Buying and selling of agricultural property is generally more complicated than other property transactions, which means parties need to know the ins and outs of the process – as well as what to look out for. In addition to the usual rules that apply when it comes to due diligence and correct pricing, agents say there are some added intricacies involved.
Zoning considerations, for example, need to be taken into account, says Basil Riddle of Rawson Properties in George.
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There are two types of zoning in South Africa: Agri 1 and Agri 2.
“You need to know what your rights are on the different types of zoning levels, as well as the types and sizes of infrastructure that are accepted. “You might also have certain areas on the agricultural land that are protected, meaning certain species of fauna and flora cannot be removed.”
Furthermore, he says farmers with a lot of vegetation need to make sure their boundaries are kept clear as far as firebreaks are concerned. Purchasers must do their homework and be aware of, and understand, these details so that they are prepared when they go to view a property. “Buyers who aren’t from an agricultural background need to be aware of the basics such as soil types, annual rainfall and climate for that specific geographical area; what types of crops are good for that type of climate and soil,” Riddle says.
Pricing and demand
Willie Janse van Rensburg of Seeff Riversdale notes that agricultural properties are often not formally listed. However, those that are currently listing, are listing at a higher price because of the high demand. Nonetheless, sellers are accepting lower offers.
“High demand areas include the southern Cape for the safety and good infrastructure.” Pam Golding Properties’s Clarence and Odette Collins also say that listing prices of agricultural properties are still at the high end – or at least on value. In other words, they are not cheap.
“Depending on circumstances and motivation for selling, though, sellers are willing to adjust prices accordingly. Well-known commercial wine estates and lifestyle estates are still in demand but, depending on the property type, location, and reasons for selling, the gap between the listing and selling price varies.
“Stellenbosch remains a sought-after location, in particular the Golden Triangle, together with Banhoek and Jonkershoek,” Clarence says. Gregg Rippon, of Pam Golding Properties in the Eastern Cape, says buyers and sellers are “always a fair distance apart with their offers”, so the challenge is to bring the two together. The difference can be as much as 30%. In terms of demand, he says farms with irrigation are always popular. Demand has been reduced by restrictions relating to international travel and Covid and the recent unrest in KwaZulu-Natal which has affected sentiment.
“The fact that there are no international buyers has had a significant dampening impact on the market and often sales to South Africans are dependent on neighbours purchasing their farms due to the current constrained economic environment.” Chris Cilliers, chief executive and co-principal for Lew Geffen Sotheby’s International Realty in the Winelands, says the sale of a commercial farm is a business transaction and that, during the due diligence period, the correct price will always emerge. It just depends on how motivated the seller is.
“Lifestyle property that offers a better lifestyle at a similar price to a residential home will always be attractive and will sell when priced in line with the market.” Although it is difficult to pinpoint the difference between listing and selling prices, she says there could be a 10% difference on lifestyle farms. There is still an appetite for good commercial operations, with a known brand and established history, particularly if they are offered at a market-related price.
“With the favourable exchange rate for foreign investors, there is still offshore interest. There have been several sales of large commercial farms in the Winelands in the past year, despite the disruption of the pandemic.” Cilliers says the PaarlWellington area has seen “big demand”, due to attractive pricing, while Stellenbosch is “always in demand” but carries higher price tags.
Joff van Reenen of High Street Auctions says, ultimately, the value is relative to the market. “Selling in the middle of a Covid pandemic will affect the value of agricultural property just as it will the rest of the real estate market. However, if you do have consistently strong production, your financials are in good order and you have good water access, the property will be in a stronger market position than others on sale in the district that aren’t on par. It should hold value. “Cash is king right now. Lockdowns affect the market, as does political unrest.”
However, Van Reenen believes that owners of agricultural property should “hang on if you can”. This is because property market investment is a long game and Covid is still going to be around for a while. “Work the land, make sure production is strong, pay as much attention to your financials as to the maintenance of your property, and hang on because the storm is going to linger.
“But, if you can’t, get your house in order in every sense before you put the property on the market. Ensure that everything works on the property, get your books up to date, get your production records in order, and educate yourself about current market conditions.” Cilliers says those who choose to sell now must have a good valuation carried out by a qualified valuer and then price the property competitively.
“We have a qualified valuer as part of our agricultural team and this results in much more realistic values,” she says. Sellers should also work with a reputable agency and an experienced farm agent and view as many properties as possible. Janse van Rensburg says sellers who need to raise capital should consider selling their smaller title deeds with marginal agricultural potential.
Echoing Van Reenen, Odette Collins adds: “The sale process of agricultural properties can be very complex and it is advisable that sellers have all documentation at hand such as water rights, building plans, regulatory licences and approval certificates before going to market.”
She advises buyers to familiarise themselves with the area and local by-laws and ensure that municipal and regulatory approvals are in place. Janse van Rensburg says: “Buyers need to do their homework and research properly – especially if they are not from the area – and work with a credible agent. Important aspects include ensuring you are paying a fair price and that the property has access to water. “An investment in a property in the Southern Cape is worthwhile as prices are increasing all the time.” Rippon recommends buyers look to purchase in areas such as the Eastern Cape, Western Cape, and Karoo “where it is safe and preferred by many investors”. Van Reenen says, essentially, an agricultural property has to have commercial viability – and water. “A farm has to make money.”