With the global financial systems under the continued strain of the credit crunch, James Pegrum reports on the issues surrounding the performance of the agricultural land market.
It’s official - if growth slows in the fourth quarter of 2008 we will be in a recession. But amongst all the turmoil which has lead to the 'biggest episode of instability since World War 1' (Bank of England, 2008), the farmland market continues to perform over all other property sectors.
The sale of farms and land is a specialist area for Fisher German’s Stafford office and the performance of this sector has been rapidly improving over the last few years. Buyer profiles continue to change, but demand remains constant. Agricultural land is still selling and making good money. Productive arable land in the West Midlands is expected to make £5,000 - £6,000 per acre plus (regardless of the availability of the Single Farm Payment). Pony paddocks may have eased slightly with the onset of the credit crunch, although figures in excess of £10,000 can still be achieved.
With the severe downturn of the financial markets around the world, there is no doubt that buyers are re-evaluating their situation and their assets and taking a view as to whether buying another farm or more land is the right move. We remain optimistic however and expect that this dip in activity will recover as confidence grows.
2008 has seen lending to UK agriculture at an all time high, with a peak of about £10.5 billion (National Office for Statistics, 2008), and as farmers prove that they can service their debts the banks are content to keep lending. Reports from lenders to the industry indicate that they are experiencing exceptionally high levels of demand for new lending and have done so throughout the year.
UK farmers have been very active in buying land, particularly arable farmers, on the back of high commodity prices which has helped to sustain a level of demand over supply. But these high commodity prices have also been a factor in pushing up input prices - especially fertiliser - and may affect future levels of lending as profitability suffers.
Whilst we suspect there will be a dip in price as buyers review their financial position, as long as demand for agricultural land continues to outstrip supply and banks are willing to lend then prices should hold albeit a slightly lower level. We will not see the increases experienced over the last 2 years, but we remain optimistic about the general performance of the market and expect good, commercial farms to hold their values as the markets settle.
Further expected cuts in the Bank of England base rate will provide much needed relief to the cost of running the farming business and the affordability of loans.
Investors will be encouraged by this. They are still very much in the market, although we have seen the delay in the launch of new funds set up to target farmland until the wider economy settles. As the UK tax regime still favours land investment, we expect investors to play an important part in the future performance of the farmland market. Irish buyers, which have often competed for commercial farms, may however now be looking more closely at profitability as their country enters a recession.
For further advice, or for a free market appraisal of your own property, contact James on 01785 273980 or email james.pegrum@fishergerman.co.uk.
