Capital flow is always a fundamental factor in the property market and the rural sector is no exception.
There are two key financial drivers affecting the rural market at present, says Ruth Hodges, National Co-Director of Rural and Agribusiness at Colliers International.
“Ongoing tightening of the restrictions on overseas buyers continues to constrain the flow of capital coming in from offshore.
“Adding to this, is the climate for finance with bank lending on most rural and agriculture sectors also restrained as banks seek to re-capitalise their books.”
Andrew Laming, Director of NZAB says that the latest RBNZ data for the quarter ending 31 March 2020 sheds some light on the finance climate in the rural sector.
“Banks’ appetite for lending can be driven by this data, both proactively and re-actively so it provides useful insight into both what they are currently doing and their intentions.
“Overall, rural and agribusiness debt went down by over $1 billion in the last six months. This shows incredibly strong discipline from farming businesses, which is a trend we started to see at the beginning of 2019.
According to the RBNZ, total loans across all sectors of consumer, home, business, commercial and agribusiness, grew by $11 billion over the same period.
Laming says this shows the agricultural sector is doing the heavy lifting when it comes to paying back debt in New Zealand.
“The market share of rural and agribusiness loans has stayed relatively constant between the banks with ANZ still holding the largest share.
“The biggest changes were ASB, which moved into fourth place behind Rabobank, and BNZ, both shedding up to $550 million in rural and agribusiness loans each over the last six months.
“Rabobank and Westpac continue to be the big growers, but of late, we’ve seen ASB increasing their market presence significantly.
“The amount of rural and agribusiness loans that a bank has as a percentage of their total loans can be an interesting indicator of its lending appetite.
“A good example is that while ANZ has the largest market share of rural and agribusiness loans, with the amount of loans on their books as a percent of their total loans is on par with the market average.
“When looking at non-performing loans, there was little change in the last six months, apart from ASB with a significant change downwards.
Laming says a decrease in rural and agribusiness non-performing loans overall is both positive and negative for the sector.
"It is good that the debt is being repaid but it shows lower reinvestment into the sector."
Richard Kirke, International Director of Capital Markets for Colliers International says the inability and reluctance of banks to lend into the agricultural sector has broadened in the first two quarters of 2020 to include virtually all non-residential sectors.
This has created significant opportunity for non-bank lenders to enter the market.
Chelsea Herbert, Head of Colliers’ Debt Advisory service has been witness to this market change.
“Since I joined Colliers in the middle of quarter one 2020 it has been interesting to note that over half the loans I have facilitated have been to non-bank lenders, a combination of high net worth privates, domestic and international institutional funds.”