Farmland might have been the highest returning asset class over centuries. But only if you did not lose your property due to revolutions, land redistributions or punitive taxes. History is full of examples of those breaches of property rights. But it never happened in a country with Anglo Saxon legal systems. Australia with its legal system, based on English law, values property rights very high. We expect these enshrined property rights to remain a cornerstone of Australian jurisdiction. When you buy farmland, you will get a legal title, which is registered in a centralized title office.
The Australian farmer is one of the most efficient one. There are no subsidies in Australia. Around 60% of agricultural production is exported into the global market. Even with the relatively high wage costs the Australian farmer can produce food at prices, which are competitive on a global scale.
No subsidies do also mean there is no risk of a reduction of subsidy. European land prices are pushed up because of the free-flowing EU subsidies. Once this money stops due to budget issues, land values in Europe will be under pressure, no so in Australia.
Australian farmland is very low priced relative to most other developed countries. Some statistics indicate farmland is 70% cheaper than land in the USA. Yield tonnage in Australia is often lower than in Europe or USA. To adjust for this, you calculate the amount you must spend to buy farmland, which will yield one ton of wheat. Even on this comparison Australia looks way too undervalued. When we look at these large price discrepancies with the eye of a financial analyst, we conclude that this is a huge opportunity, which is likely to be arbitraged away in the coming years, meaning prices will move up closer to a world average.
- Chart of land prices – chart of $ pro ton of wheat-
Large and efficient market
There are thousands of farmland transaction every year in Australia. The amounts traded are several hundred million Australian dollars. Each transaction gets recorded and is used as a value benchmark. This means, it is unlikely to find undervalued land, but on the other side it is unlikely that a buyer does overpay for what he gets. Liquid markets mean also that you will find a willing buyer, who pays a correct price once you want to exit the market.
- Some statistic about number of trades and or amount traded-
Low barriers for foreigners
Any foreigner can buy farmland up to $15 million. If the total amount exceeds this limit an application to the Foreign Investment Review Board (FIRB) is necessary. This adds a bit of bureaucracy and cost, but permits are usually granted to foreign buyers. We have experience in these dealings and can support investors, if they need to go through this process.