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Value of grazing property spirals
by Jane Milburn

The Courier-Mail 4 April 2005

QUEENSLAND grazing property prices are spiralling upwards and have doubled in the past four years on the back of continuing strong demand for beef and urban property rises.

However, beef prices have retreated from their peak because of a flood of cattle on to the market during the past month as a result of fears about the extending drought.

Leading property valuer Kerry Herron, founder of Herron Todd White, said the upward trend in grazing property prices was likely to plateau but demand would remain very strong and the latest sales were fully firm on past benchmarks.

"This is evidenced from the hotly contested auction last month of Kiddel Plains west of Moura at $6 million bare. It has a carrying capacity of 1500 head, which reflects $4000 per beast area improved," Mr Herron said.

"Certainly we at HTW have concerns when properties admittedly very good ones sell for up to $4000 per beast area."

Mr Herron said the "inner circle" of pastoral properties was overpriced relative to values in the far north and west, where there would be stronger demand in the future despite the distances.
He said it was notable that some of the biggest cattle companies did not buy any of the ex-Stanbroke properties because their analysis was that they could not make them "stack up" the returns were too low for their shareholders.

"But AACo bought the Delamere/Montejinni aggregation in the northwest Northern Territory a couple of months back for just under $500 per beast area. Although it is a remote aggregation, it is in a reasonably reliable rainfall area and has large areas of good Mitchell plains, and is within the live export catchment out of Darwin. Obviously for AACo, this was a far better proposition."

Herron Todd White research in north Queensland has shown that during the 2000-2004 period, grazing property values have risen by 23 per cent annually, effectively doubling within four years.

Will the current prices hold up? Mr Herron said probably yes, at least for the time being because cash flows had been strong; the more efficient could produce more per hectare or per unit; equity and creditworthiness had increased; finance was easily obtained despite the recent rise, interest rates were still low; interest was available for up to 15 years interest-only; interest was also available at fixed rates for 10-15 years at little higher cost and confidence in the industry was high.

"Will the bubble burst? Maybe. We have always had cycles before, and will again. However, I doubt that we will see a spectacular crash such as we experienced in the 1970s short of a (possible but hopefully unlikely) major disease outbreak."

The higher rural property values are likely to lead to major revaluations on the unimproved value of properties by the Valuer-General.

AgForce lands spokesman John Cotter has flagged that owners could face significant increases, from 50-400 per cent, depending on how recently their properties have been revalued. This will impact on local government rates and leasehold rents.

The high values are also likely to create a trend towards leasing land and contracting out farm operations as agribusinesses move to leverage greater economies of scale.

"We haven't seen too much of this yet, however it is starting to happen and I foresee a big growth in leasing in the future," Mr Herron said.

"With ageing farmers and graziers, whose kids are unlikely to return to the property, a logical move would be to sell off the plant, equipment and livestock, buy the coastal brick cottage and lease the land."



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