Precious farmland fetches record prices

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A scarcity of farmland means prices have risen to a record high, with values up by seven per cent in a year, new research shows.

Arable land typically makes between £7,000 and £9,000 an acre in Yorkshire, while grassland prices tend to range from £5,000 to £7,000.

It leaves newcomers to the industry facing an uphill struggle to raise the necessary capital and leaves only the most successful farming businesses in a position to bid for the best land.

But Lucinda Douglas, York East county chairman for the National Farmers’ Union, said banks see farmland as safe investments and are therefore open to lending to individuals looking to purchase agricultural land.

“We do meet with banks and the clear indication we have been getting is that they are putting a lot of focus and resource into the agriculture sector as it is seen as low risk,” she said.

“Land doesn’t depreciate in value in the same way as other commodities and banks have indicated that they are prepared to allow borrowing to the right people with a viable business plan for agricultural land.”

Between July and September, farmland outperformed residential property, matched the rise in the value of the FTSE 100 and was only marginally behind the five per cent hike in the price of gold.

Frank Knight’s research reveals that the average value of farmland in England rose by four per cent in the third quarter of 2013. The rise, to £6,678 per acre, is the strongest quarterly performance recorded by the property agents since the second quarter of 2010.

Demand for farmland from lifestyle buyers and investors is also contributing to rising prices, Frank Knight said.

Tom Raynham, head of Knight Frank’s agricultural investment acquisitions team, said: “We are seeing a steady increase in the number of enquiries from individuals and funds, both in the UK and overseas, looking to diversify their investment portfolios.

“From what I am seeing now, people start to get very interested if there is also the potential for additional income from the likes of renewable energy or a diversified farm business.”

Allan Wilkinson, head of agriculture at HSBC, said the latest land values were part of a long-term trend and he foresees values continuing to rise.

“I think that providing businesses are well-run and viable, and there’s not suddenly an increase in the supply of land, this trend will continue.

“We now know more or less the shape of the latest Common Agricultural Policy reform and while the policy will pay slightly less than in the past, the way in which it is delivered is an evolution on the way it’s been done before, so there is a continuation of what we are used to.”

Land values are soaring mainly because of the competition between successful farmers looking to expand, coupled with the dwindling availability of land, Mr Wilkinson said.

There are cases of individuals from outside the sector buying up chunks of farmland too, he said, as an alternative to investing in the more volatile property sector and in stocks and shares.

Availability is scarce

Volumes of land for sale are close to historic lows with around 150,000 acres selling per annum, according to property agents Savills.

In stark contrast, during the post-war years around 600,000 acres of land changed hands each year.

Commenting on the latest farmland trends, Andrew Black, rural director at Savills in York, said: “Greatest demand is for the larger and best quality farms which attract interest on a national basis together with blocks of bareland where there is competitive interest from neighbours.”