How interest rates are affecting Aussie farm buyers

With interest rates continuing to rise, farming families are doing their sums when it comes to purchasing more land as it becomes harder to buy the block next door.

The sun is setting on Australian farming families’ golden run of buying up more property, with the increasing cost of debt making it tougher to purchase the block next door.

The Reserve Bank this week announced the ninth consecutive rate rise in less than a year, increasing the cash rate by 25 basis points to 3.35 per cent.

Meridian Agriculture director and senior consultant Dr Mike Stephens said the rising interest rates were causing family farming enterprises to think twice about purchasing more land.

“We are starting to see interest rates at about seven to eight per cent, whereas before they were under four per cent, and this is causing a shift in attitudes,” he said.

“When money was cheaper the mentality was ‘let’s do it’, but now people are thinking they better do their sums and be careful.”

Last year farm management deposits hit a record high of $6.76 billion, with mixed pastoral and grain operators accounting for $1.39 billion and sole grain farmers depositing $1.29 billion at June 30.

Mr Stephens said he expected most farmers would be able to absorb the additional costs caused by the increasing interest rates.

The Handbury family recently sold their six-farm Saltbush Ag portfolio in a deal with five Mid-North farming families.

“There is a lot of cash in the system at the moment and a lot of confidence,” Mr Stephens said.

“I expect most people will be okay, especially those who have been prudent in their borrowing.”

But LAWD senior directors Danny Thomas and Col Medway said Australian farming businesses’ demand for farmland was slowing down, feeling the squeeze of the increasing cost of debt.

“The domestic buyers who have had the ascendancy for the last 18 months or two years have now reacted to shifts in the cost of debt,” Mr Thomas said.

Gundaline Station was recently sold in a $120m deal with a Chinese textiles company.

“In addition, many have been affected by weather events, such as floods, and the inundation of expensive crops, or have otherwise been exposed to skyrocketing input costs and softening commodity prices.”

Mr Medway said local buyers were previously able to outbid institutional investors but, investors coming back strongly, “we may see a trend towards the reaggregation of some assets, if the opportunity arises”.

“At the peak, the level of inquiry on a property for sale was around six, seven or eight very qualified purchasers. Now, in some cases, that has returned to two or three,” he said.

ANZ head of agribusiness Mark Bennett said he expected both international and domestic investors to continue to be interested in acquiring Australian farmland.

“There is a positive appetite for Australian farmland with plenty of demand for quality and safe soft commodities across the world.”