Herron Todd White NQ representative explores pros and cons of leasing

There is increased demand for agricultural assets in North Queensland in recent years, says valuers Herron Todd White.
There is increased demand for agricultural assets in North Queensland in recent years, says valuers Herron Todd White.

The trend for north Queenslanders to lease country as part of the operational mix of agricultural assets has been increasing over the last five years.

Herron Todd White’s Townsville-based representative, Roger Hill, has been observing the rise and described it as a sound business idea for many, while cautioning care in setting lease rent rates.

“There are a number of reasons a family might change from the status quo,” he said.

“They might have spare country due to lower cattle numbers, or a lucrative rental rate may be available, either from other graziers in need of grass or for solar or wind farm sites.

“Aging parents with children working elsewhere, that want to return to the bush, leaves the parents with a passive holding.”

Another reason leasing was under consideration was for succession planning.

Mr Hill said while there were a limited number of families who would lease out their country, there was demand for country to lease.

Lease rents currently range from 3.5 per cent to 7pc of the property value, depending on what each party was contributing to its operation.

While urban rent review models were linked to CPI, Mr Hill said agribusiness models needed to be in line with business performance, seasonal conditions or the cattle market.

“Rental growth and rates need to respect that there are droughts,” he said. “Tenant graziers do not need to be degrading the land condition to meet rent commitments.”

Other reasons for increased demand for NQ rural property to lease included:

Diversity of investment portfolio;

A hedge against inflation and economic/political volatility (capital preservation);

A pretty good return over time - HTW Australian Grazing Property Index (AGPI) shows an average capital growth since 1980 of 12.1pc;

All Ordinaries Index recently breaching the 6000 point mark (having nearly doubled from circa 3000 points in 1999);

Share market returns starting to look expensive at this stage of the cycle;

Leasing is attractive as potential superannuation type asset. The average dividend yield (All Ords) is just over 4pc.

Mr Hill said lease rents currently range from 3.5 per cent to 7pc of the property value, depending on what each party was contributing to the operation of the property.

He cautioned that rent review mechanisms needed to be sustainable. Urban models have reviews linked to the CPI, but Mr Hill said the growth rate of rent in an agribusiness model should be in line with business performance, seasonal conditions or the cattle market.

This story originally appeared on North Queensland Register.