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How a Territory lost its farming lands in a furtive privatisation rip-off

By Brendan O'Reilly - posted Friday, 6 December 2019


Which state or territory (a decade ago) saw virtually all of its farming lands (some right next to existing urban backyards) privatised for only about $420 a hectare or $80,845 per average 198 ha farm? (While you are guessing), would you also believe that its government (between 2014 and 2017) bought back about 4800 hectares of this same land for over 40 times what it had originally sold it for? Would you also believe that the senior official behind the buyback (rightly in my opinion) described the $43 million odd paid to buy-back nine properties (previously privatised for about $1.25 million) as "a drop in the ocean" and lamented that the buy up did not go further.

The facts above are all true, and the jurisdiction in question is the Australian Capital Territory (ACT). What is amazing is that, while the ACT Legislative Assembly is currently running an inquiry into the buy-back of nine rural properties by its former Land Development Agency (LDA), almost nobody (especially politicians) is publicly questioning why virtually all the Territory's farming lands were sold off so cheaply (a decade earlier) in what had to be a financially disastrous privatisation for the Territory.

The background to this story (in part) goes right back to the founding of Canberra.

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When the ACT was created (to avoid the potential for private speculative gains), it was determined that all Territory lands were to be held under a public leasehold system. New South Wales subsequently handed over Crown lands within the Territory, and all privately owned land (former NSW title) was bought up at market value by the Commonwealth over a number of decades. In 1976 the last freehold lands were bought out.

The Commonwealth had no immediate use for most of the farms it acquired, so it leased them back to either the original owners or to third parties. Lessees generally had no security of tenure but only low rents were charged. Even though leases had nominal terms (sometimes several decades), there was a clause in each rural lease that allowed the Government to resume the land (e.g. for housing) at three months notice, with compensation payable only for lessee owned improvements.

An anomaly was that lessees were allowed to transfer their lease to approved third parties, something that in normal tenancy arrangements would be the right of the landlord. Many leases changed hands from the original farming families to business people, public servants, retired professionals etc, though no bank would accept the (insecure) leases as security. The lease premiums (akin to "key money" paid by incoming lessees to the existing occupier) generally were much more than the value of any lessee-owned improvements but a great deal less than the property might bring as freehold land.

(The rural lands became regarded as a "land bank" for future development, and land sales became a handy earner for the ACT Government. In 2018-19, for example, the Suburban Land Agency gained $482.5 million in sales revenue (of which $292.5 million was from residential land sales.)

The ACT achieved self-government in December 1988. Prior to privatisation in the early 2000s, the rentals paid to the ACT government averaged a mere $5,713 per annum per farm (often including an older government-owned residence, woolshed, and other improvements).

In 1996, following lobbying by rural lessees that their insecure tenure provided no incentive to look after the land, the Carnell (Liberal led) government agreed to issue 99 year leases with automatic renewal clauses to most lessees. This in effect changed the nature of leases from rentals to quasi-ownership (not dissimilar to ACT housing blocks). The public was generally oblivious of this, and that the ACT Government was losing control of its "land bank".

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All major political parties supported the lease changes, which were dressed up as a Landcare initiative. For example, a report prepared for the Australian and New Zealand Environment Conservation Council announced that: "In March 2000 the ACT Government launched a new rural policy to provide a better basis for sustainable rural enterprises and to secure a high level of protection of natural values in rural areas. The new policy includes the availability of 99 year leases in predetermined areas... For new leases, it requires the development of approved Land Management Agreements for sustainable land use".

The terms on which 99 year leases were finally granted were set out in Disallowable Instrument DI 2005-74 tabled by a subsequent (Labor) Minister for Planning. The process basically involved the surrender of the old lease and the granting of a new lease with only $20 of stamp duty payable.

The prices set were only a fraction of market values, something understood by most insiders. Penalties of 50 per cent of any capital gain applied if the 99 year leases were transferred within 10 years (in order to discourage quick profits and temporarily hide the extent of the pork-barrel). The general public (including perhaps some MLA's) were largely ignorant of the rights being relinquished by the ACT government.

The land value payment formulas (not widely publicised) were mostly set at $110 to $162 per Dry Sheep Equivalent (DSE), inclusive of the right for a principal residence, and took little account of location. The carrying capacity of the rural leases in turn was assessed at a highly conservative one to one-and-a-half sheep to the acre. This was based on the land in its original timbered state, which consequently reduced the price paid by lessees (to about $170 an acre).

Political debate centred on the proposed Land Management Agreements rather than on the low land prices. In the course of all this, much ACT rural land was affected by the 2003 bushfires, and the ACT government felt obliged to spend millions replacing rural fencing on its leases. Consequently its net revenue from the huge privatisation was negligible.

Details of the prices actually paid for the new 99 year leases were never publicised. I made an FOI request, and discovered that by 2005 the ACT had sold off 18,595 hectares of land as 99 year leases for a total of $6.7 million in land value payments and $1.14 million in improvement payments (including for 139 dwellings). This latter figure appears a gross undervaluation, bearing in mind that the ACT government inherited a substantial stock of improvements with its rural lands and had spent many millions on fencing, and capital works. The ACT Government continued to issue 99 Year leases well into the current decade, responding to pressure from lessees that had originally missed out.

Different standards of valuation seem to have been applied to government-owned and lessee-owned improvements. The ACT seems to have received a relative pittance for improvements sold with 99 year leases. In cases where rural leases were resumed by the ACT Government, however, payments for improvements on individual properties have sometimes run into hundreds of thousands of dollars. Repairs to bushfire damaged fencing alone (mainly on lands for which 99 year leases were issued, and paid by the ACT government) came to nearly $4 million.

Fast -forwarding to the 2014 to 2017 period, the ACT government's LDA spent more than $30 million buying up strategic rural leases. The public was not told that, between five and 15 years earlier, the government sold these same properties to its rural tenants, receiving (according to FOI information supplied to me) a total of only $831,710 for the land and government-owned improvements. Conveyances of 99 year leases to private buyers yielded equivalent capital gains so that any rural lessee, who was not already a millionaire, became one upon being granted a 99 year lease.

Ross Barrett (LDA Chair from 2012 to 2017) recently told an official inquiry that future ACT Governments now faced the daunting prospect of competing with private developers to secure increasingly expensive land. He said it was "inarguable" that the privately owned rural blocks would be rezoned for housing, which would increase their value ten-fold and make them more expensive to acquire in the future. Land development had been the monopoly of the ACT Government and his opinion was that they are going to lose it in the next few years, posing enormous problems for the ACT economy.

Looking at individual farm privatisations, subsequently bought back, two stand out.

The 104-hectare Wintergarden Estate adjoins the backyards of the inner-northern suburb of Cook. The Tully family had occupied this grazing land for generations. Many decades ago, the Commonwealth bought the property at market value and rented it back to the Tulleys. In December 2010, by granting a 99-year lease (backdated to 2006), the ACT effectively sold the land to back to the family, who were charged an unbelievably low $79,000. The government subsequently bought back this 99 year lease in August 2016 for $4 million, an astronomical capital gain for such a short period.

The most costly episode for ACT taxpayers, however, are deals that relate to "Gininderry", a property covering 678 hectares near the outer northern suburb of Holt.

Corkhill Brothers (a landscaping company) bought the then short-term lease from the previous lessee in September 2002 for $855,255. In March 2004 , the ACT granted a 99-year lease at a price of $122,000 for government-owned improvements and $224,615 for the land. (According to the Canberra Times the site had by this time been identified for residential development). In November 2016, the LDA bought back the 99-year lease for a headline price of $4.52 million. At present an eventual 11,500 homes are planned for the development. The cheapest blocks in Ginninderry (347 sqm) are currently being advertised at $291,280, with larger blocks selling to $522,000.

The rub for ACT taxpayers is that a subsidiary of Corkhills, Riverview Developments, is managing the development under the buy-back arrangements, sharing 40 per cent of the costs and profits. Corkhills were contributing an adjoining 332 ha grazing block on the NSW side of the border, which (with the help of the ACT government) they seek to rezone for housing. The Ginninderry project is likely to generate profits of hundreds of millions of dollars.

According to the Canberra Times "documents released under freedom of information laws show the joint venture is valued at about $1.6 billion, with the ACT government to make about $208 million in profit. Given that profits are to be shared 60:40, Riverview stands to make $139 million". Had Ginninderry not been privatised the ACT Government would not have needed to enter a joint venture arrangement.

So what are we to conclude from all this?

My view is that the ACT had "been sold a pup" in terms of the leasehold system inflicted on it at foundation. The leasehold system is not well understood, and does not lead to the outcomes it is supposed to. Fiascos related to the leasehold system (apart from the current one) have included the Narrabundah Caravan Park sale, controversies about lease purpose changes, betterment/developer taxes etc.

The rural lessees themselves did nothing wrong. They were entitled to lobby government in pursuit of their interests, and it was true that short term leases provided little incentive for lessees to look after a rural property.

The other side of the coin is that short term leases can work if landlords properly manage their rural leases. The reality in the ACT was that the relevant government department (either the former Department of Territories or its counterpart in the ACT Government) did not have the expertise or resources to put its rural lands on a proper commercial footing. Despite this, given the importance of land sales to the ACT Budget, it was stupid for the ACT to privatise its rural leases the way it did. If the leases were to be privatised, this should have been on terms much closer to market value, and strategically located properties should have been retained.

The sad thing is that there is no accountability for what was done. The problem is that all sides of politics were complicit, and no politician wants to criticise their own side. The ACT public, which had a major asset ripped-off from under their noses, seems to be largely ignorant and entirely ambivalent.

Citizens get the politicians they deserve.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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