The Valuation of Rural Leasehold Land in Victoria, Australia

Rural leasehold land is found in all areas of Victoria.The most common form of ownership is freehold.Leasehold land would represent less than 10 percent of rural land use, and it is utilised,usually for cropping or the grazing of livestock. This paper examines the features of a typical rural lease and the specific requirements of a significant lessor with large areas of property available to lease. The land surrounds Lake Hume in North Eastern Victoria. 84 rentals have been reviewed in 2008. This forms a case study for the paper. A methodology is adopted to calculate the rental or annual leasehold value, which is only used for the grazing of livestock. Firstly,one must be conversant with economic returns in the grazing industries. This is done by comparing the gross margin per ha of the grazing industries. The methodology involves examination of the current demand for rural land by sales,agistment rates (short term grazing), and examination and analysis of leases in the district. The methodology arises from an estimation of the productive capacity of the land known as the Dry Sheep Equivalent (DSE). The estimate is DSE per hectare. This method applies to all livestock. Once the productive capacity is determined it can be multiplied by a rate per hectare derived from market data, to reveal a rental value per hectare. The methodology applies to all types of rural land with varying productive capacities.Specific conditions in the lease may modify the $ rate per ha as analysed from sales. The methodology is very reflective of current market conditions. The methodology could also be applied to cropping land. In this case the productive capacity standard would be tonnes per ha of crop. The leasehold value or rental value of rural land is a direct reflection of the productive capacity of the land