Rural land continues to be in strong demand despite tight bank lending

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While housing prices in major cities have slipped, demand for properties in rural areas is outstripping supply.

Simon Dundon, general manager of sales and distribution at Rural Bank, said farm sales remained strong — even in parts of the country ravaged by drought.

“The average median price has gone up 6.6 per cent across Australia … [due to] consistently strong commodity prices for a few years in a row,” he said.

“We are seeing properties being assessed on market value, but also on what their return could be from an investment point of view.”

But even with such strong demand, those wanting to access loans to buy or grow their business are finding it harder to meet bank demands.

Free-range egg producer Dan Tarasenko was 48 hours away from putting his farm on the market when he found he could not secure a loan from any of the major banks.

“We quickly found out that trying to get what is a small loan in this space is essentially impossible,” the Bega Valley farmer said.

His farm had received a $250,000 government grant and required further capital investment to support the expansion of the enterprise.

“If you’re in a business that needs to grow to get to a certain level, to be sustainable in the long term, and you can’t access the capital you need to be there, you are just going backwards,” Mr Tarasenko said.

Inquiry heightened bank concern

The fraught relationship between farmers and banks was highlighted in the recent banking royal commission.

Recommendations made in the final report recognised the need for a greater understanding of the agricultural sector by banks and the need for better protections in times of financial distress.

But the inquiry itself created a level of uncertainty which has subsequently impacted some farming businesses seeking loan approvals.

On top of that, there had been a change in attitude in recent years towards rural finance criteria, said Sydney-based rural property expert Chris Meares.

As a result, Mr Meares said investment interest in agriculture had grown significantly, especially from the corporate sector.

National Farmers’ Federation President Fiona Simson said many farmers had reported tougher lending conditions now, even when compared to the millennium drought.

She said the banking royal commission had highlighted the tense relationship between farmers and banks and it was in need of a reset.

“We all know that agriculture is quite a different business in terms of the factors that agriculture is exposed to, the things outside a farmer’s control … so it’s important that [farmers] are able to work with people who understand [their] business,” Ms Simson said.

“We are going to have to see a change to ‘business as usual’ in the way big banks deal with their farmer clients.”

Credit crunch

From a numbers perspective, there was no reason for the loan request of Bega Valley’s Mr Tarasenko to be denied.

After first considering a loan with a second-tier lender, Mr Tarasenko was able to secure funds with a private investor — though at a much higher rate.

“We had a contact with a private, high net worth investor, for want of a better word, but our interest rate is probably double what a bank would charge,” he said.

Agriculture Minsiter David Littleproud, a former banker himself, has urged farmers to take advantage of an extended period of redress following the royal commission.

Aggrieved farmers are now able to seek compensation from banks from incidents stretching back to January 1, 2008 — longer than the usual six-year expiry period.

“This is a rare opportunity to seek some sort of justice for incidents which occurred between 2008 and 2012, and farmers have got 12 months to lodge those complaints with the Australian Financial Complains Authority,” the minister said.