The upcoming main marketing period for farm sales will test the effect of reduced dairy incomes on the property market.
Rural property prices have eased from recent highs, with dairy farm prices particularly weak in July August, but a lot of that appeared to be compositional and related to the time of year, ANZ's latest Agri Focus said.
An improvement in the outlook for dairy farm gate returns would help prices but headwinds still remained, the report said.
Cash flow remained constrained, there would be heightened uncertainty for foreign investment following the decision to reject a bid by a Chinese company to buy Lochinver Station, near Taupo, and credit growth was particularly strong in 2014-15, restricting future borrowing capacity, especially with returns and cash flow under pressure.
Anecdotally, it seemed there were going to be plenty of listings coming on to the market in the main regions over the second half of spring. Vendors who needed to sell would have to meet the market, others might choose to ''sit tight'' given an improvement in the outlook for returns.
Dairy sector credit grew by $3.25billion, or 9%, in 2014-15, the strongest rate of growth since 2008-09, highlighting the role lower interest rates and a competitive lending market had played in boosting land prices.
It was little coincidence that dairy aligned land prices rose by 10% 20% over the past two financial years while credit growth was up 16% over the same period, the report said. That growth was likely to restrict future borrowing capacity, especially with returns and cash flow still under pressure.
Recent gains were creating further impetus for milk price forecasts to move back towards $5 per kg of milk solids.