time many leases were in the 3.5 per cent to 4.5 per cent range and we would expect that general leasing rates will soften to four per cent to 4.5 per cent."

"The volume of capital looking to deploy in agriculture in Australia continues to be a surprise and this deployment is seeing unsolicited offers for large scale rural properties made on a regular basis. Whilst previously we have indicated that we felt that the market was at or near its current peak for this cycle, I am beginning to wonder whether this cycle may have some further development to go."

"Whilst there are some short term negative seasonal conditions, our experience is that the underlying market sentiment is still very positive and this coupled with record low interest rates and generally positive returns for livestock may just see some continued upward pressure on the market, particularly if we see any sort of rain event in the next month or so," he concluded.

In the Riverina area there was a big sale in the form of Delta which is 55 kilometres north-west of Jerilderie and 50 kilometres north-east of Conargo.

It was a 8,381 hectare mixed irrigated and grazing property. The sale included approximately 550 hectares of laser levelled flood irrigation with a balance consisting of mostly open to lightly timbered good grazing country. The property was well improved with homestead, manager’s residence, workers’ cottages, machinery sheds and wool shed.

The property sold for $10.025 million. It appears that the open-hay plains grazing country has sold for $975 per hectare ex buildings. This indicates $780 per DSE when viewing the grazing country in isolation.

"This is uncharted territory for the Riverina and indicative of the strength of the current market," HTW said.