The future of land ownership
Since I was a child I have loved the thought of New Zealand being known as Aotearoa - the land of the long white cloud.
It’s a fitting name for a country at the bottom of the world so reliant on land and weather cycles.
When speaking about land to farmers, I am often struck by their long-term view about their land and the deep affiliation they have with ‘their patch’.
This view is sometimes at odds with business rationale and is often contrary to how farmers are perceived by urbanites – as destroyers of our environment.
Given the current farming economic climate and the fact that land costs are well out of whack with farm incomes, will we see a shift in prices or ownership structures, and will we see less demand for our land in the longer term?
For as long as most of us can remember, when we wanted to buy more land, we shuffled along to our bank manager – in the past with a blazer and tie and now with a fancy spreadsheet – to fund our expansion.
In any other business, when predicted returns were as low as two to four percent, the bank manager would have sent you packing, yet farming has long operated on a dual system, the land as a growing business asset being treated almost independently of farming income.
In current times, it’s easy to criticise this as a business approach, but the long-term outcome for those who have invested in land has been overwhelmingly positive.
In a couple of blogs written recently by Forbes Elworthy from the UK, he describes land as an ‘enigmatic outperformer’ and then demonstrates that US farmland returns generated 11.5% per year versus stocks (8.5%) and bonds (6.8%) over the period 1992 to 2012 – this is despite cash-flow returns being only two to five percent.
New Zealand farmers definitely understand this paradox and many have been made considerably richer by inheriting or buying land, and holding, or re-selling on a climbing market.
This has been fueled by rising international dairy prices – until now. What happens next?
Can land continue to grow in value when it looks like we are in for a long slow crawl out of poor commodity prices?
Currently, land sales are stagnating – who has the money to expand and buy more land, and are banks willing to come to the party when they have so many loans tied up in poor equity situations?
Interestingly, well before the dairy prices dropped, a bank strategist said to me that banks being the key source of money were not necessarily going to be the way of the future.
Just weeks after the New Zealand Government rejected a bid by Chinese company, Shanghai Pengxin to buy Lochinvar station near Taupo, the Australian federal treasurer blocked the same company’s bid to buy vast tracts of Australian land from the country’s largest landowner S Kidman & Co.
So when you own 101,411sq km across four Australian states, who do you sell to?
The answer is truly modern… DomaCom, essentially a crowd funding company, has already raised more than $54m for the purchase of the Kidman Station land holding.
The total crowdfunding campaign is estimated to be $410m.
Business models are changing rapidly. In the long term, land prices will rise again. Land is something we can never make more of.
But if farmers have to sell right now, there may be mechanisms and business models that allow them to do so in a way that is totally new.
The current economic environment may provide the impetus for changing lending models.
Where there is a will, there is a way and sometimes, what it takes is a little Aotearoa imagination.