DomaCom sees demand for agriculture investing

16-Mar-2016

By Kristen Crawford

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Widespread interest in the Kidman & Co pastoral holding demonstrated immense retail appetite for investment in agricultural assets, according to property crowdfunder DomaCom.

The high volume of interest that had resulted in 4500 mum-and-dad investors committing more than $70 million to acquire a stake in Kidman was spawned by two interrelated themes, DomaCom chief executive Arthur Naoumidis said.

The first of the two themes was the public’s desire for rural property, as distinct from rural businesses, to stay Australian-owned, and the second was the realisation it was a good defensive asset that suited most investment portfolios, Naoumidis said.

“Although the value of agricultural land fluctuates in line with the highs and lows of climatic changes, such as drought, it attracts reasonable yields and enjoys capital gain,” he said.

“In our opinion, domestic investment into agricultural assets has the potential to be a significant game changer in the rural sector as the replacement of debt with long-term investment equity not only provides stability to rural enterprises, but can substantially reduce the debt servicing load for the operating business.

“This has many benefits, including more robust business structures by reducing debt servicing, the ability to reinvest by the operator into operating assets such as cattle, feed expansion, equipment for improvement, thus enhancing the outcome of greater revenue to increase equity or for further expansion.”

Australia’s $2.1 trillion superannuation industry, including the SMSF sector, should also be encouraged to increase its exposure to rural property to a 2.5 per cent asset allocation from the current 0.3 per cent, he added.

“Investment in our agricultural sector will encourage young people to stay on the land, particularly if equity capital can be crowdfunded through investment channels to give relief in the often never-ending cycle of debt that many on the land face while trying to increase productivity,” he said.

“Co-investment instead of debt leads to equity-based succession planning that is more attractive to the next generation of owners and would encourage many young people to stay on the land.”

There seemed to be a disconnect between Australian fund managers and their overseas counterparts, who saw a clear benefit in the local agricultural industry, he said.

“DomaCom believe the government must encourage an increase in current domestic investment levels,” he said.

“There have been many failures over recent years in the agri-sector, but many of these have been tax-driven schemes without the backing of solid assets, such as the land, and were also heavily geared.”

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