REINZ Introduces New Farm Price Index

News Release 25 July 2012

REINZ Introduces New Farm Price Index

REINZ is pleased to announce today the introduction of the REINZ Farm Price Index, as a superior and more accurate guide to changes in farm sale prices.

The new measure has been developed in conjunction with the Reserve Bank and adjusts for property specific factors such as location, size and farm type in measuring changes in farm prices.

“The REINZ Farm Price Index is less influenced by the type of farms that happen to sell, providing an improved measure of underlying farm prices,” says REINZ Rural Market Spokesman Brian Peacocke.

“The REINZ Farm Price Index will take into account macro-economic variables which typically account for a third of the price trend movement. These variables include interest rates, exchange rates, commodity prices, farm input prices and other items that are not directly linked to a property’s location, size or farm type. In addition, by capturing and adjusting for specific farm data in the calculation of the REINZ Farm Price Index we can more accurately assess the impact of off farm influences on price changes.”

“An added dimension of the REINZ Farm Price Index is its ability to be interpreted as a timely indicator of market sentiment on investment in farm land.”

REINZ will continue to publish median price per hectare data each month, as this is a common measure used by many farmers as a guide to assess the initial value of properties. The REINZ Farm Price Index will enable farmers and non-farmers to assess the impact of non-property specific variables on the trend and direction of farm prices.

“For example, one of the issues we face with a measure like price per hectare is that larger farms tend to sell for less per hectare than smaller farms, so when we have a greater percentage of larger farms being sold in any particular period, a measure like median price per hectare may tend to understate the actual values of properties being sold,” says Brian Peacocke. Similarly, the price per hectare can be influenced by a large number of sales in one region compared to the rest of the country.

“By correcting for these factors, and others, the REINZ Farm Price Index indicates the direction of farm prices rather than reflecting the mix of properties being sold in any particular period.”

In periods when there are few sales, the new index will be a marked improvement on other measures in identifying price trends and market turning points.

About The REINZ Farm Price Index

“The development of the REINZ Farm Price Index is a further demonstration of the commitment by REINZ to produce timely and relevant data on all aspects of property transactions across New Zealand,” says REINZ Chief Executive Helen O’Sullivan.

“We are delighted to have worked with the Reserve Bank in developing this index which we understand will be used as part of their analysis of the farm sector from the latest data provided by REINZ members. REINZ is continually looking at ways to enhance the property sales data we collect from our members to provide value back to them and to provide timely and relevant data for everyone interested in real estate in New Zealand.”

The REINZ Farm Price Index will be timely reflection of actual market trends being calculated over all farm sales of the previous three months. The first publication of the REINZ Farm Price Index will be with the monthly data release beginning in August with the reporting for the three months to the end of July 2012. REINZ is working with the Reserve Bank on developing further sub-indices that focus on farm types such as Dairy; however, at this stage there are no plans to develop regionally based indices.

The REINZ Farm Price Index has been calculated with a base of 1,000 for the three months ended March 1996. The REINZ Farm Price Index is best utilised in assessing percentage changes over various time periods rather than trying to apply changes in the REINZ Farm Price Index to specific property transactions. The table below sets out the rates of change over various time periods for the three months ended June 2012.

The graph below shows the trend in the REINZ Farm Price Index over the past 10 years.

A note outlining the methodology for the new index is available on the Reserve Bank’s website, www.rbnz.govt.nz.

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