Due to the global food demand, a low Australian dollar and favourable growing conditions, rural properties and their values are expected to hold strong in 2020 despite the threat and outcome of COVID-19 to the global supply chains.
Agribusiness and forecast
The outlook for the Australian agribusiness sector is looking positive and being supported by a growing worldwide population. Our farm sector has risen to the forefront during the current COVID-19 outbreak ensuring Australians have supplies of fresh food.
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Karina Salas is an associate research director at Colliers International and one of the authors of its 2020 Agribusiness Research and Forecast Report, says “despite the negative economic conditions and market uncertainties, we know that demand for food will never cease which provides a bullet-proof scenario for the Agribusiness sector, supports its long term financial sustainability, and positions the sector as a key driver of the recovery process for the society and the economy.”
The Federal Government has announced a number of measures that will stimulate the agribusiness investment and support the continuity of export activity. The stimulus package includes support for businesses with aggregated annual turnover of less than $500 million to access an increased instant asset write-off of up to $150,000, up from $30,000.
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Agribusiness operators are be able to benefit from the write-off and accelerated depreciation to purchase new equipment, machinery and other supply chain infrastructure assets.
The weaker Australian dollar remains a competitive advantage for exporters and the low-interest-rate environment is to remain ongoing at leave over the next year, making debt funding more affordable and accessible to support agribusiness expansion and investments.
“The outlook of the Agribusiness investment market in 2020 is steady and largely driven by the consistent increase in demand for quality agricultural product,” said Ms Salas.
Ms Salas also says that for 2020 good rainfall across significant areas of the country is being shown and generally strong commodity prices, she comments that the forecast for 2020 was for, “general value stability with perhaps some firming of rural land values in late 2020 after winter crop harvest is completed.”
It is believed that properties producing beef, citrus, grains, lamb, wool and macadamia nuts will have the strongest asset demand outlooks for 2020 according to Colliers International real estate firm.
Apart from the weather conditions, the endorsement of the US and China phase one trade deal in January has improved the outlook of trade activity worldwide. However, the Australian agribusiness sector is now facing direct competition from US export activity to China as the deal has allocated a minimum import-trade quota requirement.
The Agribusiness Research and Forecast Report for 2020 warns despite the positive outlook for most sectors, the report depicts that COVID-19 may still pose a threat to staff working in processing facilities and to the global food supply chains.
There is also the potential for a drop-in demand for some discretionary, high-value agriculture products – and other heavily export focussed seafood products – as was seen with the Southern Rock Lobster sector, where trade activity with China ground to a halt.
The scale of the impact of the COVID-19 outbreak on the Australian economy and the capital markets of agribusiness assets is still unquantifiable. Some of the potential effects could include the halt of investment opportunities reaching the market, the disruption of capital flows, the international and state boarder travel restrictions limiting site inspections and the loss of market value of companies listed in stock exchange markets.
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The banks response for financial approvals
However, even though business might be looking up for businesses in the rural area, finance approval appears to be slower than normal as banks tighten lending parameters as the impacts of the current drought situation on top of COVID-19 might now benefit all areas for cropping.
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In Rabobank’s statement they discussed that COVID-19 restrictions in the community have seen some delays.
“A number of factors including restrictions on physical inspections of properties and security valuations, as well as delays to execution of documentation where hard copies and independent witnesses are required, and undertaking required regulatory client identification and verification which had previously been done face-to-face.”
Rabobank said it was managing these challenges and its primary focus was servicing and helping its clients.
ANZ responded with the Head of Agribusiness Mark Bennett commenting that “turnaround times remain generally business as usual, appreciating that customers impacted by COVID-19 events are our first priority. In addition, where conventional practice might be restricted, it can take time to develop an appropriate process and to work through any complexity.”
In its response, CBA Head of Regional and Agribusiness banking Grant Cairns commented that “A common reason for delays is that we don’t always receive the requisite information we need, which is even more important where customers are coming out of drought where historical financials may appear weak.”
They also said its speed of approval and funding turnaround depended on the quality of information it received from customers and their financial advisers and accountants.
NAB’s statement to Grain Central explained that as they are Australia’s largest lender to agriculture, they remain open for business and are committed entirely to their customers. They have said “we have seen an increase in demand for finance through COVID-19 and our bankers are working hard to support customers who have accessed a range of support measures including interest deferrals and business support loans.”
“Our bankers are working with customers who are well prepared and have strong relationships with their banker to assist with providing finance.”
Westpac had a similar response as they have said they have not changed its approach to the rural property market, they still remain committed to rural and remote Australia.
In their statement they said, “we’ve had a high demand for our relief packages for businesses and households, which has caused some delays in other parts of our operations. We’ve redirected employees to work through the applications and have now processed the majority of requests for home loan repayment deferrals.”
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The Real Estate Institute of New South Wales and Elders rural estate SA/NT is expecting regional and rural areas to do well in the long-term as a result of the pandemic.
President, Leanne Pilkington, said in an interview with the ABC that she expecting to see a rise in demand for rural and regional properties.
“I think we have all realised now that we can work from home very effectively and we don’t actually need to travel to meetings like we used to,” she said.
“So that is likely to end up with people thinking, ‘Maybe I don’t need to live in the city’.”
Phil Keen is a real estate manager at Elders real estate in SA/NT and is expecting the rural property market to roll full steam ahead.
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In an interview with Stock Journal, he said “people like clarity and they don’t have it at the moment because of the COVID-19 virus, but I 100% think that if anything in this crisis changes things it will get the world very focused on the things that people really need.”
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He believes that there may be a short-term apprehensive behaviour to looking at the property market by some buyers, but after the overall of the pandemic, the market will be at similar levels.
Regional and urban planner, Bette O’Brien, said to the ABC that governments would need to invest in regional areas to make the most of a post-pandemic migration.
“The best outcome for this, in terms of the economy of the regions, would be for all age groups to start moving so you’re having young families who still need to purchase a home, things that are actually going to stimulate the economy a lot,” she said.
Words by Ece Demir
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