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Sep 12, 2007:
A survey of Absa AgriBusiness shows land prices in South Africa have risen sharply over the last three years.
The value of agricultural land rose sharply over the last three years, but it is closely related to the type of industry and its success in the respective provinces.
Marius Nel, risk manager at Absa AgriBusiness, says the steep increase in land value can mainly be attributed to the growing economy and especially the strong growth in the middle income group, which creates a large demand for property. This growth was especially drastic in and around the urban areas.
However, farming land's value increased less than that of commercial and residential properties, partly because of land claims against farming land and due to its smaller returns on investments.
Profitability in the farming sector dropped after market reform and deregulation. Global competition in farming commodities also makes it difficult for South Africa to compete as a nett exporter of farming products amidst an unfavourable exchange rate for exports, Nel says.
He says it should be taken into account that land is an extremely emotional and controversial issue in South Africa. There are distorted patterns of ownership and production and these lead to mechanisms for price formulation that vastly differ.
Price increases for farming land ranged from 157% over three years for a game farm in the north of Limpopo to just 26% for a farm in the Western Cape where table grapes are produced. The national average price increase for farming land in all the provinces was 18% per year.
The growth in the respective provinces and their most important industries are:
Limpopo The average increase in farming land's value was 25% per year over the last three years. The growth in the most important industries were the most with game, which was 157% over three years (52% per year), then citrus and subtropical fruits with 75% per year (25% per year) and livestock with 43% (14% per year). The game industry burst out of its seams over the last ten years due to large investments in game farms – especially foreign investments – because local land is regarded as cheap in the international market. This had a direct influence on the low growth in land for cattle.
The Eastern Cape Next to Limpopo, the value of farming land in the Eastern Cape appreciated the most. The growth over three years was 23% on average. Game farms' value also increased in this province with 70% over three years (23% per year). Livestock is second with 68% (23% per year) and citrus with 65% (22% per year).
Mpumalanga The average growth in the prices of farming land was 21% per year, with the strongest growth in land for cattle - 85 % over three years (28% per year). Second was sugar with 67% (22% per year), followed by maize with 57% over three years (19% per year) and citrus and subtropical fruit with 56% (also 19% per year).
The Free State The average increase in the price of farming land was 21% per year over three years. The price of land for sowing maize rose by 88% (29% per year) and for land for grazing by 83% (28% per year).
KwaZulu-Natal Land prices in this province rose over three years by an average of 20% per year. Land for forestry is 72% (24% per year) more expensive, 67% for sugar (22% per year) and 60% for grazing (20% per year).
The North West province The average price increase in the North West province was 19% per year over three years. The highest growth was land for maize by 72% over three years (24% per year), followed by game with 67% (22% per year) and grazing with 60% (20% per year).
Northern Cape The average growth in this province was 19%. Growth for the value of land for table grapes was the second highest. This growth was 146% over three years (49% per year). Land for cattle increased by 75% (25% per year) en land for game grew by 62% (20% per year).
Western Cape The average growth in the price of farming land in the Western Cape was the lowest of all the provinces which participated in the study.
Over the last three years the average growth was 15%. Land for grain increased the most in value – 86% over three years (29% per year), followed by soft fruit with 40% over three years (13% per year), vineyards for the wine industry by 30% per year (10% per year) and for table grapes only 26% over three years (9% per year).
The relatively low growth in land prices for table grapes, wine and fruits is attributed to problems these industries experienced over the last few years. It includes overproduction, a strong rand which harmed exports, price fluctuations and unfavourable international market conditions.
Gauteng Gauteng wasn't included in the survey due to the large variety of intensive land use patterns, such as vegetables, flowers, poultry and dairies. Land prices in this province were by and large influenced by purchases for lifestyle and suburb developments. - Nico van Burick
