Speculative buyers snapping up Paroo Shire land for carbon projects: HTW

The Southern Queensland market continues to exhibit strong market signals broadly across the region, according to the valuation firm, Herron Todd White (HTW).

The demand has been "exceptionally strong" for assets that demonstrate quality country, scale and position, it suggests.

The golden triangle between Roma, Taroom and Wandoan has continued to show strong demand from broader market interests but particularly local graziers seeking additional country.

The locality was one of the first to show the firming in market trends post the 2008 downturn, demonstrated by the likes of Windrush which sold to a neighbour in mid-2015 reflecting $2,655 per hectare.

In the past month HTW have seen the two strong auction results being:

• Two Up, a 1,054.65 hectare mostly Brigalow scrub holding with five kilometres of frontage to the Dawson River. The property contracted under the hammer to a local grazier for reportedly $3,935 per hectare ($1,592 per acre);
• Myola, a 1,409.24 hectare holding to the south of Wandoan within the Gulugaba district, being a dominant Brigalow, Belah with softwood scrub influence, was contracted under the hammer for reportedly $3,760 per hectare ($1,522 per acre).

Myola (pictured below) is selectively cleared and established to improved Buffel pastures, and watered by share bore supplying eight poly tanks through 63 milimetre blue line pipe and servicing numerous troughs and yards.

It has been subdivided into seven main grazing paddocks.

Both blocks were considered to appeal to a wide market segment of landholders wanting to move into better quality finishing country. Alternatively, the holdings were of a scale that could be absorbed into an existing local grazing operation.

"The rain prior to the auctions has no doubt improved their saleability given the significant dry periods prior.

"The rain over the past month has the potential of creating sub area markets have given we are now leading into cooler and traditionally drier periods.

"This is because the rain was not as widespread as some may think. With most seasonal events there are winners and there are those who miss out.

"Unfortunately, the south-western area of the state has not shared in the same volume of rain, especially in comparison to their northern neighbours. Rain has been particularly patchy in the districts generally west and south of Charleville."

HTW noted for those thinking there was going to be a rush of listing for country in the west, they don’t expect to see any significant run of country hitting the market.

"We are aware there have been some potential vendors waiting for an improvement in seasonal conditions that may now take the opportunity to list.

"An interesting trend for 2017 actually saw a 350% increase in the sales rate within the Paroo Shire, albeit from a low base."

In the area, HTW have seen a number of larger corporate companies exiting the market and these properties primarily acquired by local and interstate grazing operators.

"In this market, we have also observed a number of speculative special interest purchasers who have acquired country at a premium with the sole intention of establishing a carbon project.

"Within the Paroo Shire alone there have been some 1.055 million Australia Carbon Credit Units (ACCUs) issued by the Australian Government Clean Energy Regulator through 39 projects.

"The projects in the Shire are all registered under the permanent native forests through assisted regeneration from in-situ seed land use modelling.

"The methodology effectively promotes the revegetation of the lands by reducing stocking pressure.

"In most cases, the existing grazier has opted to encumber part of their property (circa 10% to 30%) to access cash flow through the sale of ACCUs over normally a contracted term of 10 years.

"On the other hand, we have seen cases where the country has been purchased by specialist interest purchasers who want to fully realise the cash flow benefits by registering a project over a larger area and some encumbering the whole property."

The report noted whilst the contracted sequestration of carbon is achieved, there is the significant financial benefit.

"However, by registering such agreements, there is a legal liability incurred plus ongoing management of the carbon project over its permanency period which can be either 25 or 100 years.

"The question that should be considered when either entering into these agreements or buying a property with a project is what impact the project has on the asset.

"There is likely to be a reduction in the productivity but there may also be liability risks incurred as well as the cost to manage the carbon area or project over the permanency period.

"How the market treats encumbrances created by a carbon project on a grazing business is currently uncertain and won’t be fully qualified until the contract period expires.

"When this occurs there will be less focus on the short-term financial benefits and a greater consideration of the ongoing impacts and costs to the business operation without a financial return. In this modern age, there is no such thing as free money."