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Agricultural land prices have continued to rise in the first three months of the year, driven by a shortage of supply and strong demand from private investors and farmers.
Farmland values in England rose by 2.7 per cent to £5,700 an acre in the first quarter of 2011, the largest first-quarter growth in arable land prices since 2008, according to Savills.
But even though land values have risen by around 100% over the past four years, agents believe there are still further strong price rises ahead. “Everyone is predicting considerable capital growth in land values over the years to come,” says Mark McAndrew, head of Strutt & Parker’s estates and farms department.
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Strutt & Parker is forecasting a 10 per cent increase in average arable land values this year – and as much as 50 per cent over the next five years.
This has led to a growing number of private investors buying UK farmland as an investment. “High crop prices and the fundamentals of feeding the world’s population continue to drive the interest in farmland as an investment asset,” says Ian Bailey of Savills.
Aside from capital gains, agricultural land can provide substantial tax advantages for private investors. Farmland qualifies for agricultural property relief, which means that all the land, as well as a portion of the farmhouse, is exempt from inheritance tax after two years – provided the owner actively farms the land or has a farming contract in place based on shared profit.
Owners of farms can also qualify for three capital gains reliefs: rollover relief, holdover relief and entrepreneurs’ relief, says Mike Harrison of Saffery Champness, the accountancy firm.
Private Property Search (PPS), a buying agent, says it has seen an increase in recent months of clients looking to purchase farms for investment purposes.
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Ian Hepburn of PPS says private investors typically buy farms in the “fashionable” counties of Berkshire, Oxfordshire, Hampshire, Wiltshire and Dorset.
By contrast, farmland in the eastern counties are more geared to commercial operators who are attracted to the quality of the farmland and the ability to maximise returns.
“These investors include funds wanting to invest in commercial farmland, Europeans wanting to expand their farming interests in the UK and the bigger commercial farms,” explains Hepburn.
However, the price of arable land varies significantly between these locations. “There’s a North/South divide in the farmland market, similar to what’s happening in the residential property market,” says McAndrew.
He says the most visible sign of this is the boundary between Cambridgeshire and Lincolnshire. According to McAndrew, a 500-acre plot of arable land in Cambridgeshire would cost around £8,000 per acre, while a similar plot in South Lincolnshire would cost around £6,500 per acre.
McAndrew says land prices in Northern England currently look cheap. “If I was a buyer, I would be half inclined to sell my 500 acres in Wiltshire and go and buy 1,000 acres in Northumberland if I could find it,” he says.
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Source: Financial Times