Land prices to fall as farmers wait for certainty

Land values are expected to fall over the next 12 months as low commodity prices and uncertainty over future farm policy take their toll.

The forecast comes from members of the Royal Institute of Chartered Surveyors (Rics), with a net balance of 49% of agents predicting prices would fall across all land types (this refers to the percentage of those reporting a rise minus those reporting a decrease).

Prices have already started to fall, with transaction data showing almost £300/acre was wiped off average land values in England and Wales in the first half of this year compared with the previous six months.

See also: We assess farmland market across Britain post-Brexit

This took average land prices down nearly 3% to £10,751, where a residential component was worth less than 50% of the property’s value. Agents estimated the value of bare arable land fell £393/acre to £8,911/acre in the same period, and grassland fell £268/acre to £7,040/acre.

Farm tenants benefitted, however, particularly those on farm business tenancies, where rents dropped 6% to £142/acre for arable and 7% to £96/acre for grassland rents.

Low farmgate prices and uncertainty over farm support payments had weighed heavily on the market, said Rics. As a result, there had been a sharp fall in buyer demand coupled with increased supply of land on the market.

Giles Allen, partner at Strutt & Parker in Ipswich, said a sizeable proportion of farms remained unsold, while many agents surveyed said quality and location were now more important factors.

“Sales are increasingly reliant on outside investors, rollover money and neighbours or near neighbours seeking to expand,” said Neal Thompson, partner at Edwin Thompson in Berwick Upon Tweed.

“In this area to date, the value of good-quality arable land has held up well, but there is an increasing divergence between the best and the rest,” he added.

Rics’ senior economist Jeff Matsu said: “At least some encouragement can be taken from the potential for the Bank of England’s monetary policy stimulus to support activity.

“In addition, the fall in sterling should prove beneficial to agricultural exporters, and farmlands’ safe-haven status may attract long-term investors,” he said.

Ben Taylor, partner at Bidwells’ Cambridge office, said that longer term, farmland still stood out as “a solid flight to safety asset” and prime holdings were likely to remain desirable, particularly to investors looking beyond 10 years.

The Rics survey, compiled by the Royal Agricultural University, was conducted before the government’s announcement last week about CAP support payments. Rics head of policy Jeremy Blackburn said it remained to be seen how the land market performed in light of these medium-term measures.

Savills’ latest farmland update gave added weight to indications that land prices had been falling since the end of last year.

According to the agent’s research, average values of publicly marketed land in Great Britain fell 2% in the first half of 2016 to £7,150/acre across all land types.

This was led by arable values, which the agent said were more exposed to pressure from low commodity prices.

However, in contrast to evidence from the Rics survey, Savills said the volume of land on the GB market had decreased 8% – or 14,000 acres – to 123,000 acres so far in 2016.