This week we talked to Angus Malcolm, Rural Sales and Marketing Consultant from our Richmond office on the current Rural Market. Here is what Angus had to say.
The rural market, impacted by different drivers to the residential market, has seen stock levels falling over the past six months and prices have remained strong in most sectors. With just 17 rural properties over 2ha in size listed in the Tasman District and 19 lifestyle properties, buyers are limited for choice.
Some of the main drivers for this change are:
- Supply volume remains constrained due to strong commodity prices in most sectors meaning vendors aren’t selling as their cash flows remain strong.
- Banks are keen to lend to rural properties with a proven cash flow, keeping their risk low.
- Rural demand has increased as people realise what can be bought for the same money as in town.
- Working remotely and flexible work options have become more common. This is enabling migration from cities to the countryside.
Although some of the rural sectors have increased uncertainty due to the Ukraine conflict, rising fuel costs, rising interest rates and disrupted supply lines, the overall sentiment is still relatively strong. Below we highlight three of the largest sectors:
1- Dairy. The industry has had a succession of payout forecast increases this season. Fonterra now sits at a mid-range forecast of $9.30 per kg of milk solids, making it the highest ever.
2- Beef. The strong overseas demand and a tightening of global beef supply are increasing prices and have led Beef and Lamb NZ to lift farm profit forecasts by 29% in 2021/22. Competition for traditional drystock pasture land has seen significant pressure from forestry interests as the carbon price has strengthened over the past year.
3- Forestry. The industry has seen a highly volatile log market over the past year with overall profitability now also impacted by cost increases due to rising fuel prices.
Offsetting this is a massive expansion of new plantings on the back of carbon prices lifting 68% in the past year to over $76/tonne.
Overall, the strong commodity prices in many of the rural sectors will result in significant debt reduction, improved cash flows and improving bank balance sheets which will in turn free up lending for the rural sector. The Summit rural team is available to cast a fresh pair of eyes over your property to give you an up-to-date appraisal of its current value.