NSW rural land performance : 1990-2008

Abstract

The annual income return for rural property is based on two major factors being commodity
prices and production yields. Commodity prices paid to rural producers can vary depending on
the agricultural policies of their respective countries. Free trade countries, such as Australia and
New Zealand are subject to the volatility of the world commodity markets to a greater extent
than those farmers in protected or subsidised markets.
In countries where rural production is protected or subsidised the annual income received by
rural producers has been relatively stable. However, the high cost of agricultural protection is
now being questioned, particularly in relation to the increasing economic costs of government
services such as health, education and housing.
When combined with the agricultural production limitations of climate, topography, chemical
residues and disease issues, the impact of commodity prices on rural property income is crucial
in the ability of rural producers to enter into or expand their holdings in agricultural land. These
problems are then reflected in the volatility of the rural land capital returns and the investment
performance of this property class.
This paper will address the total and capital return performance of a major agricultural area and
compare these returns on the basis of both location of land and land use. The comparison will be
used to determine if location or actual land use has a greater influence on rural property capital
returns. This performance analysis is based on over 35,000 rural sales transactions. These
transactions cover all market based rural property transactions in New South Wales, Australia for
the period January 1990 to December 2008. Correlation analysis and investment performance
analysis has also been carried out to determine the possible relationships between location and
land use and subsequent changes in rural land capital values.