Three factors that affect the value of horticultural land

Over the last five years, we’ve seen more and more rural land converted for horticultural use, particularly in Gisborne and Hawkes Bay.

In Gisborne, bare land and citrus orchards are being converted to kiwifruit, apples and sauvignon blanc. In Hawkes Bay, vineyards are being pulled out to make way for apples.

So there’s a lot of land use change happening on the East Coast – and this is influencing the value of flat land.

Carolyn Blair and Anna Paget explain why we’re seeing more horticultural land conversions and how this is affecting rural property values.

Why are we seeing increased land use change on the east coast?

On the East Coast, particularly in Gisborne, there’s good quality soil available at an affordable price (relative to other regions).

The East Coast also has scale that isn’t always on offer elsewhere. The Bay of Plenty has good infrastructure and is seen as a safe place to grow kiwifruit, but most suitable land there has already been developed, whereas in Gisborne and Hawkes Bay there’s still an abundance of cropping land with potential for conversion.

In recent years there’s also been more investment in cool stores, packing facilities and other horticultural infrastructure in Gisborne and Hawkes Bay, making these areas much more attractive to developers.

How is this affecting rural property values?

When flat land is converted from one crop to another (or from bare land to horticultural land), this has a significant effect on the value of that property.

Some crops are more profitable than others, so changing from one crop type to another will clearly have an impact on the value. In addition, converting land to a different type of crop means we look at different factors when assessing that property’s value.

For example, if we valued a vineyard in Gisborne, we wouldn’t put too much weight on water availability because viticulture is usually dry farmed in the region. On the other hand, if that land was converted to a kiwifruit orchard, water availability would be really critical to the property’s value, as kiwifruit requires a lot of irrigation.

How is horticultural land valued?

When valuing a horticultural property, there are several important factors we generally look at.

1. Water availability

Water availability is typically very important, as it can limit the highest and best use of the land (i.e. what type of crop the land is most suitable for). In Gisborne, there are two main types of water consent:

Water can be sourced from an aquifer, but it’s very difficult to get a new consent as aquifers in Gisborne are generally over-allocated. Alternatively, you can secure an A or B Block consent from the Waipaoa River. There’s a waiting list for an A Block consent, whereas a B Block consent can be easier to obtain.

In terms of value, an A Block consent is worth significantly more than a B Block consent because of the minimum water flows within each zone. Essentially, you’ve got greater security of water from an A Block than you do from a B Block consent. If your property has a B Block consent, water storage would be encouraged.

In Hawkes Bay, water availability is currently under review. The region is oversubscribed for water permits, so there’s no more water to be allocated. Land without a water permit may potentially never be granted consent.

If you have an existing water permit in Hawkes Bay you can re-apply for it, but the new permit will be based on actual and reasonable water use, so your existing water allocation may be reduced in the future.

As you can see, the type of water consent a property has will have a big impact on its value – particularly if the type of crop that’s grown on the land has high irrigation requirements.

A developer may pick up an irrigation consent from a citrus block, but that's not going to be sufficient for kiwifruit. Therefore, it’s crucial to check that existing consents are adequate for the type of crop you’re planning to grow.

It’s also important to bear in mind that the water consent is generally owned by an individual or entity rather than the property itself. Water consents can be traded, but they're usually sold with the land (in order to maximise the value).

2. Soil type

Soil type is another important factor we look at, as the highest and best use of the land can be determined by soil characteristics.

Horticultural soils are generally separated into classes. Class 1-2 soils are typically the most sought after for horticulture. Class 3-4 soils (heavier soils, often with higher clay content) tend to have good water retention, but they can become waterlogged.

Land with heavier soil tends to have a lower value, but this doesn’t necessarily mean it’s unsuitable for horticulture. Heavier soil retains water well, so it can be used for crops suited to dry farming. For example, heavier soil in Gisborne is mostly utilised for viticulture or citrus.

If the soil is heavy, improved drainage (e.g. tile drainage) can increase the property’s value significantly. In Gisborne, most of the land that’s recently been converted to kiwifruit or apple orchards has had improved drainage installed during the development, irrespective of soil class.

3. Climatic conditions

For some crops (e.g. kiwifruit), early supply is critical to profitability.

Therefore, if the land is likely to produce early in the season and allow growers to get the product to market early, the orchard will be more profitable and the land will be worth more.

When looking at climatic conditions, it’s also important to think about chill requirements. Some crops (like kiwifruit) have a minimum winter chill requirement that certain sites are unlikely to provide.

Sites with favourable climatic conditions are worth more, but poor conditions can often be mitigated. For example:

• If a site doesn’t provide the required winter chill, bud enhancers can be used to increase the percentage of buds that will burst
• In cooler areas, permanent covers and frost fans are often used to raise the temperature and provide protection from the elements

Do you need a horticultural valuation?

If you’re buying, developing, or selling horticultural land, our rural valuers are here to help.

We can provide specialised advice and valuations at all stages of horticultural production, including:

• Pre-purchase or pre-sale
• Pre-development (we’ll value the property as is and/or provide forecast figures)
• Annual valuations for financial reporting purposes

Get in touch with a rural valuer today

This article was originally published by TelferYoung