SELLING THE FARM?
August 23, 2010
Farm For Sale?
One elephant sized reason as to why properties are going to be difficult to sell is discussed in an article by Carylon Cummins, in the Sydney Morning Herald, Monday 22 February 2010. She starts by saying,
“Take a deep breath and watch the fine print. Property owners have basically been allowed to manage the process of appointing a valuer” when selling their property. She goes on to say, “This may be a thing of the past.”
Not only have many banks been running wild, lending to all and sundry with little or no collateral with the result that countries like NZ have simply borrowed too much. This, of course, includes private individuals with personal debts.
I would have expected the International banking sector to put some aligning mechanisms, or at least some guidelines, in place, to minimise the risk caused by this to the world financial sector.
Cummins article points out three simple rules around a “loan value ratio and associated risk”, that I would suggest that no government or banking group will be able to avoid simply because the IMF will not continue to lend to them unless they comply.
- Banks will be expected to keep within a stated risk profile by keeping a certain cash requirement, (nothing new here). But the risk profile cash requirements will increase perhaps to 2% for urban and to 15% for industry.
- To have the ability to borrow only 65% against the property.
- The requirement to fund the rest personally.
Farming, our economic driver is mortgaged to the hilt. Many farmers have relied on capital gains to pull them through and we all know of several who are farming and living off a benefit. I would not expect banks to move wholesale into implementing the above scenarios but if the Australian banks are feeling their way through the process then it will happen here.
Our problem is, who will have the skills, the cash and motivation to buy a business with input costs greater than the profit?
All this information leads one to believe that farm values have a deal to drop yet, perhaps to a point where a 6% return is attainable.
Anthony Armstrong
Feb-Aug /10
