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Steve Parlett
Director, Morpeth/Thirsk Offices
2006 has seen a transformation in the market
place for sales of agricultural land. Investors
looking to make short term capital gains have
generally for the last 40 years steered clear of
the rural market place. Whilst having always
been seen as a solid investment of slow growth,
very small peaks and troughs and a virtually
guaranteed if unspectacular annual return, the
farmland market has rarely attracted
speculators.
The last year has seen a departure from this
trend. Although there have been some regional
variations the trend in sale prices has been up,
up and further up as the year has progressed.
Some parts of the region have seen bare land
prices increase in value by up to 30% although
rental returns have shown little increase in the
same period.
Although not an exhaustive list, some of the
reasons for the increases in land values are as
follows:
 .
There is clear evidence that non farming money
is continuing to enter the market with much land
being sold to investors, particularly those with
capital to spend to avoid capital gains tax.
.Uncertainties
over the effect of registration of land for
single farm payments over the last couple of
years have meant that there has been very little
rural property changing hands until autumn last
year. A shortage of supply focuses demand.
.
100% relief from inheritance tax has also |
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made agricultural land an attractive investment
in certain circumstances.
The international failure of some of the world’s
arable crops has raised the price of
wheat/barley to approaching £100 per tonne.
Although it is widely regarded as a one-off year
this has triggered the optimism of what are
traditionally the most overly optimistic
business men in the country.
What is slightly surprising is that in recent
tender exercises we have noticed the rental
market appears not to be keeping pace with the
sales market. Tendered rents are for all intents
and purposes no higher than last year which
would again support the view that the upsurge in
farmland values is on the back of non farming
money.
The rental market appears not to be
keeping pace with the sales market. Tendered
rents are for all intents and purposes no higher
than last year which would again support the
view that the upsurge in farmland values is on
the back of non farming money.
As with the upsurge of residential property
values in recent years, rising land values will
do little to help farmers while they remain in
farming. The only obvious benefactors are those
wishing to sell and leave the industry or, in
housing language, downsize.
However, one possible benefit to many in the
industry is to use the increased freehold value
of a farm to restructure the financing of the
business. A client owning a 500 acre farm could
now have as much as £400,000 more equity in the
farm than they thought they had which will
undoubtedly give lending institutions £400,000
more comfort when talking about farm finance. A
prerequisite of any such discussions will no
doubt be an up to date open market valuation of
the farm by a qualified Chartered Surveyor. |
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