Excerpts and graphical representations extracted from the RuralBank Australian Farmland Values 2023 Report
As a significant asset in any farming business, the value of farmland is of critical importance to both Australia’s farmers and the agricultural industry. In times such as these of unprecedented growth in values, it is vital to understand how the farmland market has performed and the direction it is heading.
Overall, 2022 was another outstanding year for Australian agriculture. La Nina conditions produced a third consecutive year of above-average rainfall. This factor combined with above-average commodity prices has created many opportunities for excellent farm incomes.
This in turn has translated into sustained momentum for Australian farmland values as buying power remained firm and supply tightened as landholders had fewer reasons to sell. Strong demand and reduced supply of properties led to the national median price per hectare keeping pace with the growth seen in 2021.
However, within the year there were turning points for some of the drivers which had combined to produce accelerated growth in farmland values in previous years. Arguably, the major shift was the sequence of official cash rate rises by the Reserve Bank of Australia, beginning in May. While higher interest expenses began to factor into cashflows, the income side also saw some headwinds as agricultural commodity prices began to trend lower during the second half of 2022. In addition, the cost of key farm inputs was also elevated for much of 2022.
Australian farmland values maintained their strong growth momentum in 2022 as the national median price per hectare increased by 20 per cent to $8,506 per hectare. This meant that growth kept pace with the prior year which also recorded a 20 per cent rise. Rising prices through 2022 extended the recent period of growth to a ninth consecutive year. Over that time, the national median price has risen by 167 per cent at a compound annual growth rate (CAGR) of 11.5 per cent, with the exceptional growth rates seen in recent years now lifting the national 20-year CAGR to 8.5 per cent.
The performance of Australian farmland values in 2022 stands in contrast to other investment classes. In many ways, 2022 was a turning point in both the global and Australian economy. These shifts were largely the product of high inflation and a sequence of rises to the official cash
rate. While farmland was able to maintain its momentum, residential dwellings recorded a downturn in values. The national average price of residential dwellings fell 5.3 per cent across the year following growth of 25 per cent in 2021. This contrast highlights the very different nature and drivers of the farmland and residential property markets. The Australian share market also experienced a weaker year with the ASX200 closing 2022 at 5.5 per cent lower year-on-year. These diverging performances held farmland’s long-term advantage over these other investment classes with residential dwelling prices achieving a 20-year CAGR of 5.5 per cent while the ASX200 is slightly lower at 4.3 per cent, or 8.9 per cent including dividend returns.
Across the states in 2022: Tasmania was the clear standout with a rise in its median price per hectare of 54.9 per cent. Victoria, South Australia and Western Australia all recorded
growth of more than 20 per cent. These states were closely followed by Queensland and New South Wales with increases of 15.9 per cent and 18.9 per cent respectively. With the Northern Territory recording price growth of 108 per cent, this was the first time in the last 28 years that growth over 15 per cent was recorded across all states and territories.
Farmland values were supported by a sharp decline in transaction volume. Nationally, the number of farmland transactions declined by 34.3 per cent in 2022 to 6,588. This
was the lowest level of transactions in the last 28 years, a sudden reversal from 2021 which was the highest transaction volume since 2007. The decline in 2022 more than offset the 40 per cent increase in transaction volume between 2019 and 2021. Across the states, declines in transaction volume ranged from 13.8 per cent decline in Tasmania to a 44.6 per cent decline in Victoria. Meanwhile, South Australia was the only state to record an increased number of transactions in 2022. Farmland transactions in 2022 equated to a total of 8.8 million hectares of land traded at a combined value of $11.7 billion.
VICTORIA
Victorian farmland values increased for the seventh consecutive year in 2022 as strong demand and tightened supply applied upwards pressure on the median price per hectare. The median price increased by 26.3 per cent in 2022, a minor slowdown from a 30.4 per cent rise in 2021.
The strong period of growth in recent years has lifted the five-year CAGR to a very high 17.6 per cent. The longer-term growth is more moderate with a 20-year CAGR of 8.4 per cent.
The upwards shift in median price per hectare was consistent across all of the state’s eight regions. This was only the third year since 1995 that all regions have seen growth in their median price. Growth in 2022 was led by the Central region which recorded a 52.3 per cent increase in median price per hectare. This was closely followed by the Mallee with a rise of 45.3 per cent. Growth in the Ovens Murray, South West and Wimmera regions was marginally lower but still strong at 34-36 per cent. The lowest growth rates were seen in the Goulburn, South and West Gippsland and East Gippsland regions which were still very strong at 21-23 per cent. This was the second year in a row, and only the second time in the last 28 years, that all regions in Victoria saw price growth of at least 20 per cent.
The number of transactions in Victoria declined by 44.6 per cent to 1,007 in 2022. This was the lowest number of transactions on record for the state and 33.6 per cent below the five-year average. All eight regions recorded a decrease in transaction volume of at least 30 per cent in 2022. The most prominent falls occurred in the Central and East Gippsland regions with falls of 55-59 per cent. Falls of just under 50 per cent occurred in the South and West Gippsland, Ovens Murray and Mallee regions.
VICTORIA CENTRAL
Central Victoria recorded a second year of consecutive growth in its median price per hectare in 2022. The median price rose 52.3 per cent in 2022 to $11,008/ha. This was an increase on the 44.6 per cent growth recorded in 2021. The median price has more than tripled since 2015 with growth in six out of those seven years totalling 245 per cent. These years of strong growth have helped create a 20-year CAGR of 8.6 per cent. A key factor towards the price growth throughout 2022 was a decrease in supply. Transaction volume in the Central region fell to 121, a record low for the area and a fall of 58.6 per cent in 2022 after growth of 58 per cent across the preceding two years. The sharp decline in transaction volume occurred across all parcel size ranges but was most prominent for parcels over 150 hectares. This segment of the market recorded 72 per cent fewer transactions than in 2021. This led to a lower proportion of large parcels traded, falling to 17 per cent of the region’s transactions in 2022, down from 24 per cent. The region also saw a larger proportion of transactions in higher price ranges.$20,000/ha, whilst there was a 40 per cent decline in the number of transactions below $20,000/ha and a sharper 50 per cent drop in transactions between $4,000-$12,000/ha. The total volume of higher-priced transactions accounted for 51 per cent in 2022, up from 37 per cent in 2021. This rise was a major factor in the overall upwards shift in median price for the region.
VICTORIA MALLEE
Victoria’s Mallee region recorded an eighth consecutive year of growth in its median price per hectare in 2022. Growth accelerated to 45.3 per cent in 2022 following a 25.5 per cent rise in 2021. This took the median price to $4,768/ha. The median price has more than tripled
over the last eight years with growth of 275 per cent since 2014. The continuation of firm growth has helped create a 20-year CAGR of 9.3 per cent. Similar to other areas of the state, a drop in supply available on the market contributed to the price growth in 2022. Transaction volume for the Mallee fell 42.9 per cent to 60, a record low for the region. This was a reversal of the growth trend in the preceding two years. The decline in transaction volume was most dramatic for larger parcel size. There was an 81 per cent decline in the number of transactions larger than 400 hectares in 2022. Meanwhile, the number of transactions smaller than 200 hectares remained relatively steady. As a result of this, parcels smaller than 200 hectares accounted for 57 per cent of the region’s transactions in 2022, up from 33 per cent in 2021. This much greater proportion of smaller parcel-size transactions in the region likely drove the median price higher. This is reflected in an increased proportion of transactions above $5,000/ha which jumped from 21 per cent of total transaction volume in 2021 to 48 per cent in 2022.
Outlook for 2023
The key drivers of farmland values are set to remain in favour of demand exceeding supply in 2023, driving a 10th consecutive year of growth in the national median price per hectare. Supply and demand are likely to come into closer alignment as a softening of demand is expected on the back of lower agricultural commodity prices, a drier rainfall outlook and relatively high-interest rates. There is still appetite and ability to continue expansion and acquisition following strong farm incomes in 2022, however, some buyers are expected to return to consolidation and take some competition out of the market. Recent high farmland values, lower commodity prices and a drier seasonal outlook may also prompt some additional supply on the market as these conditions will for some, indicate a prime opportunity to exit the industry. On balance, further growth in farmland values is expected in 2023 but the rate of growth will likely be much lower than the previous two years as key drivers of growth have shifted to less favourable settings.
To view the full Australian Farmland Values report from RuralBank, subscribe here