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UK land defies the global property downturn

As the property market declined and residential development land values plummeted, agricultural land ends the year up 21.5% on 2007 values, according to research by Savills.

Analysis by Savills, tracking values back to 1970, clearly shows that agricultural land values are consistently more closely aligned to wheat prices than the broader economy. After a period of volatility this year, wheat prices are expected to rise in 2009, thus providing a good cushion for agricultural land values, analysts said.

Although the fourth quarter of 2008 has seen average farmland values across Britain fall by -4.4%, extremely strong growth in the first half of the year has kept most areas well into positive territory year on year. Five year growth at the year end stands at 135%.

'On any other investment measure a growth of 15.9%, particularly in this year of unprecedented volatility, would be a great performance,' said Ian Bailey, head of rural research at Savills.

'Our outlook for wheat, the main determinant in setting overall land values, is bullish for 2009. We therefore confidently expect that agricultural land will be well-placed to defy, in large part, the downward recessionary pressures,' he added.

Savills forecasts that average values will remain stable though 2009, at worst softening slightly, down -5%, with a more positive outlook for the second half of the year. But analysts predict that a two-tier market will become more apparent, with the best market being for good quality, well-equipped land in a good location, especially good commercial arable land and the very best estates.

Poor quality land, in poor locations, will be difficult to sell and will see the greatest downward pressure on values.

The recession is most likely to impact on demand from lifestyle buyers, with the outlook for traditional land owning buyers remaining positive. Lifestyle, non farming, buyers, accounted for just under a quarter of all land purchases through 2008, down from a third in 2007, a trend which is expected to continue into 2009, as these buyers feel the full impact of the broader economic situation.

By contrast, investment buyers accounted for 24% of all deals in 2008, up from 16% in 2007, a clear indication that these buyers recognise the relative stability of agricultural land compared to other investment vehicles.