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Rural Property Market May Settle In 2002

Wednesday, 9 January 2002

Rural Property Market May Settle In 2002 Says Property Institute

Sale prices for New Zealand rural property may settle this year, New Zealand Property Institute CEO, Conor English, said today. Of New Zealand's $420 billion property asset, rural property represents approximately $85 billion.

"Over the last two years we have seen a substantial re-rating of rural property with land prices in some areas doubling. With high farm incomes due to high commodity prices and a low dollar, low interest rates, and no major drought, land values have surged. However there are now a number of factors which suggest that this market has peaked and land value growth may slow," Mr English said today.

"Increases in farmers incomes look less likely with international commodity prices coming off historic highs. Fonterra has already advised dairy farmers to be careful with their money and indicated that payouts will be down next season.

"We will also start to see more impact of the unbundling of dairy assets as the new Fonterra share structure gets established and becomes understood. This is likely to see a reduction in the premiums paid for land suitable for dairy conversions, and the flow on effect that this has had.

"The stimulatory effects of a lower dollar across all export product classes may also be eroded as the value of the New Zealand dollar picks up. It has risen 2 cents over the Christmas break.

"The future for low interest rates also looks more uncertain. Although still low relative to the 1980s, we have already seen longer-term wholesale rates increase since November. Increasing Government borrowing and a possible tightening of monetary policy may put more upwards pressure on retail rates. This may also attract more foreign capital inflows which may also lift the NZ dollar further.

"However as the trend for farm aggregation continues, the purchase of neighboring properties is still likely to attract a premium.

"It is always difficult to predict the future and markets can do funny things, but there appears to be several factors which indicate that the recent surge in rural property values will not continue as they have for the past couple of years," Mr English concluded.

Ends


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