Tuesday, August 20, 2019

Farmland prices set to tighten during Brexit negotiations

March 31, 2017 by  
Filed under Property

Arable land & buildings to let signPicture Tim Scrivener 07850 303986

Demand for farmland in Great Britain has further decreased, having now been declining for the last 18 months, according to the latest figures.

Uncertainty over Brexit and insecurities over future subsidies, as well as low commodity prices as the key factors hindering the market, according to respondents to the latest rural land market survey by the Royal Institution of Chartered Surveyors and Royal Agricultural University.

Alongside the decline in demand, the amount of land available for sale has also decreased across Great Britain for the first time since 2014, with 19% more respondents noting a decline in availability rather than an increase.

Lack of demand for rural land is impacting prices with the transaction based price index falling for a second consecutive quarter. Farmland prices dropped to £10,233 per acre in the second half 2016 – this is  down 7% from last year, according to the survey.

The slowing of the market is predicted to lead to a further decline in prices over the next 12 months. Some 17% more respondents expect prices for land with a residential component to fall rather than rise, and the price outlook is even weaker for commercial farmland.

‘Huge role’

RICS said farming and land management would have a huge role in a post-Brexit economy. The forthcoming move away from the Common Agriculture Policy gave an opportunity to reset the British agriculture and environmental policy framework.

RICS head of policy Jeremy Blackburn said: “Our survey shows that demand is continuing to slow for land, with very localised markets playing a key role; at the same time lower commodity prices and higher costs are biting. Brexit is then an overarching sense of uncertainty.”

Government’s guarantee of support payments to farmers until 2020 had given land based businesses some certainty, said Mr Blackburn. But it had also given the sector the chance to work with Ministers to craft the new system.

“Government needs to modernise the systems of land classification and capability for agriculture – and review permitted development rights – to enable more conservation-related activities reflecting the ever increasing demands on UK land for a myriad of uses.”

‘Lifestyle’ buyers

Yields on investment land have also continued to drift lower, edging down to 1.5% from 1.6% previously. During H2, 63% of buyers were individual farmers while ‘lifestyle’ buyers continue to account for just under one quarter of purchases.

This composition has remained more or less unchanged over the past two years, following a significant decline in lifestyle buyers just before the onset of the global financial crisis, according to the survey figures.

The latest feedback suggests average arable land rents fell by 5% in the second half of 2016 – an annual decline of 11%. Average pasture land rents fell by 2.6% in the same period compared with a fall of 6.5% in the first half of 2016, leaving them down by 7.9% over the year.

Coupled with continued declining agricultural profitability, the uncertainty caused by Brexit, and concerns regarding levels of agricultural support  post 2020, greater caution is being exercised by both buyers and sellers, says RICS.

This is combined with a stronger divergence between land values based on quality and location. Demand, supply and average land values have fallen and price predictions going forward suggest further declines. However, as always, the right land in the right place should sell.