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Higher farm prices 'here to stay'

15 Nov 2006
Some people are willing to put lots of money into farm land. Farms within easy reach of cities, as well as Karoo farms, are selling like hot cakes.
Although the price of farms has followed the same trend as land in the cities, showing a sideways trend, or even a dipping movement in the light of rising interest rates, there are still people willing to pay top dollar for break-away spots on the platteland.

The price people are willing to pay for properties within 150 km from the city, with a river and perhaps a few kloofs, where wildlife can be accommodated, bears no relation to the agricultural value of the land.

According to Mr Frik de Jager, manager of CMW's property division in Port Elizabeth, the farms in his portfolio are going quickly. "About a year ago, I would have had to wait about two months to find a buyer, but these days it takes me three months. The price of land is moving sideways, as is the case with city property.

"These days, more and more developers are entering the farm property market, and this has a skewing effect on the agricultural value of land. The trend which started along the Kruger National Park, where many private game reserves with holiday chalets were created, is now spreading countrywide," says De Jager.

"To turn a farm into a lifestyle development is not an instant recipe for riches, however. There are many rules and regulations to comply with. It can cost a lot of money and it can take a long time before plots are sold and housing can be erected. To get the required permission can take up to nine months, even if no objections were made."

A farm owner with such plans in mind should first examine his title deed very carefully to determine any limits to population density which may apply to his property. Depending on the type of development, it may be necessary to have the property rezoned from agricultural to game park, ecotourism or for whichever other purpose it would be used. The Subdivision of Agricultural Land Act is still in place, and special permission for subdivision must be applied for from the Minister of Agriculture.
In most cases, approval for such a development is also required form the local authority. This can only be had following an environmental impact study. After the study has been completed, the owner should advertise his intentions in the media and get permission from his neighbours who might be affected by the development, says De Jager.

According to him, it is far easier to develop farms in the vicinity of well-known national game parks and conservation areas, such as the Baviaanskloof. "In these areas, the obstacles are fewer because conservationists are in favour of any action which limits traditional cattle farming."

A developer developing a farm near Alicedale in the Eastern Cape into a lifestyle development recently had some fierce opposition from Agri Eastern Cape, because of fears that the underground water needed by the development may be in jeopardy.

According to De Jager, farms in the Karoo are very popular. "Apparently, there is a snob factor involved for people who own Karoo land. In the eastern parts of the Karoo, the average price of farm land is between R1 000/ha and R1 200/ha. In the western parts, the price can be three times this much. Keep in mind that the average size of a farm in the Karoo is between 3 000 ha and 5 000 ha.

In his opinion, the best bargains are the farms bordering on the Transkei. The carrying ability here is a lot higher than in the Karoo. But even here, land is seldomly sold for less than R1 000/ha.
In the Western Cape, land with table-grapes are selling for between R120 000/ha and R150 000/ha. Wine grape farms are selling for more reasonable rates, from R60 000/ha to R80 000/ha. The price of land at Franschhoek and Jonkershoek, Stellenbosch, is certainly not in line with agricultural value. This land is sold for lifestyle purposes, and prices vary from R700 000/ha to R1 million/ha. "In fact, there is a property of 17 ha in Stellenbosch in the market for R35 million."

The price of arable land varies, from between R4 000/ha and R6 000/ha near Moorreesburg and Malmesbury to between R8 000/ha and R10 000/ha in the Caledon region.

There are many buyers for land in the bracket of between R2 million and R2,5 million. When the price of farms go up, however, the number of potential buyers decreases. De Jager's advice to sellers whose asking price is R4 million or more, is to subdivide the land and sell it in two or three plots, depending on circumstances. "Two properties priced at R2,5 million each will sell easier than a single farm of R5 million."

According to Mr Gawie Kleynhans, manager of BKB's property section, one should keep in mind that the water rights alone of farms in irrigation areas can cost up to R18 000/ha. Arable land in the Fish River valley can be had for between R24 000/ha to R30 000/ha. Somerset East, Bedford and Adelaide are more popular areas.

Mr Louis Rheeder, estate agent in McWilliams and Elliot in Port Elizabeth, says that although farming was regarded as a form of life thirty years ago, these days farms are run as businesses.

"Many buyers are not interested in traditional farming, but require a weekend breakaway where game can be accommodated. The previous six farms sold by me, were all bought by business executives. The smaller farms within 100 km from the Friendly City are all very popular. Buyers often don't care what the improvements look like, but Eskom power and natural splendour with water and kloofs are certainly requirements."

The rise in agritourism gave land prices a boost. There is talk that soon only game that is indigenous to the region may be kept on game farms, which may have a downward impact on land prices.

"This means that only kudu, bushbuck, impala, grey and red rheebok as well as a few smaller species of game would be allowed. Tourists and hunters are also interested in other species, namely waterbuck, nyala and the Big Five."

According to Rheeder, farmers looking for ways to supplement their income should consider bed and breakfasts. "In the last couple of years, there has been an influx of foreigners who prefer to stay on the platteland and stay on a farm for a day or two. Although game is a drawcard, some tourists are interested only in experiencing normal agricultural activities. These days, more than just hunting is popular, if the farm is located in a beautiful area."

Black farmers are very keen to buy land, although very few enquiries lead to sales, says Rheeder. The problem is that although the Land Bank may be willing to lend money for buying land, buyers struggle to get funding for development after having bought the land.

He knows of cases where white farmers were keen to sell their land to black farmers, but the transactions fell through after lengthy delays and failed attempts to get financing. "Sellers may be more willing to accept a lower price if they know the money will be in the bank soon, than to sell for a better price, and wait two years or longer for the money to be transferred."

De Jager agrees. "Farmers or agencies are not to blame for the fact that few farms are sold to black farmers. It is clear that the Department of Land Affairs are still unable to get its house in order on this issue."

Rheeder thinks that violent crime in certain districts may be a factor why certain farmers are selling the land. "This is especially true for older farmers whose children are no longer in the house and who have no heir to take over the farm. Their families insist that they sell the farms and live in the safety of retirement villages."

Most property agents to whom Landbouweekblad had spoken, were confident that high farm prices are here to stay, unless something drastic happens at political level. The interest rate will, as is the case with city property, have an influence on the price of land, but a dip in the market is not expected.

However, in the light of the low percentage of land being transferred to black farmers, which may indicate failure of the government to reach its target for 2014, leads to a lot of uncertainty about what the Department of Land Affairs might do to improve on its performance of the past 10 years. – Theuns Botha

Article courtesy of Landbouweekblad.

For more information contact send an email. Click here to visit the website.

For more agricultural property matters, visit www.agritv.co.za.

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