While farmland has traditionally been valued according to factors such as soil quality, rainfall and production potential, the market is increasingly rewarding resilience, income certainty and long-term sustainability.
Land is no longer being priced simply on what it can produce, but on how consistently it can produce under increasingly uncertain conditions, says Sakhumzi May, the chief agricultural economist at the Land and Agricultural Development Bank of South Africa (Land Bank)
SA’s agricultural land market is undergoing a structural transformation
In a thought leadership column recently shared, he says SA’s agricultural land market is undergoing a structural transformation.
The Land Bank is a specialist agricultural Development Finance Institution(DFI) that provides financial services and products to the commercial farming sector, agri-businesses and facilitates the inclusion of new entrants and historically disadvantaged persons in the agricultural economy.
Water security is now among the strongest drivers of agricultural land values
“Our latest analysis of agricultural property transactions across all nine provinces shows that water security has become one of the strongest drivers of agricultural land values.
“Irrigated land, secure water rights and reliable irrigation infrastructure continue to command significant premiums as producers seek to reduce climate-related production risks. In an era of increasing water scarcity, water has become a strategic asset rather than merely another production input,” May says.
Well-developed farm infrastructure is increasingly capitalised into property values
The chief agricultural economist says what is equally important is the growing value attached to productive infrastructure.
He says modern irrigation systems, protective orchard netting, packhouses, solar installations and well-developed farm infrastructure are increasingly capitalised into property values because they improve operational efficiency, reduce risk and strengthen cash-flow stability.
The market is rewarding investments that enhance resilience rather than simply expand production capacity, he adds.
Farm investors are increasingly favouring predictable cash flows over speculative future returns
The specialist agricultural financier says another notable shift is the premium placed on income-generating assets. It says bearing orchards, established irrigation schemes and well-developed commercial farming operations consistently outperform assets that still require substantial establishment capital or carry greater production uncertainty.
Investors are increasingly favouring predictable cash flows over speculative future returns, it says.
“Climate risk is also becoming directly reflected in farmland values. Properties that offer production flexibility, reliable water supplies and resilient farming systems are appreciating more strongly than those exposed to higher climatic and operational risks. This illustrates that climate adaptation is no longer only an environmental imperative – it has become a financial one.”
There is no single South African farmland market
At the same time, May says non-traditional factors such as crime, stock theft, infrastructure reliability and proximity to residential settlements are exerting greater influence on investment decisions. He says these risks increasingly affect both farm profitability and asset values.
The analysis further demonstrates that there is no single South African farmland market, he adds. “Each province reflects unique economic drivers shaped by its production systems, water availability, infrastructure, market access and climatic conditions. National averages therefore conceal increasingly localised investment dynamics.”
The resilient farms will be the farms that retain and grow their value
The Land Bank says that for financiers, investors and policymakers, these trends have important implications. It says agricultural property valuation and financing must increasingly account for resilience, productive infrastructure, water security and sustainable income generation, rather than relying solely on historical comparable sales.
“The message from the market is clear: the future value of agricultural land will be determined not only by its productive potential, but by its ability to remain productive in an increasingly volatile operating environment. The farms that are resilient will be the farms that retain and grow their value,” says May.
Last month, Peter Setou, the chief executive of the Vumelana Advisory Fund, said repositioning land reform in the minds of the youth is not about changing perceptions of land itself, but about changing realities on the ground.
He said that for years, public discourse has focused heavily on the act of land restoration and ownership. Yet, he says, as land is being restituted, many young people are still struggling to find their place within the system and to benefit from opportunities that can improve their social and economic circumstances.
Lack of equity and track record to satisfy commercial banking collateral requirements
The public-benefit organisation that was established to support land reform beneficiary communities said that while some communities have achieved pockets of success in youth involvement in land reform, in many others, much work needs to be done as young people continue to encounter severe structural barriers to entry.
It said these barriers include lack of secure land tenure, lack of equity and track record to satisfy commercial banking collateral requirements, and lack of access to established supply chains.
“To truly integrate the next generation into rural economies, we must intentionally redesign the post-land-settlement ecosystem, making redistributed land a functional vehicle for genuine economic inclusion.”
Moving beyond the administrative act of property transfer
Meaningful land reform requires moving beyond the administrative act of property transfer, Vumelana said. The organisation said this has to focus squarely on long-term asset activation to drive the productive use of land and to actively involve young people in the value chain.
According to Excellerate JHI, historically, property performance was driven by location, tenant mix and rental growth. The real estate services firm says those fundamentals remain important, but a new set of factors is rapidly emerging. It says these include:
- Energy resilience.
- Water efficiency.
- Smart building technology.
- Occupier experience.
- Operational intelligence.
The future belongs to properties that are adaptable, resilient, and intelligently managed.
As buildings become more complex, owners and investors will increasingly differentiate themselves through how assets are operated- not just where they are located, the firm says. “The future belongs to properties that are adaptable, resilient, and intelligently managed.”
