Wednesday 1 June 2011

Falling prices for wineries lure investors


The dream of producing their own wine makes buying in a prestigious region attractive to investors, including many from China

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Guanyu said...

Falling prices for wineries lure investors

The dream of producing their own wine makes buying in a prestigious region attractive to investors, including many from China

Richard Warren
01 June 2011

Investments in vineyards is on the rise across the world as prices for these types of properties have retreated in most locations, research from estate agency Knight Frank shows.

Chinese businesses are among those entering the market.

Only two of the 15 wine regions covered in the Knight Frank vineyard index showed an increase in prices last year, namely Mendoza in Argentina - where prices increased 13 per cent over the year - and Colchagua Valley in Chile - where prices rose eight per cent.

But the increases come off a low price base and have large parcels of land available, low building costs and few planning restrictions; all of which makes them attractive to investors looking to start making wine from scratch, the agency reports.

“If you are looking to create serious volume then the New World provides more opportunities,” said Liam Bailey, head of residential research at Knight Frank, “because you can create vineyards on a larger scale in South America and maybe South Africa.”

Vineyard prices fell in established wine regions because they are linked to property values, which declined in many countries, Knight Frank said. An oversupply of wine has made these vineyards less valuable, too.

Despite growing investment in South American agricultural land, Chinese viticulturists have not headed that way yet. They have focused instead on the Bordeaux region in France, where five Chinese-owned vineyards help supply the mainland’s huge demand for wine.

The vineyard index shows prices fell 14 per cent in Bordeaux and the Dordogne region in 2010.

However, Joel Palous, managing director of AIM Vineyards, a company that advises clients on purchasing and managing vineyards, said Chinese investors were correct to put Bordeaux at the top of their buying lists. Prices would recover quickly, he said, because it was a prestigious wine-making region.

Bordeaux prestige is reflected in vineyard prices of US$642,000 per hectare on average, Knight Frank’s index shows, the most expensive in the world. They are 24 times costlier than Mendoza vineyards, which sell for US$27,000 per hectare on average, making them the most affordable on the index.

In addition to Bordeaux, Chinese investors ought to consider other prestigious regions, including California’s Napa Valley and Ribera Del Duero in Spain, said Palous.

“Those areas have been providing the most impressive wines over time and have been promoted for many years around the world, which gives the area recognition like a brand,” he said. “Vineyard investment is like property investment. The three points to remember are: location, location, and location.”

The key to selecting the best location is to analyse the state of the vineyard and the brand said Palous.

French alternatives to Bordeaux include Languedoc, said Joanna Leverett, agency network manager at Savills estate agency.

“The Languedoc produces some good-quality wine and the property prices are lower than Bordeaux, offering some excellent-value chateaux with vineyards. Chinese investors who want vineyards with high production rates could find them in this region,” she said.

Knight Frank reports growing buyer interest in Italy. Bill Thomson, chairman of the Knight Frank Italian Network, said Chianti was a good region in Italy for investors because its wine was recognised and traded across the world.

He said Italy’s most expensive and saleable wine was Brunello di Montalcino, where vineyards cost US$259,000 per hectare. He advised buyers against buying too much land in established winemaking regions.

“Making the wine is not the problem. It is the selling,” he said. “You can get 3,000 litres, that’s 3,000 bottles, per hectare. People don’t always realise how much wine can be produced.”

Guanyu said...

Investors looking to the long term may need to consider how climate change may affect winemaking. Subtle changes in temperature and humidity can affect quality.

Global warming meant viticulturists would be better off in northern climes, said Thomson.

“It won’t be long before it becomes impossible to make wine in Sicily. None of this will happen in our own lifetime, but our grandchildren may have this problem.”

A beneficiary of climate change may be southern England. “There have been a lot of French investors - and let’s face it, they know what they are doing - investing in southern England,” said Knight Frank’s Bailey. “We sold a couple of vineyards in southern England to French buyers this year.”

Champagne houses in northern France have been considering whether to move to Kent in southern England because it may become too hot to produce the wine in their own country. English wine is improving in quality and quantity. This year English winemakers are hoping to exceed the record four million bottles they produced last year.

“British wine is on the up,” said Bailey. “And investing now would mean getting in at the ground level.”

In terms of vineyard prices, southeast England is one of the world’s least expensive regions. One hectare of vines costs just US$32,000.