Drought takes severe toll on farming property market

The next few months will be testing for the Western Cape’s agricultural property sector as it struggles to stand steadfast in the face of unrelenting pressure from the ongoing drought, which has severely hit the region.

Some markets are already suffering declines while others are reported to be surviving the challenges.All agricultural commodities in the province are struggling due to the water crisis. Carl Opperman, chief executive of Agri Western Cape, says damage is so far estimated at R14billion.

In the livestock sector, grazing and feed shortages have already resulted in massive culling, and harvest prospects for the deciduous sector are showing decreases in crop volumes. This is resulting in both the import and export markets taking strain.

“The industry is an important generator of valuable foreign currency inflow, which is now also under pressure. The estimate for the viniculture sector shows smaller crops than 2017. Grain yields have been far below average, with no yields at all in certain areas. 

“Agriculture’s water supply has been curtailed by between 60% and 83%. In the Lower-Berg River region, producers’ water quota has been depleted.  No water is available for the after-crop irrigation of orchards and vineyards, and this will have an effect on next year’s harvest,” says Opperman.

The drought is a major risk for the Western Cape agricultural economy.

This phenomenon has been a major factor in agricultural property performance in the parts of the country worst affected, especially the Western Cape, where it has “kept a lid” on prices over the past few years, says Joop Coetzee of RealNet Plotte & Plase. Despite this, demand for small holdings is “vibrant” and interest in large farms has “picked up”.

In addition, even though Coetzee says the agricultural property market was quiet in the last quarter of 2017, it has “revived substantially” since political and presidential changes.

Land claims have also been an issue in the market for years, but sales have not slowed since the Land Expropriation Without Compensation motion was passed in Parliament, he says, adding there has also not been a rush of owners wanting to sell farms.

“It remains to be seen if this scenario will change over the next six months, but there is a belief land reformation will proceed in an orderly, considered and legal manner so as not to threaten the country’s food security or the financial institutions that support the agricultural sector. Consequently we do not foresee a decline in interest. Serious farmers will always be interested in good land.”

Although the land reform proposals have not yet resulted in any noticeable reduction in interest shown in the larger commercial farms either, Daniel Joubert, agricultural property specialist at Harcourts Winelands, says the very dry conditions have had a significant impact on the market. This is because their value is directly related to irrigation water availability and supply volumes.

“Farms are sought after in areas with a good water supply as opposed to areas in which supply has been restricted.”

Joubert says, for the first time, agricultural water supply has been restricted in many areas this year. It has created a new baseline of water security on these properties and this is adversely affecting their desirability. Buyers in the commercial segment are focusing their interests on those areas not been affected by water restrictions, and this has led to properties in these areas being in demand.

Currently, the market for smaller lifestyle farms is also slow, says his colleague James Visser, attributing this to political uncertainty and widely-publicised farm security issues.

An additional factor influencing the Boland farm market is the “very low” prices attained for wine grapes, with many farms producing these fruits exclusively making losses, he says.

“While the lifestyle buyer is generally not reliant on farming profits for supporting the purchase of the property, they certainly do not like to take on a property showing operational losses year on year.”

The drought, however, is not to blame for reduced activity in this market segment, he says.

The land expropriation motion announcement, says Clive Lang, agricultural property specialist at Harcourts Midlands, has had a “profound effect” on sales as buyers either adopt wait-and-see attitudes or use the uncertainty as a negotiating tool to buy land at prices well below market value.

“Inquiries on agricultural land have slowed down dramatically.”

Lang believes the market will normalise “once the dust settles” and says the current slowdown is a knee-jerk reaction to these announcements.

“It could take longer than six months for the market to normalise, however a strong demand will persist for good quality agricultural land once there is clarity on these issues. Demand will be location-sensitive in areas where land claims are possible.