The FOMO factor
So what else is factoring into higher rural land values? And is the growth as considerable as we’re led to believe? In short, yes but there are other factors at play.
There’s no doubt land value growth has been incredibly strong but the ABS figures are inherently conservative and not necessarily done on the state of the land market at the time. Rather they are based on the calculated ‘underlying value’ which market sentiment feeds into.
The perception land values are ‘out of control’ are being fed not only by strong demand but also by a reduction in supply.
With commodity prices at very strong levels and good seasonal conditions over the past 12 months, not many farmers are selling – leading many in the industry to surmise land values are being boosted by a lack of properties being offered. At a time when medium and large farmers are looking to grow their footprint and farm consolidation is driving change across the industry, the relatively small number of properties going to market is driving buying seen by many as ‘over-priced’.
Changing view of rural land as an asset?
There is, of course, more to the story than just the fear of missing out. Historically, rural land values have tracked commodity prices fairly closely, with drought years or commodity price slumps translating across to lower property values.
Since around 2016 however, land prices have continued to rise strongly despite drought years or stumbles in a commodity price such as the milk price drop. Clearly rural land values – and land values across all sectors - are strongly connected with historically low interest rates, providing a significant impetus for purchasers to buy now.