Commercial properties in provincial centres are investment targets for high-income farmers, reports Colin Taylor
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A record payout from Fonterra is substantially boosting the income of dairy farmers throughout the country and affecting the rural commercial property market.
The dairy boom has a significant flow-on effect for property markets, not just in rural land sales, but also in the commercial and industrial sector, says Gerald Rundle, manager of Bayleys Research.
Retail spending growth in the country's rural areas is outstripping that in the cities.
Rundle says there is little doubt that a portion of the additional Fonterra payout will be used by farmers, particularly those with high levels of equity within their farms, to buy additional property and this will not be limited to farmland.
"Many farmers are seeking opportunities to diversify their asset base with local commercial property being a favoured option.
"The additional number of purchasers that this has brought to the market and the limited supply of good quality investment opportunities in rural centres has resulted in yields on provincial commercial properties approaching the same levels as those within the main urban centres."
Last month, Fonterra announced a 40c increase in its payout forecast for the 2007-08 season to $7.30 p/kg of milk solids. It was estimated that this would result in an average payout to each of the co-operative's 10,700 members of more than $850,000.
This would inject $3.42 billion into the rural economy compared with the previous season, with the total payout being more than $9 billion.
The early part of this year has seen dry conditions in many of the main dairy provinces, which has limited production in some cases.
But economists are still predicting total farm revenue to increase by more than $2.5 billion, says Rundle.
Dairy farmers have already begun to benefit from the expected increase in the final payout with the initial instalment paid in October about 50 per cent greater than a year earlier.
The increased payout quickly filtered through to the retail sector in rural areas with Westpac Bank reporting at the time that electronic transaction statistics showed a surge in rural retail spending. Economists predict that the extra money evident in the major dairy production areas such as Waikato, Taranaki and Southland will result in a "growth shock" of 1.5 per cent to gross domestic product.
Over the last month, Bayleys Waikato sold four dairy farms at auction with a total value of $22 million.
Mark Dawe, Bayleys Waikato country sales manager, says the rural property market has remained active despite the drought.
"However, there is no doubt that the rain we've had over the past month, and the announcement of the dairy payout increase, has added an extra level of comfort for buyers.
"We're not just seeing one or two bidders at our dairy farm auctions at the moment but we're getting four or five parties competing which means there is a good representation of the market and we are able to maximise the price for our vendors."
The largest of Bayleys' recent auction sales was a 186ha dairy farm in Ohaupo, which went for $11.54 million and is Bayleys biggest-ever, under-the-hammer, rural auction sale.
The Ngahinapouri Rd property, 17km south of Hamilton, sold for just over $62,000 p/ha.
Bayleys sales agent Mike Fraser-Jones said the farm was bought by neighbour Jim van der Poel, a director of Fonterra, and his wife, Sue, but not before they had had to compete hard for it with four other bidders.
Bidding started at $9 million and progressed from there.
The acquisition will result in the Van der Poels almost doubling the size of their home dairying operation.
"It's a big vote of confidence in the future of dairying by a prominent figure within the industry which is good to see," Fraser-Jones says.
Jim van der Poel says the acquisition will enable him to enhance his Ohaupo dairying business and he will be looking to develop the two properties to the point they are carrying 1400 cows between them.
Fraser-Jones says the price reflects the farm's location in one of the Waikato's best dairying areas.
The farm's production has grown in the past season to 172,285 kgs milk solids with 550 cows milked on an estimated productive area of 160ha of quality grazing land. There are 26ha of undulating and lower lying gully areas of average pasture.
"It is a well raced and subdivided farm with a good range of farm buildings and well maintained specimen shelter trees."
It comes with a 28-aside dairy shed, two older milking sheds used for storage and calf rearing and four homes with wide rural views out towards Mt Pirongia. Two of the homes come with swimming pools and one has an all-weather tennis court.
The property has been owned by three generations of one family and farmed by brothers Ian and Bruce Thomas with their wives, Christine and Anne, for many years, with a 50/50 sharemilker in place. Bayleys has also sold many Hauraki Plains dairy farms at auction over the past few weeks.
An 113.6ha unit 12km from Thames and Ngatea on Campbell Rd, holding 99,587 Fonterra shares, from 300 cows sold for $5.25 million, representing $52.70 p/kg of milk solids. It has a 24-aside cow shed and two homes with a flat contour and central race to 60 paddocks.
A 78ha farm at Waitakaruru, near Ngatea, sold for $3.16 million and a 102ha property in three titles on Maratoto Rd, Hikutaia sold for $2.13 million.