UK farm property and land present investment opportunities
|Wednesday, 03 June 2009|
Assets tied up in UK agricultural property are massive and offer the opportunity to release equity for other uses, according to a report from real estate and land consultants Savills.
It says that UK agriculture around £11 billion of borrowing secured on assets worth over £170 billion, excluding stocks and growing crops.
This massive capital base provides opportunities for the bold and the well advised to release equity to achieve greater returns elsewhere, according to Simon Dixon Smith of Savills.
Over the past 20 years the annual income yield generated on farm property has averaged between 2.5 and 5.5%. This has been significantly enhanced by increases in capital values that have boosted total annual returns to around 15% per annum over this period.
Also the current economic recession has had less effect on agriculture than other sectors and so asset values are holding up well. If equity was extracted from the farm, by borrowing, the owner would still enjoy the benefit of increases in the farm value whilst using the funds to generate an additional income.
Whilst some landowners have diversified into other trading activities many will not have time to devote to this whilst also running the farm. For these people investment in other property assets whilst values are suppressed may be an option.
UK banks are still well disposed to agriculture and will lend against agricultural assets at rates from around 2% over base or around 5% on a five-year fixed rate. UK commercial property annual yields vary from 6.5% to 10% plus depending on the location and type of asset chosen.
'Investors will therefore earn an immediate margin on their funds and gain additional benefit from the expected recovery in capital values,' the report says.
The same arguments hold good for residential property investment. Prior to the crash, buy-to-let gross yields averaged close to 4.5% with highly geared investors entirely reliant on capital growth to make a return. Following falls in house prices approaching 20%, average annual rental yields have risen to over 5.5%. Careful research on location and wise buying decisions can push these yields up higher. Any increases in capital values will be an added bonus.
'Many property entrepreneurs will tell you that they made their fortune in the last recession. The availability of finance is the key to success and farmers have an asset that the banks are still prepared to support,' the report concludes.
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