Land values surge in north-west, fall in south-east Victoria

The average hectare of Victorian farmland grew in value for the fourth year in a row last year, surging by just over 12 per cent, but it's patchy.

At one extreme, land values in the northwest of the state grew by a staggering 31.9pc, while at the other, Gippsland fell almost 6pc.

And, according to Rural Bank's Australian Farmland Values 2020 reporting on farmland sales in 2019, it all came down to water.

While land values in Gippsland as a whole were down 5.9pc, the diversity of the region - some of it in the third year of drought, some of it having a reasonable season - shone through.

"Gippsland experienced a supply shortage through 2019 with prolonged drought conditions impacting availability," said Rural Bank Gippsland region manager Josie Zilm.

"Rural property was tightly held, and lower supply resulted in strong demand and firmer prices paid for larger landholdings.

"Despite a 5.9pc decline in the median price across Gippsland, the key irrigation areas of the Latrobe and Wellington shires both experienced an increase in property prices in response to water security offered by some of these land parcels."

East Gippsland and Bass Coast shires had the largest declines in median price per hectare, falling 7.5pc and 7.4pc respectively.

On the other hand, Latrobe and Wellington recorded the highest growth in median price per hectare due to water security offered with some properties.

The overall median price was $11,002 a hectare.

The remarkable 31.9pc growth achieved in the north west lifted the average price to $3092/ha.

In fact, the region's median price has grown 85pc in the past five years.

According to Rural Bank, the main buyers were family farms buoyed by a favourable cropping season and strong livestock prices.

"Demand for grazing and cropping land in the southern Wimmera and Swan Hill area was high in 2019," said Rural Bank western Victoria manager Greg Kuchel.

"Family farms remained the major buyers in both the Wimmera and Mallee.

"There were more off-market transactions as neighbouring farmers came to agreeance on price without going to market.

"Low interest rates and high lease costs are contributing to an increase preference of buying land over leasing.

"Demand is set to remain high in 2020 with anecdotally less supply to the market and the expectation of more private sales."

The median price was also boosted by a fall in the number of low-value transactions, including a decrease in the total share of transactions in Mildura, which has long had lower values.

Despite soaring irrigation water prices, the northern region enjoyed its eighth straight year of growth and recorded an average $7331/ha for 2019.

"Cropping land was in high demand in 2019, particularly in the north of the region around Yarrawonga," Kate Hemphill of Rural Bank, Shepparton, said.

"In the high rainfall grazing regions, interest from farmers looking to diversify their geographic risk led to an increase in demand.

"Private off-market transactions between neighbouring properties were popular across the region, with sellers often naming their price.

"Corporate buying activity centred around Katunga where irrigated properties with deep-lead bore water were sought after."

The impressive 16.7pc growth to an average $8649/ha in 2019 came on top of a 13.3pc increase in 2018, after investors from the city battled local buyers in the south west.

"Traditional cropping land sold to graziers from outside the region looking to take advantage of the region's high rainfall," Rural Bank Colac manager John King said.

High rainfall areas attracted keen buyers, especially farmers outside of the region looking to purchase cropping land with the intention of running livestock.

Rural Bank Divisional chief financial officer and chief operating officer Will Rayner said it was a trend that would continue to unfold slowly.

"Sustained high prices for red meat and some historically high wool prices as well has been one of the reasons behind that shift," Mr Rayner said.

"This transition will take time and there's been a transition of a number of dairy farmers, too."

Demand remains above supply with low interest rates and high leasing costs prompting farmers to buy land rather than lease, where possible.

And, while smaller blocks of land are worth more per hectare, the bigger the parcel, the greater the growth achieved in 2019.

Mr Rayner said the medium-to-large-sized blocks were more sought-after as farms consolidated in the chase for economies of scale.

"The price you're willing to pay will depend on how you're planning to use that land," he said.

"That neighbour competition where you're adding additional land into an existing system or cost base, we're a lot of that very intense competition pushing up prices."

"The overwhelming message is that, when you take out the volatility we expect in agriculture and take that longer term view, farmland is a fantastic investment," Mr Rayner said.

"It underpins the strength and resilience of the sector and its contribution to our economy.

"I would say to anyone who's in an area that saw some declines last year, 'Be patient'.

"Even in the last couple of weeks, you've seen some fantastic rains in a lot of the regions that were dry last year and that will have an impact on farmland values.

Have you signed up to Stock & Land's daily newsletter and breaking news emails? Register below to make sure you are up to date with everything that's important to Victorian agriculture.