Plummeting interest rates – time to look at land.
By Con Williamson, Head of Investment Research, MyFarm Investments.
The recent drop in share markets and the prospect of further interest rate cuts will be leading many investors to assess the mix of investments in their portfolios.
Diversification is often seen as key to riding out volatility.
Land based assets provide a good option to add diversification to a portfolio. Land based assets have traditionally been lowly correlated with many financial market products and other types of real assets such as gold or other type of infrastructure offering investors a true diversification opportunity.
This low correlation is due to the different nature of how returns are derived and associated risks. A vineyard or orchard derives its returns from a range of different markets and as most products are exported, NZD returns tend to be supported by New Zealand's floating dollar, when times are uncertain.
In uncertain and volatile times such as now focusing on a long-term horizon is important. Land based investments certainly fit in this space with the investment time horizon generally being toward 10 or more years.
For example, significant long-term value can be created through development projects which are land backed. The challenge for investors is a delay in returns while the orchard is being established and capital gain only being realised when a property is sold.
But the flip-side in today's environment is the opportunity cost of waiting for these returns is lower than it has ever been. In other words with current term deposit rates at 2.0-3.0% an investor is foregoing much less than historically.
A MyFarm example of putting your money to work over the long-term is our hop garden development that is underway near Nelson. As it takes some time to convert a dairy farm into a productive garden there is an initial two year wait for returns that start out low, but are then forecast to hit 14% p.a. as the garden achieves mature production (7 years).
This is an example of taking the long-term view around a sector and being patient to achieve a higher return. The hop garden is also a completely different investment option compared with the listed company options on the NZX - offering true diversification.
ABOUT MYFARM INVESTMENTS.
MyFarm is a specialist syndication business providing land-based investment opportunities into the horticulture sector.
In the past 12 months MyFarm has raised $55 million from 335 kiwi investors for investment into 1 Northland avocado orchard, 3 Bay of Plenty kiwifruit orchards, 1 Nelson hop garden a Hawke's Bay vineyard and post-harvest coolstore. MyFarm's track record of total returns to investors across all permanent crop syndicates is 12% p.a.
ABOUT CON WILLIAMS
Con joined MyFarm Investments in July 2018 and provides investment insights for all primary sectors and the specific investment opportunities. Prior to this Con was ANZ Agri Economist for 8 years.
This involved sector analysis to inform bank lending decisions and help clients understand the key external factors driving their business. It also provided exposure to banking, financial markets and a broader sense of what drives businesses and the New Zealand economy.