By Tim Kalinowski
While farm land has continued to appreciate in value in southern Alberta year over year, there are some early signs that land sales may be beginning to level off in some regions, especially for non-irrigated quarters.
“I think the price increases will slow down due to higher interest rates and the current price of land,” says farm realtor Ben Van Dyk, who works out of the Real Estate Centre in Coaldale. “We are probably not at maximum prices yet for farm land, but it all depends on how quick the interest rates will rise and if there are other uncertainties like those surrounding the NAFTA agreement, and there are quite a few other situations that can change the market dramatically.”
Tony Birch of Re/Max in Lethbridge concurs with Van Dyk’s assessment, but stresses demand for dry land and irrigated land still seems to be holding its own, with gains on the irrigated side offsetting a potential slowdown, for now, on the dry quarter side of the market— a market which has been dragged down a bit due to two years in a row of drought.
“Right now for irrigated land it’s a very hot market,” says Birch. “But I believe dry land is going to be tapering off in price … Last year we had a drought and people were still getting pretty good money for their dry land. Now this year we have a drought so the prices have levelled off, and anything over last year’s prices isn’t really selling. If there is a drought next year, there could be greater problems.”
Rod Wilson of Royal LaPage Venture Reality in Medicine Hat says that drop-off is already apparent in his part of south east Alberta, where most ag. sales tend to be in dry land quarters or in non-irrigated hay land.
“Moreso on our ranch real estate, the south east corner has been rather quiet the last two to three years in larger blocks,” confirms Wilson. “There has been smaller quarters perhaps sell, but overall it has been rather slow.”
This slowdown in some regions is confirmed by what Van Dyk has been seeing in the market— the closer to Lethbridge and other irrigated land in south west Alberta you are, the better the farm real estate market is right now.
“It’s still a sellers market, and there are lots of transactions happening right now,” he says. “There is still a shortage of supply of land.”
Birch echoes what Van Dyk says about proximity to Lethbridge, but feels its really pertains to irrigated land anywhere in southern Alberta— no matter where you might find it.
“You can’t find irrigated land right now to buy,” confirms Birch. “Nobody wants to sell at this moment because they all feel the prices are going up.
“That’s all over— whether I go east of Taber, Grassy Lake country, Vauxhall, Enchant country— in every place the prices are going up.”
“There is a little shortage of supply overall,” agrees Van Dyk. “If people are looking for land, there is still land out there. It’s not like there is no supply, but there is perhaps a bit of a shortage of supply to satisfy the demand. But the market still seems to be balancing to meet most of the need.”
Birch points to some other push factors driving the hot irrigated land market at the moment: Outside real estate investors wanting in on a good thing in southern Alberta and willing to pay big bucks to make that happen, a need to find new hay supply to weather this drought period, and, of course, the booming potato processing industry in the southern part of the province.
“The potato business is doing very well, and the potato business has been increasing in acreage,” states Birch. “And moreso coming up with the new Cavendish plant, adding an additional 9,000 acres of contracts.
“The demand for irrigated land with pivots, I believe, is going to be stronger than ever before.”
Good hay prices are another push factor driving the irrigated land market, adds Van Dyk.
“The hay price overall is very strong,” he says, “for export markets and domestic.”
But there is also a less tangible aspect to all of this, explains Van Dyk, which is nonetheless relevant to current market conditions and greater land demand overall: High input costs.
“Existing farmers even on dry land want to keep expanding to make more use of their farm equipment, because farm equipment is more expensive every year,” he says. “To rationalize some of the equipment, it sometimes means you need to have more land to farm in certain cases.
“And at the same time, for others, it’s a good market because they would like to have more money in land (as an investment).”
“Investors I deal with are looking for irrigated land to buy and rent out, because they know the appreciation is up every year,” he says. “It’s a good investment. Farmers may not be making much money the past few years with the prices and high cost of inputs, but where they have been making money is on the appreciation of their land.”
And that appreciating value seems to have kept the farm real estate market largely on an even keel in Alberta for the past few years, says Ken Gurney, a senior appraiser with Farm Credit Canada.
“There is basically still a strong demand for all land types across the board, from what I am seeing,” states Gurney. “There is very strong demand for irrigated land, but in dry land we are still seeing sales in that category as well. We are still increasing in value across the board.”
Birch, who has spent 42 years in the southern Alberta farm real estate business, says those looking to get in on the irrigated land push for the next few years might be facing a tough market.
He predicts what irrigated land does sell, will sell for a pretty penny indeed.
“I can give you and example,” he says. “Five or six years ago, you could buy a good quarter section for $1.2 million or $1.3 million. Today that same quarter would probably sell for around $2 million. And there are guys who won’t even sell for that price.
“They know this market is going even higher”