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Pastoral market update-November 2022

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Biggest trends

Elevated land prices

Low interest rates, sound commodity prices and a strong carbon market have been the drivers to transactional activity and recent value growth. With increases to interest rates and cost inflation impacting margins on farm, investment decisions are more considered. The carbon market continues to underpin growth in hill country.

Competing land use

Fattening and dairy support buyers have continued to compete for the more productive land classes in order to future proof operations with scale, as regulation threatens stocking rates. The ability for pastoral operators to compete with carbon forestry for hill and breeding country continues to reduce as carbon prices increase.

Environmental standards add due diligence

Pastoral buyers are placing increased attention towards compliance with environmental standards. Clarity is required regarding He Waka Eke Noa to understand the impact on viability of stocking rates and carrying capacities.

Outlook for the next 12 months

Transaction risks for overseas investors

Changes to the Overseas Investment Act requiring the benefit test to be met for bare land conversion to forestry has introduced uncertainty into the market for these transactions. In the short-term vendors will likely be confronted with a trade-off between higher value and greater risk associated with approvals, versus more modest but lower risk offers made by local buyers. An initial round of transactions is needed to get a better understanding of any approval risk and/or price premiums.

Land prices expected to stabilise

Land prices at the lower end of the market are expected to stabilise should foreign investment of bare land become more restricted. Recent pressure on prices for the better land classes (fattening and dairy support) are also expected to stabilise given tightening margins behind the farm gate.

Interest rate uncertainty

With increasing cost of debt (rather than access to debt) activity is expected to soften relative to last spring. Principal repayments across the rural sector should continue to provide availability of debt to support transactions flow.

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