The current low interest rate environment is forcing everyone holding cash assets to sharpen their investment thinking. But for those facing a prospect of dividing assets, such as in a farm succession, being an active rather than a passive investor is becoming even more important.
There will be a cohort of farmers contemplating retiring and facing the prospect of paying almost 25% more for a house in town than they would have paid this time last year. And according to property analytics provider CoreLogic, if house prices continue to rise in line with the trend evident in the past three months, they’ll be 29% higher again next year. All this means there will potentially be a lot less available for farmers to invest elsewhere or distribute to the next generation from a farm sale.
The lesson of the house price explosion is that if you do have funds available, be prepared to act in your interests, and importantly, for those who will benefit from your actions.
Until relatively recently, farmers acting in their ‘interests’ has not been easy. Farmers have typically preferred to invest in what they know and understand, either other farms, or at least land-based food-producing assets.
This approach to investment is not unlike New Zealanders in general, who love land above any other asset class. But buying farms has meant taking responsibility for every aspect of its value – the land itself and the farm business operation.
For farmers at or nearing the end of their careers and looking for avenues to retreat from farm work without abandoning farm ownership this wasn’t necessarily an attractive option. There has always been the possibility of bringing in a next generation family member as a sharemilker, for example, but this didn’t make the farm asset any more liquid to serve the interests of others, nor did it release capital required to fund a move off the farm.
Ross Verry, chief executive of private capital market platform Syndex, says the good news is that for farmers who feel most comfortable contemplating investing in what they know and like, the opportunities are expanding and becoming more attractive.
“Farmland has definitely become more investible with lots of different structures now available to appeal to investors with different risk profiles.”
MyFarm general manager for investments Con Williams says MyFarm is looking again at partnerships in dairy and sees new succession opportunities where farmers stay involved in their farm property as part of a syndicate. If the syndicate is based on a land lease, it will receive a lease rate without the syndicate participants having to worry about any of the operation.
This type of ‘leased property’ structure fits with the conventional wisdom that retirees should look for steady or safer investments with a passive income which should be more reliable and free of management risks.
The syndicate model also presents opportunities to exit if your priorities change. Rather than needing to sell the farm, divesting proportional stakes can be enabled though the likes of Syndex markets.
The creation of investment products that bring more flexibility in the ownership of farm assets also offers opportunities for farmers to diversify their investments into ‘adjacent’ food producing assets. Both Verry and Williams have seen strong interest among older farmers in syndicates owning horticulture, and particularly kiwifruit land and operations over the past couple of years.
Additionally, investment products are increasingly available to enable farmers to share in the growth potential of farm land development – something that in the past would have required investors to take a hands-on/boots-on role in realising that potential.
Verry notes that while farming may have become more complex, farm succession planning has in many ways become easier with far more options available. The desire for New Zealanders to own land has shown no signs of changing, and farmers can now more readily participate in that, earlier, rather than later.
