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Farmland prices driven by quality

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The latest land market survey from the Royal Institution of Chartered Surveyors (RICS), has found that demand for farmland, both mixed-use and commercial, in the UK has fallen, along with prices, with the sector being hit by a lack of clarity over Brexit. However, the report also pointed out that anecdotal evidence suggested that demand for higher quality land remains stronger in comparison, while purchasers are more selective when it comes to lower grade farmland.

As well as falling demand, there has also been a fall in the availability of mixed-use and commercial farmland for the second period in succession. Despite this, the first half of the year also saw the transaction based measure of farmland prices edging lower to £9,936 per acre, down nine percent year on year.

Average arable land rents, however, were stronger in the first half of 2017, up three percent compared to a year ago, although still down 10 per cent on the 2014 peak. At the same time, average pasture land rents were flat through the first part of 2017, but remain down two per cent on an annual comparison.

Most purchases continue to be made by individual farmers, with just under a quarter of purchases being made by lifestyle buyers. Investments from agricultural businesses and institutional investors both accounted for just under 10 percent.

‘Farmland prices have fallen from their peak in late 2014 and early 2015 due to weaker demand from farmers, who are the main buyers of farmland. However, the average hides a great variation in prices, for example, from £7,000 to well over £10,000 per acre for arable land,’ said Jason Beedell, partner at Strutt & Parker.

‘Prices depend on the quality of the land, but also on whether there are acquisitive local farmers and investors, who are often looking to roll over funds from the sale of residential development land. Where there is strong local interest, buyers are paying similar prices to the peak; elsewhere, land is struggling to attract interest and sell,’ he explained.

‘Because of this, more land is being tested off the market with neighbours or known active buyers, rather than being formally advertised and put on the market. The appointment of Michael Gove as Secretary of State for Environment, food and rural affairs has been generally welcomed, however, the farming sector, like other industries, wants long term stable policies which it understands and on which investment can be planned,’ he added.

Given the wider political and economic landscape, it is unsurprising that there are some concerns in the market, according to Alex Lawson, director of national farms and estates at Savills.

‘However, there is an inherent confidence in the sector and, where quality farms and estates are priced and presented correctly, they continue to sell well, although prices vary greatly depending on the calibre of the location and whether or not there is competition,’ he said.

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