Optimistic outlook for 2024
The past 3 years in particular has seen extremely volatile rural property market conditions in Australia. 2021 / 2022 saw rural property market values reach an all time high for most sectors of the market. This followed unprecedented conditions including:-
- Excellent seasons;
- A relatively low cost of funds;
- Strong commodity prices;
- Comparative investment returns; and
- Generally positive focus on agriculture and rural Australia
Whilst the market possibly peaked in October 2022, the past 12 months has seen an unprecedented downward trend in prices of our core commodities which together with other factors including:-
- Significant drop off in seasonal conditions;
- Excessive demand on sheep and cattle processing works (with the anticipated dry seasons);
- A huge downturn in commodity prices;
- An increase in the cost of funds; and
- Therefore a 50% reduction in properties for sale – the lowest number for 28 years.
All of the above created a market standoff whereby potential vendors were looking to receive 2022 price levels for the sale of their property whilst buyers were seeking an adjustment in land prices, given the above downturn in the industry. Also expected demand from offshore failed to materialise given the extremely strong local demand, together with economic and political uncertainty in various parts of the world. In fact 95% of the buyers were existing Australian rural property owners wishing to expand their holdings. Even the strong exchange rate favouring offshore investors was not enough to create pre-covid demand levels.
2024 already looks brighter
Already a number of indicators are suggesting that the agricultural sector is showing significant upturns in many areas. These include:-
- The beef cattle and trade lamb markets have risen nearly 50% already this year – the Eastern Young Cattle Indicator (EYCI) which had reached an average high of 1,064₵ per kg in late 2022 dropped to a record low of 349₵/kg in October 2023 – today it stands at 657₵ - nearly double the 2023 low.
- The same applies to the trade lamb industry with the Trade Lamb index (TLI) in September 2023 dropping to 411₵ after being at 808₵ in February. As at 13January 2024 the index has already recovered to 775₵.
- Abnormally good summer rains have seen pastoral conditions return to optimistic levels.
- The February 2024 inflation figures have come in at a low level – indicating there will be little appetite for increasing interest rates any further in the short term.
- Returns from rural investments remains attractive in comparison with equity investments or short term money markets.
Overall many potential vendors held off selling during 2023, given concerns about the dramatic drop off in commodity prices together with other short term uncertainties. This was further exacerbated by many properties being offered sale by Expressions of Interest where potential bidders had no idea of where to pitch their bids, given market uncertainties.
However the return of confidence levels in the sector is already helping to underpin investment certainty and reliability. This together with the attractiveness and commercial viability of rural investment will all help to underpin the 2024 market. Whilst to a degree the market may continue to be two speed with the top end market being positive and well sought after, there will be some hesitancy remaining for investment in the more remote rural areas.
Already Meares and Associates have a number of attractive investment opportunities lined up for sale during 2024.
In the past 3 years in particular Meares and Associates have seen a migration from the pastoral or lower rainfall areas to the higher rainfall areas, in particular along the east coast and hinterland. We believe that this trend will continue with much focus on quality, well located property, especially in the higher rainfall areas.
C R Meares