Farmers are failing to buy properties because the time to approve loan applications has skyrocketed.
Sprout Ag’s farm finance advisor Troy Constance said tighter compliance measures meant it was critical to prepare for purchases much earlier than before.
“It used to be that you come in, you’ve got a lot of security, a lot of equity, and the bank would say, ‘Yeah, that would be fine,’ but it’s not anymore, ” Mr Constance said.
Sprout Ag was now advising clients to start preparing financing six months before any planned property purchase.
It doesn’t take that long to get a successful application, Mr Constance said, but it took a lot longer than just a few years ago and borrowers had to jump over a lot more hurdles.
Best practices now involved three-year cash flow forecasts and comprehensive business plans.
Poorly prepared people risked refusal or higher financial costs.
Less local power
On top of that, the bankers that farmers had dealt with for years were often crippled by tighter systems.
“Generally speaking, there aren’t many agribusiness executives who have frontline discretion or credit authority that they once had,” he said. .
“They also need double the amount of supporting information than before.”
For example, Mr Constance said, many banks now need to view the tax portal’s records and half-yearly 12-month financial statements.
The standards of fairness had also changed. While many banks once accepted capital of at least 50 percent, the benchmark had risen to over 55 percent or even 60 percent.
The proof of fairness was also stricter. The evaluations had to have been carried out within the last two or three years rather than five and, normally, by professional evaluators.
All of this meant that many potential buyers, even those with solid businesses, couldn’t arrange for financing in the typical six weeks leading up to an auction.
LAWD agent and auctioneer Col Medway said the delays had had an impact on how the properties were sold.
“At the moment our preferred method of selling properties is expression of interest rather than auction, mainly due to the freezing pace at which banks are approving financing approvals for buyers,” he said. .
“Right now, it’s pretty risky for a vendor to run an auction with a six-week marketing campaign, which is standard, because there’s a good chance that a majority of the domain will have not unconditional financial approval to go and bid at this auction. “
The Australian Banking Association has said delays occur when there is an extremely high demand for new loans, but no Royal Commission recommendation has changed the loan application process or allocated the time required to process a loan. ready.
“Following the Royal Commission, the banks naturally reacted by acting with caution,” said a spokesperson.
“In the three years since the Royal Commission, banks have continued to improve their processes, which are now much more streamlined.”
It’s time to sell
On the other side of the equation, it was just as easy to underestimate the time it takes to prepare a property for sale.
Ray White Tamworth’s agent Stuart Southwell said it was possible to get a bargain price for a property with a short campaign, but better planning paid big dividends.
“If someone called me up and said, ‘I want my place in the market in two weeks’ I would think it would be a bit rushed,” he said.
“If the idea was that we wanted to do it in the next two or three months, the day we pull the trigger, everything will be up and running and looking great and you will have a better start.”
Plan to present
Mr Southwell suggested landowners contact him up to six months in advance to discuss their plans in confidence.
“I might just find the buyer over the next few months before they’re on the market, who’s just the person for this property,” he said.
“There is the possibility of doing an off-market deal in this case, which a lot of people really prefer – confidential, cool, calm and serene outside of the pressure of an auction room.”
It also allowed the marketing campaign to showcase the property in its best light.
“In April, you can’t take spring photos anymore,” Mr. Southwell said.
“What will the hero image on your property look like by then?”
“I think people underestimate the power of marketing and if you have a long lead time to sell you can structure the pitch a lot more for a venue.”
In fact, Southwell said, savvy sellers have prepared an image for potential buyers well in advance of formal marketing with a combination of property presentation and careful registration.
“The incoming pool of buyers becomes much more detail-hungry than the pool of retired sellers,” he said.
This meant that a farm that could produce comprehensive data, such as fertilizer and chemical applications, as well as production numbers, was more attractive.
Mr Southwell said that prior to a recent sale, the farmer’s son had done soil tests, applied gypsum, and then broke his own hay crop record of 18pc.
“It was a great story to tell a buyer to show that these guys aren’t just growing blindfolded, they’re actually looking at the numbers,” he said.
“When you’re trying to compete with other ads to attract buyers to what you’re selling, the farmer can do a lot by giving us these tools.
“At the end of the day, most buyers have to go to a bank that won’t be impressed by a poplar-lined driveway, they look at the property’s credentials from a production standpoint.”
Still, said Southwell, the aesthetic presentation of the property should not be underestimated.
“The owners themselves have to see that they are as much into the real estate game as they are into the farming game and part of the plan every year is just to think about the presentation,” he said. .
“It’s the paddock before everyone walks past and tidies the front door, makes it look like a solid company.
“Mow that strip down the front so you get a good reputation in the market before you even hit the market.” “
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