The residential property market is booming but the grass is even greener for rural and agriculture where land values continue to surge ahead, underpinned by limited supply, strong commodity prices and low interest rates.

According to the latest ANZ Agri InFocus report, rural land value growth has been outperforming national residential property value growth by a 3% average for the last five years.

While the ABS has found that rural land has increased in value by more than 30% in the three years to June 2020.

The agribusiness sector is across the board experiencing a strong season, with positive seasonal conditions, strong production and global commodity prices.

According to Mark Bennett, head of agribusiness at ANZ, growing demand and prices is leaving the industry weary, as hurdles grow higher for new farmers to enter the industry or for existing farmers to expand.

“There have been many headlines of large rural property sales and the ever increasing value of national agricultural land; we’ve seen local properties sell at significantly higher sums than expected – with many reports of localised growth over 20 per cent per hectare in a single year,” said Bennett.

These barriers are likely mount as the  industry targets ’30 by 30’ or the agricultural sector’s goal of growing into a $30 billion industry by 2030.

“At a time when medium and large farmers are looking to grow their footprint and farm consolidation is driving change across the industry, the relatively small number of properties going to market is driving buying seen by many as ‘over-priced’,” said Bennett.

While historically, land value tends to stay relatively in line with commodity prices, with droughts for example typically leading to lower property prices, land prices have continued to grow since 2016 even with droughts, largely as a result of historically low interest rates.

“If this was the only real factor driving rural land prices then we would expect to see rural land perform on par with both residential and commercial property. However, this has not been the case in recent years,” added Bennett.

Rural land prices outperforming residential growth rates, is likely a result of investors looking for alternative property investments.

“There are more investors seeing value in Australian property prices, international buyers continue to look for significant purchases, city dwellers are looking to purchase their piece of regional lifestyle to escape lockdowns and even the recent trend of carbon farming and investors looking for offset opportunities is playing into the market,” added Bennett.

Despite droughts, rural debt levels in 2019-2020 were at around 26% of rural land value, with debt levels remaining relatively stable since 1995. With levels moving between approximately 23% and 28%.

Rural bank debt levels could be anticipated to reach between $110 billion and $139 billion by 2030, if the target of $100 billion in output is realised.

“Rural land prices began to appreciate even before the end of the most recent drought and before commodity prices had appreciated, raising the likelihood the run on rural demand was more about consolidation – with medium-to-large farms buying and expanding their operations – than it was about pure profitability,” said Bennett.

Another factor in determining the industry’s outlook was explored in ANZ’s Grain Insight Report, which revealed that Australia may have reached ‘peak acreage’ for land that can be used for crops.

While the country has seen one of its strongest seasons for grain, with cropping production still having room for at least 20% further growth, Australia may have already reached a peak level of cropping acreage, sitting at 20 to 25 million-hectares.

This is expected to leaving cropping competing with sheep for land, as well as growing industries such as carbon and environmental farming impacted.

“Assuming global grain demand maintains its strong levels, this will maintain upward pressure on land prices, particularly with the ongoing competition between growing farms and new investors,” read the report.