Are South African Farms Over-Valued?

Farm values depend on multiple variables and the decision to invest in farmland is determined, in part, by the prevailing political and policy environment.

- Dawie Maree

It is well-known that the value of farmland in South Africa has increased substantially over the past decade. Arable land acquired for R6 000/ ha in 2001 sold for R50 000/ha in 2013, and as much as R70 000/ ha in 2015. Over the same period, the cost of grazing land increased from about R800/ha to R5 000/ha or more. As an example, the appreciation in land values in the Eastern Cape between 2002 and 2016 is indicated in Table 1.

On average, the value of agricultural land has increased tenfold over the past 15 years. Is therefore pertinent to ask whether farmland in South Africa is currently overvalued.

There is no straight or simple answer to this question. Land value is a complex issue that depends on a number of variables. These include soil potential; the availability, rights and status of water; location and proximity to markets; the available infrastructure and its condition; and the status of current farmworkers with regard to permanent tenancy.

Most farmers will be willing to pay a premium for land that adjoins their existing land holdings. Valuers will also consider several other factors when valuing farmland for loan applications, and these may not correspond with the buyer’s perceived value of the land.

A USEFUL BAROMETER OF THE AGRI ECONOMY