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Highest and best use of agricultural land in multifunctional land market
evidence from South Africa
Article · January 2010
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 The Highest and Best Use of agricultural land
in a multifunctional land market – evidence
from South Africa

Lozelle Reed and Theo Kleynhans

16th Annual Pacific Rim Real Estate Society Conference, Wellington,

New Zealand, 2010

DEPARTMENT
of AGRICULTURE
Provincial Government of the Western Cape
 INTRODUCTION AND ORIENTATION
Traditionally: rural land important for agricultural production
• Land value strongly related to productive potential of land
• Income-based and measurable

Transition towards multifunctional rural environment

• Income from land not only consideration
• Focus on alternative uses
• Lifestyle considerations (enjoyment, recreation, appreciation of
natural amenities)
 INTRODUCTION AND ORIENTATION (cont…)

Market sales comparison approach for market value

Valuations based on Highest and Best Use (HBU)

• Highest profit or satisfaction for “typical” buyer at specific point in

time
• Characteristics of subject property guide decision of HBU
• Choice of HBU implies acceptance of set of relevant value
attributes
Subject property compared with farms with similar HBU recently
sold in area
 RESEARCH PROBLEM

Presence of two competing users of agricultural land

Different interpretations of the same property (value attributes,
priorities)
Measurement problem – lifestyle considerations more subjective
Valuations more complex and uncertain
Use of inappropriate value attributes – inaccurate valuations
What are the value attributes that appeal to lifestyle buyers?
 RESEARCH PROBLEM (cont…)

Study set out to answer the following within a South African context:

#1 Are there differences in the interpretation of value bearing

characteristics of farms between valuers and lifestyle buyers?

#2 Are there differences in the interpretation of value bearing

characteristics of farms between lifestyle and production oriented
buyers?
 METHOD
Mixed methods strategy

Qualitative (case study) Quantitative (survey)

• Focus on strength of each method (support and confirm)

• Qualitative forms basis

 METHOD: QUALITATIVE PHASE

Is there a difference between the way valuers and lifestyle buyers

look at agricultural properties?

Exploratory, “new”, complex problem

In-depth research required
Subjective motivations, multiple perspectives
Cases chosen subjectively to maximise understanding
 METHOD: QUALITATIVE PHASE (cont…)

• 16 “lifestyle” cases nationwide in South Africa

Qualitative data • Variety in valuer, area, enterprises
collection • Interviews with all parties (buyer, seller, estate
agent, valuer)
• Valuation reports
• 64 participants

Qualitative data • Text analysis of interviews and valuation reports

analysis using Atlas.ti software

• Identify differences in value attributes

important to valuers and lifestyle buyers
Qualitative findings • Identify “new” characteristics appealing to
lifestyle buyers
WHERE IN THE WORLD IS SOUTH AFRICA?
CASE STUDIES INCLUDED IN QUALITATIVE ANALYSIS: SOUTH
AFRICA
 RESULTS: QUALITATIVE
There is a difference in interpretation of value bearing characteristics
between valuers and lifestyle buyers

Valuers: use familiar farming related value attributes when valuing

farms where alternative uses are possible (R/ha)

Awareness in interviews, but reports focus on measurable instead of

intangibles/ subjective considerations

“Beauty” of farms emphasised

 METHOD: QUANTITATIVE

Is there a difference between value bearing characteristics of farms

as interpreted by production oriented and lifestyle buyers?
• Support and confirm qualitative phase
• Use attributes identified during qualitative phase

Survey in two agricultural areas in Western Cape province, RSA:

• Intensive - Paarl, Stellenbosch, Franschhoek RDs
• Extensive - Beaufort West, Ceres, Laingsburg RDs
 METHOD: QUANTITATIVE PHASE
• Create questionnaire with
approximately 50 items plus
Quantitative data
demographics
collection:
questionnaire • Scale of 1 to 10
• Classify as farmer/ lifestyle buyer

• Administer to buyers of farms

• Deeds office data from Jan 2005 – Oct
Quantitative analysis 2007
• Intensive and extensive farming area in
Western Cape province
•Arms length transactions of properties
>5/100ha

• Determine how groups differ using

Quantitative results
ANOVA tests, regression analysis and
factor analysis (STATISTICA software)
DISTRIBUTION OF RESPONDENTS IN WC: QUANTITATIVE ANALYSES
 RESULTS: QUANTITATIVE

290 questionnaires sent: 181 (int.) and 109 (ext.)

Response rate: Intensive area: 35% ; Extensive area: 54%

Extent of lifestyle buyers in both areas substantial: 65% (int.); 52% (ext.)
 RESULTS: STATISTICS

Various statistical analyses (ANOVA, regression and factor analyses)

Some characteristics important to all buyers in both int., ext.

Some differences between buyers

 RESULTS (cont.)
Characteristics important to both types of buyers (median scores)

Variable INT. AREA EXT. AREA

Water availability: human and animal consumption
√ √
Location: travelling time
√ √
Position: private
√ √
Production potential: size of property, climate, soil
√ √
Aesthetics: presence of trees
√ √
Aesthetics: presence of indigenous vegetation √
Production potential: grazing capacity
√
Aesthetics: beautiful view, mountain, natural scenery
√
Irrigation (availability, power, infrastructure)
√
Location: proximity to nearest city/ town
√
 RESULTS: ANALYSIS OF VARIANCE

Variables that differ significantly between buyers - intensive area:

• Location: distance to nearest town; airport

• Location: setting (in valley, against mountain)

• Agricultural production potential in general; soil quality

• Accommodation capacity of other residential units

• Aesthetics: natural scenery; trees; view from the property

• Outdoor recreation activities; availability of water for recreation

 INFRASTRUCTURE: HISTORIC HOUSE
(case study: farm near Franschhoek, Western Cape province)
 LOCATION: SETTING
(case study: farm near Franschhoek, Western Cape province)
 RESULTS: ANOVA (cont.)

Variables that differ significantly between buyers - extensive area:

• Agricultural production potential in general; soil quality

• Condition of existing cultivated areas
• Potential to keep game
• Topography: varied terrain; aspect
• Water availability for irrigation
• Size of the main residence
• Electricity supply
• Condition and capacity of irrigation infrastructure
• Game proof fencing
• Aesthetics: presence of natural scenery; river or stream; mountain;
view from the property; indigenous vegetation
• Outdoor recreation activities
 “THIS PHOTO SOLD THE FARM”
(case study: farm near Heidelberg, Western Cape province)
 RESULTS: REGRESSION ANALYSIS

INTENSIVE AREA:
• Soil quality, permanent living rights for workers improve likelihood of
farm purchased by farmer
• Presence of beautiful view improve likelihood of farm purchased by
lifestyle buyer

EXTENSIVE AREA:
• Presence of irrigation infrastructure improve likelihood of farm
purchased by farmer
• Presence of natural scenery, size of main residence improve
likelihood of farm purchased by lifestyle buyer
 CHECKLIST TO VALUERS: CHARACTERISTICS IMPORTANT TO
CHECK LIST (SELECTED)
LIFESTYLE BUYERS
Characteristic Intensive area Extensive area
Location: proximity to nearest city √ √
Location: proximity to nearest town √
Location: proximity to nearest airport √
Location: proximity to nearest major road √
Location: travelling time √ √
Access: for tourists √
Position: setting (in valley, against mountain) √ √
Position: private √ √
Production potential: soil quality √ √
Production potential: meso climate √ √
Production potential: size of property √ √
Production potential: grazing capacity √
Production potential: game production √
Topography: varied √
Water availability: human and animal consumption √ √
Water availability: irrigation √
Residential infrastructure: style of main residence √
Residential infrastructure: size of main residence √ √
Residential infrastructure: condition of main residence √
Residential infrastructure: accommodation capacity of other residential units √
Residential infrastructure: condition of other residential units √
Permanent living rights for labourers √
 CHECKLIST TO VALUERS (cont…)
CHECK LIST (SELECTED)

Characteristic Intensive area Extensive area

Non-residential infrastructure: capacity
√
Non-residential infrastructure: power supply
√
Non-residential infrastructure: condition √ √
Non-residential infrastructure: condition and capacity of irrigation infrastructure √

Non-residential infrastructure: game fencing √

Aesthetics - presence of natural scenery including: √ √
Mountains √ √
Peace and quiet (tranquillity) √ √
Clean, fresh air √ √
Wildlife √
Openness and space √ √
Streams and waterfalls √ √
Valleys, gorges and ravines √
Rock formations and rock faces √
Big trees, forests and bush √
Pristine environment with vegetation typical of the area √ √
Birdlife √ √
Rivers, river frontage and riparian areas √ √
No sign of civilisation (such as roads and buildings) √
 CHECKLIST TO VALUERS (cont…)
CHECK LIST (SELECTED)

Characteristic Intensive area Extensive area

Aesthetics: presence of river, stream, river frontage
√ √
Aesthetics: presence of indigenous vegetation, trees, dams, rural surroundings √ √
Aesthetics: presence of mountain
√ √
Aesthetics - presence of beautiful view, including: √ √
View of vineyards √
View of natural veld √
View of indigenous vegetation (such as fynbos, karoo bush) √
View of trees √
View of mountains and mountain ranges √ √
View of valleys, gorges and ravines √ √
View of water such as a river, stream or dam √ √
360 degrees uninterrupted views (i.e. no obstructions in terms of human-made
structures or anything else that could obstruct the view) √
View of natural scenery √ √
No Eskom power lines in sight √ √
No sign of civilisation (e.g. roads, buildings) √
View that stretches to the horizon, such as never-ending karoo plains √
View of a well-kept garden √
Possibility for outdoor recreation activities √ √
Possibility of water recreation activities √
Status √
 CONCLUSIONS AND RECOMMENDATIONS
Discrepancies between traditional production oriented value bearing
characteristics of farms and those emphasised by lifestyle buyers
Lifestyle buyers focus on more intangible/ unique characteristics
Provide check list as decision support tool
Emergence
Beauty is localised
Valuation methodology: multiple perspectives (uncertain, complex,
suspend judgment)
Small sample
Exploratory and no prices (valuers must implement results in farm
valuation practice)
View publication stats

THANK YOU

Funding from Western Cape Department of Agriculture is greatly

appreciated

Selected photos:
www.solms-delta.co.za; www.pamgolding.co.za