NQ property leasing on the rise

Herron Todd White NQ representative explores pros and cons of leasing


Aging parents with children working elsewhere, that eventually want to return to the bush leaves the parents with a passive holding that can be leased, according to HTW's Roger Hill.

Aging parents with children working elsewhere, that eventually want to return to the bush leaves the parents with a passive holding that can be leased, according to HTW's Roger Hill.

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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.

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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.

The owner-operator model of a viable business is how the majority of cattle stations in the north have been run for generations, but Mr Hill said families were leasing out their properties in greater volume for a number of reasons, despite having maximum exposure to both income and capital growth.

“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, which are increasing.

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

Roger said another reason leasing was under consideration was for succession planning.

“By leasing the family property to the future owner, the intending beneficiary (through either bequest or sale) can grow their business with the eventual goal of owning the property.

“This is quite a popular way for the younger generation to get a start and also provides the retiring parents with some income and perhaps enable some taxation efficiency.”

Other reasons for leasing included financial restructuring, superannuation and taxation management; and asset protection and wealth creation.

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

It’s an especially popular option for young people starting out, and for established graziers expanding their herd size prior to buying a property.

“Agisting country does not provide the tenure security, so leasing is certainly an option.”

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.

Typical urban models have reviews linked to the Consumer Price Index, but Mr Hill said the growth rate of the rent in an agribusiness model 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. “Also, given the link between good land condition and business performance, tenant graziers do not need to be put in a position of pushing the country and degrading the land condition just to meet their lease rent commitments.”

He noted that the business performance and sustainability of the lease needed to be considered.

“Of late, there has been an increase in investment vehicles – trusts and listed fund managers – buying rural assets and leasing them back to the grazier or to a related operating entity.

“In time, this is likely to increase, especially as a superannuation investment option, but the sustainability of rentals and their annual increases is critical.

“These agreements need to be win-win for both the business and the landlord.”

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