💰Top 10 Factors Affecting Estancia’s (large farms) Value

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The valuation of an Estancia and finding the price per hectare is substantially different than other types of real estate. While residential and commercial real estate prices typically rely on data based upon numerous transactions within a defined market area that can be defined as “comparable sales,” most Estancia sales are not published on any database, and there are relatively few transactions that close within a two-year time frame, and there is no defined market area. Due to the uniqueness of ranches, two properties can be adjacent and vastly different properties with few comparable traits. In addition, there are real absorption trends for Estancia and demand is not driven by growth. Thus, comparative comparable sales data can be scarce. When looking for data, we often have to look at sales beyond two years or expand our search regionally or nationally to find a comparable sale. Due to the lack of applicable market data, we must look further for proper valuation. When we evaluate a ranch or sporting property, here are the top factors that affect value:

#1: Water Rights

Water is a key valuation component, especially in dryland regions and a pivotal cornerstone in acquiring an Estancia. They will stay with the property unless the water rights are sold off. Recreation, agricultural income, wildlife habitat, and the overall ecological health of a ranch all depend on water. Understanding the water rights of a farm is crucial; age, volume and source are important issues. Just because you have a visible stream or river running through your deeded acreage does not necessarily mean you can use it. Sometimes there are separate markets for the water itself, but often it is the contributory value of the water right in the form of irrigated and sub-irrigated acreage, ponds, lakes and riparian areas that need to be considered.

#2: Access

Access is a fundamental issue to land ownership, and access issues need to be scrutinized when evaluating an Estancia. Do not assume that access to an Estancia is deeded or insurable and title commitments need to be reviewed.  Are you purchasing non-contiguous properties, and is there access to these parcels? Lack of certainty to insurable, deeded, and year-round access off a public road will impact values. Note that this access issue also relates to the rights of others to cross your deeded ground to reach adjoining land or to access water ditches (easements). Also, is the Estancia accessible to amenities; how close is the ranch to regional airports, resort towns or supermarkets? Is the road to your Estancia maintained by the county or the Province? These are all considerations that certainly impact land values.

#3: Recreational lands

The availability of recreational resources on Estancia plays a substantial role in influencing Estancia’s values. Many buyers purchase Estancias for recreation, fishing, hunting, hiking, ATVs, or other uses. Perhaps one of the greatest impacts on value is the presence of wildlife or fishery habitat and the availability of hunting rights for the specific area. Rivers and streams that have a functioning fishery obviously increase the value of a ranch and vary based on the quality of the stream and the fish that reside within them. 

As a potential buyer of an Estancia, you should understand the property’s ecology and the habitat’s condition, both on the Estancia itself and any adjoining properties. 

#4: Adjacency to National Parks

Estancia values are typically enhanced due to adjacency to national parks as these lands may act as open spaces. Leases on adjacent lands may increase the grazing capacity by a substantial amount and also allow properties with significant hay production to rotate cattle off prime irrigated lands during hay season on adjacent lands, affording greater operational efficiencies and profitability.  In addition to this operational aspect, neighbouring lands can increase a ranch’s sporting and recreational opportunities, enhancing value.

#5: Improvements

The value that improvements add to an Estancia depends on the property’s size, use, and scope. Operating/working Estancias can benefit from good functioning working improvements. Well-maintained sheds, draughting yards, gates, and fences all enhance value, while visible signs of deferred maintenance can significantly reduce value. A balance of well-maintained facilities is typically the objective as sellers often have issues recapturing values on over-improved properties.

#6: Agricultural Production

Estancia and large farms, by definition, produce livestock or crops and often, there is an opportunity to generate income from such operations. While financial records may help, not all Estancia or farms are operated alike, and the management and scale of such operations differ wildly. Beyond just studying current processes, one should understand carrying capacity, and alternative management techniques like holistic land management, as these methods can significantly enhance value. 

#7: End-of-the-Road Privacy

End-of-the-road privacy with an unobstructed view of mountain peaks and sweeping meadows are some of the most important features that add value. Estancia buyers look for the secluded private settings that ranches offer and the peace that this solitude provides. Estancia at higher elevations can see a higher price per hectare simply due to climate, location, and proximity to national forests or parks. The location of your Estancia is perhaps the most significant factor in the overall valuation of a property.

Many large properties around the world are leasehold to a third party. (Churches, Universities, Corporate Investors, the State). The largest examples are in Australia and Russia. Depending on the lease conditions, this is an inferior form of ownership, making the property difficult to finance and making expensive improvements. We would recommend staying away from this property type. The other issue to look out for is forged titles. Although relatively uncommon, it is a hazard in parts of Paraguay.

#9: Competing Land Interests

In some areas (parts of the Argentine and Chilean Patagonia regions are claimed by the Mapuche tribes) there are unresolved conflicts for the land from indigenous groups that are often violent. Be particularly vigilant around lakes and rivers. Some parts of  Peru,  Paraguay and Brazil have similar conflicts. Although these areas are relatively small, they often are prime real estate but should be avoided by investors.

#10: National Land Restrictions

Several countries have introduced restrictive farmland laws applying to foreign investors in the past few years. Check before you start doing any due diligence on a particular property.

Although there is no perfect market approach to determine estancia values, these points help us formulate a valuation for a property and suggest a suitable marketing plan.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

The Gateway Team – When You are Serious About Property


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