Farmland prices expected to rise in 2010 as strong demand drives market, especially from overseas

Although there is more land on the market, with 18% more available for sale in the first quarter of 2010 than a year ago, it is still well below 2008 market levels, according to the latest report from Smiths Gore.
 
There is a strong demand for agricultural investments but a chronic lack of opportunities and equipped farmland values increased by 2% to an average of £7,300 per acre in England between January and March 2010, continuing the rise from the previous quarter.
 
There has not been two consecutive quarters’ growth since the start of 2008, but values are still 14% below their peak of the summer of 2008, according to Giles Wordsworth, Head of Farm Agency at the company.
 
While the latest report from consultants Knight Frank shows that English farmland values rose by 5.4% in the first quarter of 2010. This takes growth over the past 12 months to 15.5%, with the average price of farmland now £5,397/acre, the highest level recorded by the Knight Frank index.
 
It says that prices are being driven up by a continuing shortage of supply and increased interest from overseas buyers and investors. The amount of farmland publicly advertised for sale so far this year has fallen by almost 20%.
 
According to Andrew Shirley, head of rural land research at Knight Frank values are set to rise further this year. ‘The strong performance of the English farmland market that we saw at the end of the last decade has continued this year. We predict they could rise by a further 10% during the rest of 2010,’ he said.
 
‘Investors, including those from overseas, are becoming more active in the market and, along with lifestyle buyers, accounted for virtually all of Knight Frank’s farmland sales so far this year. Despite its recent price growth, the ongoing weakness of Sterling means property assets in the UK look very good value to those buying in other currencies,’ he explained.
 
‘Interestingly, there appears to be no pattern in the location of overseas buyers, unlike the last decade when we saw large numbers of investors and farmers from Ireland and Scandinavia in the market. Buyers this year have, so far, come from countries covering three different continents,’ he added.
 
Next month’s general election could add an element of uncertainty to the farmland market as buyers wait to see if there is likely to be any change to the tax reliefs associated with farmland ownership, according to Shirley. ‘Alastair Darling, however, left Agricultural Property Relief unchanged in last week’s budget and it would seem unlikely that the Conservative Party would treat APR differently if it was elected,’ he said.
 
‘It is generally acknowledged that economic confidence in the UK will take a hit if we end up with a hung parliament. If this, however, leads to a further weakening of Sterling it could make investing in English farmland even more attractive to buyers from overseas,’ he added.