The FOMO factor
So what is taken into account in increasing the value of rural land? And is the growth as considerable as it is led to believe? In short, yes, but there are other factors at play.
There is no doubt that the growth in land values has been incredibly strong, but the ABS figures are inherently conservative and do not necessarily take into account the state of the land market at the time. Rather, they are based on the calculated “underlying value” that market sentiment feeds into.
The perception that land values are “out of control” is fueled not only by strong demand but also by a reduction in supply.
With commodity prices at very high levels and good seasonal conditions over the past 12 months, few farmers are selling – leading many in the industry to assume that land value is being boosted by the lack of proposed properties. In an era when medium and large farmers seek to increase their footprint and farm consolidation is driving industry change, the relatively low number of properties coming to market is driving purchases that many consider “overpriced”.
Changing views on rural land as an asset?
There is, of course, more to the story than the simple fear of missing out. Historically, the value of rural land has followed commodity prices fairly closely, with years of drought or falling commodity prices resulting in lower property values.
Since around 2016, however, land prices have continued to increase sharply despite years of drought or drops in commodity prices such as falling milk prices. It is clear that rural land values - and land values across all sectors – are strongly tied to historically low interest rates, which is a strong incentive for buyers to buy now.