Brexit hits UK rural land market with demand, rents, yields and prices falling

Brexit uncertainty is affecting the rural land market in the UK with demand falling and in turn having an impact on prices, the latest analysis shows.

Demand has now been falling for the last 18 months with concerns about future subsidies once the UK leaves the European Union and low commodity prices weighing on the sector, according to the market survey from the Royal Institution of Chartered Surveyors (RICS) and the Royal Agricultural University (RUA).

The report shows that alongside the decline in demand, the amount of land available for sale has also decreased across the country for the first time since 2014, with19% more respondents noting a decline in availability rather than an increase.

The lack of demand for rural land is impacting prices with the transaction-based price index falling for a second consecutive quarter. Farmland prices dropped to £10,233 per acre in the second half of 2016, down 7% year on year.

The slowing of the market is also predicted to lead to a further decline in prices over the next 12 months. Some 17% more respondents expect prices for land with a residential component to fall rather than rise, and the price outlook is even weaker for commercial farmland, with a net balance of 31% of respondents expecting values to decline over the next 12 months.

From an investment point of view the report also shows that yields on investment land have also continued to drift lower, edging down to 1.5% from 1.6% previously. During the second half of 2016 some 63% of buyers were individual farmers while lifestyle buyers continue to account for just under one quarter of purchases.

Indeed, this composition has remained more or less unchanged over the past two years, following a significant decline in lifestyle buyers just before the onset of the global financial crisis.

According to the latest feedback, average arable land rents fell by 5% in the second half of 2016 and are down 11% year on year. Average pasture land rents fell by 2.6% compared with a fall of 6.5% in the first half of the year but they are down by 7.9% year on year.

‘It’s clear we are now in uncertain times and beginning to evidence the impact on land values. Coupled with continued declining agricultural profitability, the uncertainty caused by Brexit, and concerns regarding levels of agricultural support post-2020, greater caution is being exercised by both buyers and sellers,’ the report says.

‘This is combined with a stronger divergence between land values based on quality and location. Demand, supply and average land values have fallen and price predictions going forward suggest further declines. However, as always, the right land in the right place should sell,’ it adds.

In the report RICS lays out the priority areas for rural surveyors and land agents ahead of the EU negotiations and the huge role that farming and land management will have in a post Brexit economy. It says that the forthcoming move away from the Common Agriculture Policy gives an opportunity to reset the British agriculture and environmental policy framework.

RICS is calling for the Government to guarantee funding of targeted direct financial support beyond 2020, where it is required, and provide an availability guarantee of labour and to enhance funding immediately for UK applied agricultural and horticultural research and agri-tech development.

It also suggests that the Government should rural proof all national polices, recognise the highly diverse nature of rural, land based businesses and ensure rural development funding is available to support and develop the establishment and growth of rural businesses post Brexit.

‘Our survey shows that demand is continuing to slow for land, with very localised markets playing a key role; at the same time lower commodity prices and higher costs are biting. Brexit is then an overarching sense of uncertainty,’ said Jeremy black, head of UK policy at RICS.

‘Government’s guarantee of payments out till 2020 gives land based businesses certainty, but also gives the sector the chance to work with Ministers to craft this new system. Government need to modernise the systems of land classification/capability for agriculture and review permitted development rights to enable more conservation related activities reflecting the ever increasing demands on UK land for a myriad of uses,’ he added.