UK arable land prices revive, after 19% tumble

18.10.2017

Prices of arable land in England enjoyed a summer recovery, helped by soaring demand from investors at a time of unusually low supplies of farms for sale, Strutt & Parker said.

Cropping land sold in England – which holds the vast majority of the UK total - at an average of £9,100 per acre in the July-to-September period, a rise of nearly 5% on values in the previous quarter, the land agency said.

The increase followed a losing streak which had seen prices fall 19% in the two years to the April-to-June period.

And the revival came "on the back of tight supply and strong interest from non-farmers", as well as from buyers seeking land purchases as a means to exploit a capital gains tax exemption clause, Strutt & Parker said.

Brexit negative, tax positive

The proportion of farmer buyers, who were responsible for a high of nearly 70% of purchases in 2008, fell back nearly to 50%.

"Brexit and the uncertainty it is causing in terms of UK agricultural policy, farm support and farming profitability has hit farmer demand," Strutt & Parker said.

By contrast, "the number of transactions involving private investors has risen from 8%, pre the 2008 financial crisis, to 20% in 2017.

"Farmland remains an attractive investment for lifestyle and tax-driven buyers."

Indeed, Michael Fiddes, head of estates and farm agency at the land agency, said that while "no-one is anticipating the high levels of capital growth we have seen over recent years" in land values, there remain "good tax reasons for continuing to invest in farmland", besides the emotional appeal of owning acreage.

Worked farmland remains free of inheritance tax in the UK, besides providing an outlet for buyers seeking to avoid capital tax gains by investing their windfall in an asset qualifying for relief.

'Less land for sale'

Meanwhile, the supply of farmland for sale remains constrained, with the 73,000 acres marketed in the first nine months of 2017 down 5% year on year, and 20% since the same period of 2015.

"It feels like the long-term trend of less land for sale is continuing," Strutt & Parker said.

Mr Fiddes added that "autumn is usually a prime time to sell, but there has been a noticeable lack of new farms coming forward over the past six weeks and this is unlikely to change before Christmas".

The group attributed the slowdown in part to the prospect, post Brexit, of a shake-up of UK agricultural policy, with "the pattern since the early 1990s… for sales to decline before any reforms, as farmers wait to see the details before deciding whether to sell".

Furthermore, "fewer farms are sold when farming becomes more profitable, and the decline in the value of sterling since the [Brexit] vote has led to higher commodity prices which has boosted profitability, albeit from a low base".

'Lenders more cautious'

English arable land prices remain 15% below their 2015 peak, and down more than 2% year on year, according to Strutt & Parker data.

Last week, rival property consultancy Carter Jonas estimated that UK farmland values overall had fallen by 10% year on year in the July-to-September quarer.

"It is clear that ongoing economic uncertainty has affected the state of the market over the last 12 months," said Tim Jones, head of rural at Carter Jonas.

The consultancy added that "six months on from the start of the official Brexit negotiations, lenders are displaying more caution when considering proposals" for loans to fund land purchases.

"It remains to be seen whether this encourages innovation and revised strategies, or whether more stringent lending procedures result in the demise of underperforming farming businesses."


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