Dairy farm sales increased markedly during 2021 and 2022 with the level of sales topping long-term averages.
Sales also climbed above the levels seen in the market prior to the changes to the Overseas Investment rules that restricted overseas investors from purchasing New Zealand land.
Generally, increased market acceptance of farming within nutrient limits has provided a sense of renewed confidence in the Canterbury dairy farm property market.
In 2021/22, across the wider Canterbury market, we are aware of approximately 40 medium to large-scale dairy farm sales, sold either on or off-market, with a total sale value of approximately $465 million.
Listings numbers and change since last year. Source: realestate.co.nz and Colliers Rural Valuation
Capital availability is improving
The record milk price for the 2021/22 season and the prospect of a sustained period of high prices in the immediate future appear to be providing confidence for property buyers, particularly against the prospect of rising interest rates.
Previously, the dairy farm property market struggled with a lack of available capital. Firstly from restrictions on overseas purchasers, and then from a more cautious approach by the banking sector when higher equity levels were required.
The Government’s fiscal stimulus in response to Covid-19 delivered a boost, and we are now seeing some of that capital making its way into the rural economy.
This selling season has seen the return of larger farming businesses to the market with the New Zealand Super Fund an example of a large-scale investor that is looking to purchase quality, Canterbury dairy farms.
The buyer pool for dairy farms appears to have widened during 2021/22 with increased interest in dairy farms from sheep and beef farmers looking to diversify their farming operations, as well as off-farm investors and equity partnerships. There has also been strong demand for sale and leaseback purchase agreements.
Previous dairy research:
Farms with a secure physical resource base, including irrigation water and environmental compliance have continued to see strong sales results with competition between buyers leading to higher prices being achieved.
Farm efficiency has also been a key driver of value in the current market, with many farms replacing sprinkler irrigation with fixed grid irrigation providing labour and irrigation efficiencies and productivity gains.
Current building material shortages and high building costs mean dairy farms with good quality housing and no future requirement for capital development also achieved strong prices.
The closure of the border and difficulty in attracting farm staff together with the implementation of the Healthy Homes standards have likely increased demand for properties with a good standard of housing.
Alongside higher prices being paid for dairy farms, the operational disruption caused by the Mycoplasma bovis outbreak together with recently introduced national environmental standards have led to a clear preference for dairy farmers to secure feed and control heifer and winter grazing in-house.
Land scarcity and current high milk prices have led to external graziers increasing their prices for grazing and wintering in 2022. As a result, we are aware of farms with a history of growing forage crops for wintering dairy cows selling at almost the same rate per hectare as dairy farms.
Read the full commentary and market evidence via the link below.