Australia’s rural land values boom to surpass residential property value growth by three per cent

Rural land values across Australia are booming, with value growth surpassing that of national residential property by an average of 3 per cent a year for the past five years.

That’s according to the latest ANZ Agri Report, released this month, which indicated the surge in rural land values was being driven by low interest rates, strong commodity prices, farm consolidation and fewer farms for sale.

ANZ head of agribusiness Mark Bennett said the trend was causing excitement and nervousness within the agriculture industry.

“Rural land values have been growing strongly for a number of years, including throughout the recent drought, and while this has been a boom for farmers, there is some nervousness about what this could mean for the industry,” he said.

According to the Australian Bureau of Statistics, the value of Australia’s rural land has appreciated by more than 30 per cent in the three years to June 2020.

Mr Bennett said the sustained growth was causing industry players to question how high is too high and whether the current increases were justified.

“The value of rural land as a stand-alone asset, however, is less often discussed and when rural land is considered next to commercial and residential property, it appears that rural land is in a catch-up phase compared to growth in alternative property-based assets,” he said.

“Sustained, stellar growth in rural property prices is boosting farmers’ balance sheets and prompting many farmers to expand their operations in light of the low-interest rate environment; however, this also appears to be attracting investment from outside the traditional farm buyers.

“Additional demand is growing from investors and international buyers who are seeing value in rural property, city dwellers looking to purchase their piece of regional lifestyle, and investors looking for environmental-driven outcomes.”

While the strong demand for rural land was generally good for the industry, Mr Bennett said it was also making it harder for new farmers to enter the industry and established farmers to expand.

Despite the fear of missing out playing a part, the report indicated that rural land values had closely tracked commodity prices, with droughts and commodity price slumps translating to lower property values.

Strong commodity prices — including record dairy and livestock prices — along with good seasonal conditions have benefited farmers over the past year, meaning many are not looking to sell their properties.

This has led many in the industry to conclude that the surge in land values is driven by a lack of properties on the market.

“Land values across all sectors are driven primarily by supply and demand, as well as the cost and availability of debt and capital,” Mr Bennett, pictured, said.

“The drive for the industry to reach $100 billion in output by 2030 will also continue to impact property prices, and reaching that target could see an almost 30 per cent increase in rural land by 2030.”

If that were to happen, it would bring the total value of Australian Agricultural land up to about $488 billion.

With the gap between the value of farm production and overall rural property values continuing to widen, Mr Bennett said farmers and investors must consider both long-term implications and the impact on Australia’s overall agricultural output, noting that seasonal conditions and commodity prices would “come and go over time”.

“Looking ahead, it is vital that we all consider what 2022 might look like for farm values, commodity prices, season and community,” he said.

“It’s hard to have confidence in planning ahead these days; there are risks and the potential for challenges next year that might be different again.

“Despite the uncertainty, most farmers are looking forward with confidence at an industry and season that, to date, have weathered the COVID-19 storm.”