Drought forces sales
BUYER’S MARKET: NEW MORTGAGES FOR FARMS DECLINING
The land expropriation debate isn’t the key driver behind farm sales – agricultural economist.
The fact that farms are going on the market has more to do with financial challenges and the impact of droughts, than fear around land expropriation without compensation (EWC).
That’s the view of agricultural economist Johann Bornman. Even with December stats still to be vetted, he believes 2018 farm sales will show a significant decline from 2017.
Other agricultural economists concur.
Lightstone’s research, based on property Erf numbers through title deeds registered at the Deeds Office, shows farm registrations declined by over 1 300 last year, year-on-year.
There has also been a sharp decline in new mortgage loans granted for farm properties, with the Reserve Bank’s Quarterly Bulletin reporting a 44.2% decrease for Q3 2018.
Drought, consolidation
“While uncertainty around land expropriation is a concern for farmers, most sales have to do with the poor economy and financial challenges due to the droughts we’ve been having,” says Bornman.
“Unless you are under financial pressure, it would be silly to just sell farm land, especially with prices being lower at the moment in several areas affected by drought.
“In the current market, you will find that the bigger commercial farmers are buying up smaller farms. They may pick up bargains at huge discounts …
“However, land prices vary for different provinces and even within a province.”
FNB’s Paul Makube says farm value data aren’t readily available and he hasn’t observed any significant increase in offerings or a drop in farm prices.
However, he agreed with Bornman’s sentiments that most farm sales currently were due to economic challenges and drought, rather than the land EWC debate.
“At the higher end of the commercial farming sector we are seeing expansion happening. However, smaller farmers are coming under pressure.
“We are seeing more consolidation in the space, with smaller farms being swallowed up by bigger commercial players.”
Still investing
Despite concerns around land EWC, Makube says farmers continue to invest in agriculture. This can be seen in the growth in production of produce like blueberries and avocadoes.
Also, total exposure of commercial banks, and other institutions like the Land Bank, to the agriculture sector has been moving upward for several years now.
The latest figures on agriculture sector debt are due in March, but unofficial estimates put it at over R160 billion.
Makube says the continued increase in farm debt can be attributed to increased investment in agriculture and finance costs related to recent droughts.
“A further indication that SA farmers are investing in agriculture is our increased food exports,” he adds. “In areas where there is new, higher value agricultural developments like blueberry and macadamia cultivation, land values increase due to higher returns. Farmers will invest and are risk takers, but policy uncertainty does not help. There may be some caution, but you won’t see farmers not investing. If you stop investing, you are going to fall behind your competitors and in the export market,” says Absa’s Wessel Lemmer.
Farm registrations declined by over 1 300 last year