Caution advised on purchasing rural property
A lack of recent sales, coupled with disappointing gains, has sparked a warning to investors currently looking to scoop up a rural property.
In its latest Month in Review report, Herron Todd White said that the past 12 months has been a trying time for rural Australia, with investors in certain suburbs set to feel the flow-on effects.
“With 2019 all but closed, it has been an interesting year dominated by weather-related events and the water debate. Add in the banking enquiry and adjusted lending conditions now becoming evident with many borrowers, one could easily think the market values would be under pressure to reduce, but that has not been the case in 2019,” Herron Todd White said.
“In most regions and commodity classes, near or new record prices have been evident this year. The cost of debt is low from an interest rate perspective; however, the real cost to repay debt as we know is a borrower’s marginal tax rate, and that has not altered. However, it often appears overlooked in any discussion around affordability.
“The team has reflected on the past 12 months’ activity and provides some thoughts for readers with an overall view about being cautious in the current market as there does appear to be some recent sales which have not fully met vendor expectations, and a consolidation year in terms of asset value growth would not surprise.”
Herron Todd White added: “There’s always some unpredictability about how rural markets will perform and 2019 has been no exception”.
“The recent sale of Koleya Park, a 2,170-hectare dryland farming property in the central Millewa district, highlighted that even in a region where drought has resulted in successive crop failures, there is demand for farming land.
“The buyer came from a southern region where the significant value growth over the past four to five years has made buying large parcels of land very expensive and was prepared to offset the risk of lower yields in a marginal rainfall area with the potential to buy a relatively large parcel of land at an affordable price,” it said.
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