Rural Property

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GUEST OBSERVER
The continuing question of what return a rural property can demonstrate has been the source of many discussions between valuers, investment managers and accountants involved in financial modelling of rural assets.
Buyer motivation, data access and credibility, commodity and seasonal fluctuations are among the variables that influence a decision about how much someone will pay for an asset.
So while a complex calculation can be built, I asked my research guy Rick, if he could simply overlay the Eastern Young Cattle Indicator (EYCI) and Queensland Cow Market Indicator (QCMI) across the Queensland Grazing Property Index (QGPI) as reported annually by Herron Todd White and see what came up.
The result is per the graphic below and it reveals a very interesting story.
EYCI and QCMI with the QGPI for settled ales over 2,000 hectares
<a href="/images/2016/09/01/Screen%20Shot%202016-09-01%20at%2010.25.55%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/01/Screen%20Shot%202016-09-01%20at%2010.25.55%20AM.png" alt="">
For the period 1997 to 2004 the result reflected that  the land values moved in line with, but six months behind the underlying commodity movements with a high conviction.
From 2004 to 2009 however the value of rural land growth to the peak of the market in 2009 was significant with values increasing 62% on the median price in the five years, the ECYI decreasing 15.5% and the QCMI decreasing 10.6%. In other words the driver of land value was not reflective of the commodity return. This disconnect was also highlighted in the QRAA Rural debt surveys in 2009 and 2011.
From 2009 to 2013 the conviction between the land value and commodity return come back into relative alignment, but largely because of the fall in values not the rise in commodity prices.
2014 and 2015 then show the impact of the significant shift in the beef pricing and subsequent impact on land values. The rate of growth in the curve for the EYCI and QCMI is as sharp as at any point in the past 20 years which is no surprise for those in the industry. The jump in land values however is possibly more of a surprise.
So the question then moving forward for all stakeholders is what is the sustainability of the commodity market pricing relative to current sale yard, processor grids and live export pricing? There are potential risks out there (Indian frozen buffalo, Brazil exports etc) that could place a cap on prices and possibly see a reduction in the market place. If this were to occur, the logical view would be that the land values if still following the lag period would adjust accordingly or at least flatten out.
I have recently presented to a few banks and corporate clients and commented that the rapid rise in values in some sense has actually in my mind brought time forward. Where we thought the values may get to in say 2018 have been achieved in 2015 and 2016. The shift has been good for vendors and agents are reporting across the country that it is harder to find or list assets relative to the demand currently. Does the market settle a bit to draw breath or does demand see another level of value shift in land? Only time will tell.
Conclusion: Forecasting the land value movements based on the commodity price overlay which has a six month lag may be a good guide to looking at least into the short term land market values. This assumes the conviction between the commodity outlook and the land values remains high. Of course valuers are not there to forecast or predict the future. They deal with settled sales evidence in a consistent manner of analysis so that our clients have a consistent reference for the conclusions drawn.
The Australian Farm Institute has for its winter edition sought to investigate this question and I was fortunate enough to be asked to contribute to the discussion.
For those interested in reading the five articles from industry and educational institutions, go to the website <a href="https://www.farminstitute.org.au" target="_blank">www.farminstitute.org.au</a> and you can subscribe to the journal. The process of writing this article was good in that it really challenged me to look nationally for information and data to see where the value relationship to land and returns sits based on settled sales over many years. 
Tim Lane the national rural director at HTW and can be contacted <a href="https://www.htw.com.au" target="_blank">here</a>.
 
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Rural returns and land values: HTW's Tim Lane

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<img src="https://counter.theconversation.edu.au/content/70581/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Rural and regional Australia have had a hard time of late. The economies of Sydney and Melbourne are growing, but much of the rest of their states are not. The population of regional areas is stagnating and agriculture is struggling. 
Perhaps worst of all there is a feeling that no-one in Canberra or in the booming coastal periphery cares about this. The people of Orange have apparently spoken.
Outside Sydney, behind what seems like an impervious sandstone curtain, not all is well. Even the largest towns in regional New South Wales are struggling to retain their populations and have faced difficult economic times through the present decade, although the drought years have faded away.
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Outside the big cities, many populations in regional and rural Australia are declining or static. ABS, Regional Population Growth, Australia, 2014-15, CC BY
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Agriculture still matters, for employment and exports, but mechanisation has cost jobs. Farming is still how people see rural and regional Australia, but it is certainly not the only thing.
There is more to rural Australia than agriculture, and most places have shifted away from the mass production of agricultural commodities – move over the wheat-sheep belt – towards the marketing of rural lifestyles and landscapes. Farming becomes valuable as scenery.
City people can be tempted for weekends away and old-fashioned farm stays have evolved. But that works most easily for NSW coastal towns – like Berry and Kiama – that are within striking distances of capital cities. More distant inland places have had to work a little harder to diversify.
Ironically, Orange is one of the towns that have led the way in terms of change. An enormously successful FOOD (Food of Orange District) festival has drawn in city crowds and tempted some to remain. At the other end of the state, the Tamworth Country Music Festival has grown every year and been a massive boost to regional income.
<h2>Jumpsuiting on the bandwagon</h2>
But it is probably even smaller towns that have benefited most from festivals. Most successful of all has been Parkes, otherwise simply a transport centre on the wheat and sheep plains. This week it celebrates the 25th anniversary of the Elvis Festival. 
The whim of a handful of townsfolk, one of whom later changed his name to Elvis Lennox, the festival began in a tiny way in 1993. Parkes citizens were doubtful – what had Elvis to do with rural Australia? But the local newspaper, the tourism office and the rugby club – in jumpsuited style – got on board, and the festival boomed.
Once it lasted barely a weekend. Now it lasts five days. Two hundred people came to the first festival – now there are 20,000, almost twice the town’s population. Accommodation is booked five years in advance, home hosting extends to nearby towns like Forbes and even Orange, and tents overflow on Graceland on the Green. 
The festival brings in more than A$10 million, employs many people, and has enabled even improbable local businesses to prosper. The local vet offers “Elvis costumes for the smaller dog”. The two tattoo parlours bring in new seasonal Elvis designs. Only the funeral directors appear to have failed to gain any trickle-down effects.
Certainly luck helps, but inspiration, patience and creativity – which are not only metropolitan traits – really work. Parkes now has its King’s Castle, an Elvis museum that ensures that Elvis and his famous gold lamé suit never leave town.
Where Parkes has succeeded, its neighbours have sought to follow. Trundle, once famous for having the widest main street in the country, is now more famous for its ABBA festival. Kandos, not much further from Parkes, is working hard to develop its Bob Marley Festival. 
Who will claim Leonard Cohen? Unlike Elvis, he at least had visited Australia.
<h2>Musters and other big celebrations</h2>
There is music in the air in NSW and that music is creating employment, placing and keeping some small towns on the map and simply being a source of enjoyment when, as in the drought years of earlier this century, times were particularly tough.
The annual Deni Ute Muster has spurred revival in Deniliquin. The more static Utes in the Paddock – an open-air gallery of utes mounted in a parody of Stonehenge – breathed new life into tiny Ootha. Glen Innes remembered its Celtic ancestry and constructed an impressive circle of standing stones. 
Meanwhile, the citizens of Nyngan, at the centre of Bogan Shire, are trusting that the statue of the Big Bogan (“who stands proud with his mullet, stubbies singlet and Southern Cross tattoo”) will breathe some new life into the town in the wake of the success of the Big Banana in Coffs Harbour. And who could resist Priscilla Queen of the Desert’s birthday bash at Broken Hill’s Broken Heel Festival?
But it is not only festivals. Mountain-biking trails may work just as well. Silverton has protected its heritage buildings and become a centre for the visual arts. Bowral can thank Don Bradman for growing up there. Hill End has set the pace in reviving gold panning.
None of these activities can ever effectively replace agriculture, but all have a part to play in making regional Australia a richer and more vibrant place.
Regional Australia cannot be written off. Services, tourism and the creative industries have become a vital part of the regional mix. And the smartest regions are those that have recognised this, sought diversity and flexibility, and become creative. 
On January 12, the Elvis Express will roll into town, and Parkes will celebrate 25 years of a festival that has created employment, generated income, provided a degree of pleasure in the drought years and given one town more than a reason to hope.
John Connell is professor of Human Geography, University of Sydney and can be contacted <a href="https://theconversation.com/profiles/john-connell-94439" target="_blank">here</a>.
Chris Gibson is director, UOW Global Challenges Program &amp; Professor of Human Geography, University of Wollongong and can be contacted <a href="https://theconversation.com/profiles/chris-gibson-9277" target="_blank">here</a>.
Both are authors for The Conversation.
 
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Wheat, sheep or Elvis Presley? Rural Australia has had to change its tune

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Demand is heating up for forest breeding country in the Burdekin River Valley from the Belyando in the south to Mount Garnet, Einasleigh and Georgetown in the north.
There is a shortage of forest breeding country on the market, valuer Herron Todd White's recent rural report suggested.
"There is a market disrupter in the room in the form of the Department of Defence," the firm suggested.
HTW advised as this year progresses, the property clock for this region of North Queensland is likely to rise from the nine o’clock (rising) position towards twelve o’clock (peak).
"Depending on how the Defence negotiations play out, this market may see record values later in the year. 
"There is a distinct possibility of vendors re-entering the market as buyers with significantly enhanced cash and reduced debt to acquire replacement cattle stations for the ones that they may have just sold to Defence.
"It will be interesting to see if any of the deals break the springs of the property clock!"
The valuation firm suggested there  ay be some overflow of demand in neighbouring market areas.
"These may include the Desert Uplands and the Hughenden basalts and the Georgetown, Einasleigh and Mount Garnet areas," it suggested.
The following table provides a run around the ridges of the north and north-west Queensland grazing property market areas:
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Defence acquisitions could boost North Queensland rural market: HTW

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Nottingham Station, one of Australia's largest sawn hardwood timber stockpiles in Wee Jasper, NSW, has been listed for expression of interest. 
It has been offered by Jim Guilfoyle and Tim Corcoran from CBRE.
Located at 1456 NoTtingham Road, Wee Jasper, the 5,500 sqm of predominantly Mountain Gum lumber is ideal for furniture, flooring, architraves and numerous other internal and external uses.
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There are 2,863 ha of grazing land, located in a high rainfall district underpinning a sustainable carrying capacity of 3,000 DSE.
The water sources include several permanent springs, nine dams and three semi-permanent creeks.
Other features include total 19 lots with subdivision potential via four 40 ha lots, cattle yards, machinery shed as well as an abandoned homestead with power and phone connected.  
Land and lumber are being offered in one line or as separate assets on a contingent basis.
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Nottingham station in Wee Jasper for sale 

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A property in the Upper Kyeamba Valley, located midway between Wagga Wagga and Holbrook, has sold for $3.7 million at auction.
Ray White Rural Wagga Wagga agent Geoff Palmer said <a href="https://www.propertyobserver.com.au/https://raywhitewagga.com/properties/sold-rural/nsw/wagga-wagga-2650/livestock/1954209" target="_blank">Jandera</a> attracted interest due to its reputation as a pristine, low maintenance livestock production parcel.
“The buyers were a private family from Young, looking for a feed bank for their cow herd,” Palmer said.
“The vendors, David and Jill Middleton, had owned the property for 25 years and are looking forward to the next stage of their lives, moving into nearby Wagga Wagga.
“The property sold under the hammer for $3.7 million, equating to $4,404 per acre which is believed to be a district record.”
Jandera is home to steel cattle yards, a woolshed, sheep yards, as well as an equine stable complex of ten stables, tack room, feed room and day yards. 
“The 340 hectares of breeding and grazing country has productive creek flats and frontage to the Kyeamba Creek as well as getting around 26 inches of rainfall annually,” Palmer said. 
Other infrastructure includes a hay shed, machinery shed and 28 dams, as well as a four-bedroom home set among deciduous trees and established gardens.
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District record achieved for Kyeamba Valley grazing property

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The 538 acre Woolangubra near Yass sold under the hammer last week for $375,000 over reserve.
Set to hold part of the Bango wind farm, the hotly contested green energy acreage sold for $1.6 million.
The winning bidders, Kerry and Roger Rayner also own the adjacent land and plan to continue expanding their sheep operation to grow their existing Merino and Dorset sheep numbers.
The online auction was held at the New South Wales head office studio and called by Ray White New South Wales CEO and auctioneer Jason Andrew.
Drawing 11 registered bidders, the auction capped off a campaign that Ray White Yass | Canberra selling agent Dominic Johns said attracted strong interest from start to finish.
“We had a good level of interest the whole way through the campaign especially with it being such a unique property, there were three or four different private inspections each week which was excellent,” Mr Johns said.
Ray White Yass Canberra agent George Southwell believed it could be the first wind farm that has ever been sold publicly in Australia.
“I haven’t been able to find another wind farm sale like it in Australia so I am certain it could potentially be the first,” Mr Southwell said.
 
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540 acre Woolangubra sold in fully online auction

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The British baron Robin Tedder and his wife Rita have put their Hunter Valley vineyard estate, Glenguin, up for sale.
It comes after 27 years of ownership.
Set on 28 hectares, the Broke estate at 997 Milbrodale Road has produced handcrafted trophy-winning wines.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/5/25/glenguin%203.jpg" alt="">
<div class="_3MT_w " data-experiment-target="paywallPrompt" data-testid="PaywallPrompt">Robin and Rita Tedder retain a Clifton Gardens abode on Sydney’s Lower North Shore.</div>
Robin has a background in finance and investment and is chairman of Vintage Capital.
He is a director and co-founder of Blackwall Property Group, a subsidiary of WOTSO, one of Australia’s largest operators of co-working spaces.
He qualified as Australia’s 7th Master of Wine in 1997.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/5/25/glenguin%202.jpg" alt="">
The estate has an architecture designed, master built homestead, with three adjoining pavilions with two towers.
There is a pool and an all weather tennis court.
The vineyard has been rated at 5 red stars in James Hallidays’ Wine Companion.
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British baron Robin Tedder lists Hunter Valley vineyard estate, Glenguin

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The developing Covid-19 virus has coincided with the breaking of the drought in the Mildura region and has injected much needed confidence into the dryland farming and grazing sector, according to the June Herron Todd White (HTW) rural report. 
The valuation firm looked at the influence of trade wars, pandemic outcomes and commodity prices on the rural sector, and provided an update of how rural real estate is performing across locations and industries. 
A recent discussion with a Millewa (west of Mildura) farmer reports that for the two years up to 31 December 2019 only 157mm of rain was recorded.
In the past 3 months of 2020 they have received over 160mm which has provided an optimum autumn break with the majority of crops now planted.
The long range forecasts suggesting above average rainfall for the region has also given producers the hope of a very good season, the report noted. 
Since January there has been renewed interest in Millewa land which for the past five years has pretty much remained stagnant in regard to value. 
The report notes five properties have been sold/contracted over the past 4-5 months (all to ‘outside’ purchasers) with value levels 10 to 20 per cent above previous levels achieved in the past two years.
Marketing of the 2020 table grape crop has been affected by the Covid -19 pandemic, with supply chain and logistics disruptions into most of our export markets. This ultimately resulted in reduced price levels at the back end of the harvest, and also an oversupply in our domestic market," the valuation firm said. 
The growth in recent years of direct purchase agreements between supermarkets and some larger growers has provided these growers with some greater certainty in the disposal of fruit onto the domestic scene.
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"We are aware of one significant table grape property recently being contracted for sale at levels slightly firmer than indicated by previous sales, which suggests there is long term confidence in the industry and that Covid-19 has not had any immediate effect on buyer demand," the valuation firm said. 
The citrus harvest has commenced in this region with high hopes of another good season. Early reports suggest that fruit quality and size is superior to 2019 however yields are likely to be slightly down.
 Initial early season pricing indicates firm levels of between $750 and $1000 per tonne for premium early navel varieties. The main concerns facing the industry revolve around the political tension with China, particularly if China was to ‘shut its door’ on Australian fruit, the report says. 
However, the industry is hopeful that there is sufficient demand from other countries to absorb our supply albeit at a likely reduced price.
"With a change in market direction it also brings the concern of foreign agents reneging on orders or payments," the valuation firm said. 
The report notes other concerns include sourcing a suitable labour force (heavily dependent on overseas backpackers and islanders) and the lack of information on whether there will be enough available containers and ships to actually move the fruit.
The weaker AUD remains a competitive advantage for exporters and the removal of tariffs on a large proportion of Australian goods is also viewed positively for the Agri sector. 
However, the sector is not without its concerns with changing global macroeconomic conditions, including the recent Chinese tariff reviews on barley and the banning of products from certain meatworks is causing concern for future export arrangements.
In addition the Australian Wool Exchange Eastern Market Indicator index has fallen almost 25 per cent since January 2020 due mainly to the Coronavirus shutdowns of most export countries.
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A current listing is a 8 hectare vineyard in Merbein priced at $410,000 - $440,000.
The property at Block 97 Sixth Street (pictured above) features underline sprinkler irrigation and electric motor with fertigation. 
It has been planted to 4.2 hectare Sunmuscat, 2.4 hectare Sultana and 0.8 hectare Sugra. 
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A 1,082 hectare cropping property in Meringue was sold for $965,675 in March. 
The 584 Ruchel Road property (pictured above) include a 1950s homestead, separate bungalow, elevated red loam soils and open front machinery shed.
The property has a history of growing wheat, peas, lentils and livestock.  
 
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Mildura rural market faced with changing global macroeconomic conditions: HTW rural 

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Farmer confidence levels are remaining relatively high, even though the rest of the economy is feeling the effects of Covid related uncertainty, according to the latest report from valuation firm Herron Todd White.
There are still some rural sales occurring, and there does not appear to be any initial signs of any reduction in value.
However, agents are reporting that the tighter border restrictions are limiting the ability of corporate buyers to inspect and do their due diligence. While the internet can provide a good overall sense of a property, buyers still want to ‘kick the dirt’. We are aware of at least one case where this inability to cross borders is holding up a sale negotiation.
This restriction is exacerbated when international buyers are involved, and it is currently difficult to see how any international travel will be possible in the next 18 months. Meanwhile the reduction in the Foreign Investment Review Board (FIRB) threshold down to $0 caught many by surprise.
There is a significant cost and also time delays involved with navigating FIRB requirements, and this cost becomes more significant as the property value reduces. We are also aware of a one case where the change has delayed a sale.
Whilst we are aware of a number of sales which have been negotiated in the ‘Covid-19’ period across a number of industries, we are not at liberty to disclose finite details as yet until such sales are finalised and settled.
A table grape sale in the Robinvale area, a small citrus orchard in the Nangiloc area and a dried fruit property within the Mildura Irrigation area suggest that value levels have remained firm at pre-Covid levels.
We are also aware of a large dryland cropping holding which has transacted (not settled) to the north-east of Mildura in New south Wales which will show levels slightly firmer than pre-Covid values.
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Sales suggest values remain at pre-coronavirus levels in Mildura: HTW

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Skyfall, a hobby farm set on over 100ha in the O'Connell region of NSW has been sold for $900,000.
It was sold by James Walton and Greg Ryan of First National Real Estate - Bowyer &amp; Livermore. 
Positioned in its own private valley, Skyfall at <a href="https://www.realestate.com.au/sold/property-livestock-nsw-o%27connell-700068778" target="_blank">333 Bosworth Falls Road </a>features unsurpassed views across the district. 
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It comes with mixture of pastures, three paddocks, apple cider trees dam and seasonal creek.
The incomplete homestead comprises three bedrooms, two bathrooms and kitchen. 
The property is situated just 26km to Bathurst, 34km to Oberon and 190km to Sydney CBD.
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