By Charlene Wirtz
Farm land prices, it seems, have gone through the roof lately, and there have been a lot of rumours about who is buying land and why the prices went up.
The News talked to three of Saskatchewan’s agricultural realtors to answer these questions. Scott Comfort, of Re/Max in Wadena, Wade Berlinic of Hammond Realty in Yorkton, and Ted Cawkwell of Re/Max Saskatoon, based in Kelvington, were all gracious enough to share some of their knowledge and expertise.
Buying and Selling
All three realtors agree that it is still mostly farmers selling farm land, whether it is title transfers within families, retiring farmers or otherwise.
The last big peak in farm land prices was in 1981, which was the culmination of high returns in the 1970s among other factors. Land prices then started dropping rapidly until about 1993, when the climb started again. The start of a steep rise in land prices in 2007 continued until 2015 but is now expected to remain fairly stable.
According to Farm Credit Canada (FCC), farm land values have been increasing steadily since 2007, with rates of: 2007, 11%; 2008, 14.9%; 2009, 6.9%; 2010, 5.7%; 2011, a huge jump of 22.9%; 2012, maintaining the increase at 19.7%; 2013 up again at 28.5%; 2014 18.7%; and slowing down a little, 2015 at 9.4%. The 2016 numbers are not yet available.
The magnitude of involvement of investors in the large jumps in 2011 and 2013 is not totally clear. Certainly it is not the “investors are buying up all the farmland” that one hears on Coffee Row. Investors may be part owners of land, or outright owners renting back to farmers, but the numbers indicate that farm land is still primarily owned by the farmer who works that land or lives on it. There was an influx of investors in 2010, according to Cawkwell, but again not a significant percentage of total sales.
Berlinic credits the jump in land values in 2013 to interest rates and higher crop returns, rather than investors.
Comfort sees a lot of title transfers within families. “A lot of sales are family to family, title transfers from one member of the family to another, or from a family corporation to an individual in the family.” Out-of-province or even out-of-country buyers are present, but many of them are farmers looking to relocate.
Berlinic has noticed a reduction in farm land transactions, with most buyers still being farmers. “There is not as much land available now as there was three or four years ago.”
According to Comfort, the average prices in our area can be up to $200,000 for a good quarter-section or average at $150,000, and remain stable for good grain land. Province-wide, prices vary. Cawkwell noted that there are areas where prices are still climbing quickly. Berlinic commented that prices for good quality grain land are steady to strong, with some pressure on lower quality land (pasture or hay land, or with too much water to farm around, etc.).
Current prices vary regionally or even within a region. In our readership area, an inspection of current land listings shows a range of prices from a peak of $2429.33 per acre for 5094 acres of grain land, to a low of $375 per acre for a quarter-section of bare land. The peak price per acre at the time of checking was $2465.35 per acre for mixed grain and bare land – nearly all of which was cultivated.
To contrast this with our neighbours, there is a parcel of land near Red Deer, Alta., which is going for nearly $20,000 an acre, and another near Bashaw for just under $4000 an acre. A sampling of Manitoba grain land prices goes from $800 per acre to nearly $7000 per acre.
Farm expansion is likely the biggest factor behind the rise in land prices – big farms get bigger. But their debt gets correspondingly larger too. The farm land ‘boom’ has been compared to the housing boom, where prices have also risen rapidly, putting entry-level housing out of many people’s reach and raising household debt to potentially untenable levels.
Do our farmers share this risk? Farm asset values, including land, according to FCC, have risen 308% since 1981 (as of 2014), but farm debt has increased 382%.
The Farm Ownership Act came into being in 1974, which flat-out prohibited non-Saskatchewan residents from buying farmland. Amendments in 2002 created the Saskatchewan Farm Security Act, and changed the exclusivity to Canadian residents and Canadian-owned corporations (subject to certain rules). Non-Canadians and non-Canadian-owned companies are restricted to no more than 10 acres under outright ownership. Partially-owned foreign companies come under different rules again: up to 320 acres as long as the majority ownership is residential and farming is actively pursued.
The Saskatchewan Farm Security Act, administered by the Saskatchewan Farm Security Board, has strict rules about who is allowed to buy Saskatchewan agricultural land. While many moan that it is a buyer’s market, and that land values will go up if foreign ownership is opened up, there is more than just land value at stake. Local affordability may be an issue; for instance Ontario and British Columbia, the provinces with the highest land values, have unrestricted foreign ownership for agricultural land. There is also stewardship: will investors care about keeping the land healthy?
Sellers naturally want top dollar for their land; owners may want the assurance that their equity will increase in value. Buyers want the lowest prices they can get for good land. Market value (what sellers want) and fair value (what buyers want) are generally not the same anyway. Is there a happy medium? Will throwing open farm land sales force out smaller family farms? Will it lower interest rates and boost the economy? Will it prove best for Saskatchewan’s economy and citizens both?
Saskatchewan farmland values are still below world market values, which makes them an attractive investment – as long as value keeps going up. Investors want a return so they make a profit. While the current legislation is in place, however, the opportunities for investment are limited. It also means that the owner of the land is usually directly involved with working the land. Renting land and owning land can be compared to renting your house and owning it – who takes better care?
There is pressure on the government to open up farmland sales for investment, but in 2015, when the Ministry of Agriculture held consultations on changes to the Act, there was overwhelming support to keep investors out. Compliance will also be enforced, and fines have been raised for contraventions of the Act. For now, it seems, farmers will still be the driving force for agricultural land sales.
While farms are getting bigger, and fewer, there are still family operations running on a few quarter sections, not because they want to get rich, but because they love the land. One must question where is that factored into market value?