Time to invest in Land

Time to invest in Land

Time to invest in Land

Uncertainty surrounds many investment s at the present time. Such as stock markets, which have gone high and now look ready for a fall. Or property investment in places such as the UK, where the  grey clouds of rising interest rates and huge government debt  are looming overhead.

But one type of investment looks a much safer option. Farmland. The Recession has had much less impact on land prices compared to houses and commercial property. And the reason for this isn’t difficult to see.

Growing population

The great thing about investing in Farmland is you don’t have to take the risk of guessing which way prices will go. The bigger picture is clear, namely the trend for rising World population. Whilst some countries in Western and Easter Europe may be experiencing population decline, this is far outweighed with what’s going on in the rest of the world. A population the size of Germany is being added to global population every year! That’s about 80 million more mouths to feed every 12 months.

Meeting this challenge isn’t going to be easy. Pesticides, fertilisers and hybrid seeds have been used for years, so the main leap forward in productivity per acre is in the past. Now, the only solution is to bring more land into production. And that’s where the problem lies. In most countries, the available fertile land is already under intensive production and only a few countries have fallow unused land.

The scramble by countries to secure future food supplies is on. Middle Eastern countries, in particular,  are worried about their fast rising populations and the limited potential of their desert climates to produce the food needed., so they have been buying and leasing land abroad.

Libya, for example, announced a deal last year to lease 100,000 hectares of land in ex-Soviet Ukraine. In Sudan, South Korea has signed deals for 690,000 hectares and the United Arab Emirates (UAE) for 400,000 hectares.

One of the biggest foreign farmland investors is China. As part of its programme to tie up resources of essential supplies around the world to feed its burgeoning economy and billion plus population, it has been securing rights over large tracts of land. Such as the right to grow palm oil for biofuel on 2.8m hectares of Congo, which would be the world’s largest palm-oil plantation, or controlling 2 million hectares in Zambia.

In total, says the International Food Policy Research Institute (IFPRI), a think-tank in Washington, DC, between 15m and 20m hectares of farmland in poor countries have been subject to transactions or talks involving foreigners since 2006. That is the size of France’s agricultural land and a fifth of all the farmland of the European Union.

Smaller investors joining the land rush

Investing in farmland isn’t just by headline grabbing large government purchases, but by growing numbers of smaller investors. Funds have been set up to offer minimum investments as low as £10,000 in Ukraine, for example.  Offering leasing of land for 15 years, with claims of a potential return of 400% on capital. A similar story for Argentina, where cheap land has been packaged up to offer to private investors. These property funds are targeting people’s pensions (SIPPS in UK), by claiming that land investment will be safer and more lucrative than traditional stocks or property over the medium and longer term.

Buying land yourself

Whilst some of these land schemes may have merit, there will be many investors who prefer to have their name directly on the Deeds to land and not rely on middle men packaging it up. This is perfectly possible and does not have the hassle associated with direct ownership that many might imagine.

For example, it’s possible to buy 18,000 square metres of some of Europe’s best farmland, near the coast in Bulgaria, for as little as 7,740 Euros. Or 30,000 m2 for 12,200 Euros (about 1200 Euros per acre). See offers from long established agency Blackseavillas.net at: http://blackseavillas.net/bulgaria-property-sales-Farmland-properties.html  .

These plots of land can then be rented to local farmers by local property management company to produce an income of around 5% a year. The real benefit, however, is long term capital growth.

A perfect buying moment in Bulgaria

As a new member of the EU, Bulgaria is due to receive hundreds of millions of Euros in farming subsidies, very much like the support that transformed land prices in Ireland years before. However, due to concerns about corruption, the EU has frozen payments until the new centre right government sorts out the problem. This has left Bulgarian farmers trapped between the recession and a failure to receive income they were banking on. Prices for good quality farmland has fallen 30 to 40%.

However, the new government is cleaning up Bulgaria’s image. There have been high profile court cases and jailing of corrupt officials and their private counterparts. Shady dealings such as land swops have been banned and greater transparency introduced into the sale of Government land. All in all, Bulgaria is on track to meet the EU’s concerns and unlock the frozen subsidies. When this will happen is not clear, but best estimates indicate the end of 2010/beginning of 2011.

Time is short to invest. Once the hundreds of millions of EU farm subsidies pour into the Bulgarian agriculture, farmers will pull their property from the market and prices will almost certainly rise sharply. Add to this the ending of the recession and its goodbye to this unique opportunity to buy quality land on the cheap.

Current prices are a bargain, selling for about 10 times less than equivalent prices for top grade land in UK. These prices are very likely to converge with the European, much higher, average over time.

And the icing on the cake is that profits on income and future land re-sale are very modest. A maximum of 10%.  Of course, this is ubject to law at time of sale in Bulgaria, but it’s worth noting that Bulgaria is just about the lowest tax country in the EU, along with Cyprus.

How to Buy

So, how to secure bargain land in Bulgaria before prices start jumping up? The process is quite simple and straightforward and doesn’t even involve you travelling to Bulgaria if you don’t wish to as all purchase documents can be signed in front of a UK Notary Officer in your local town.  

As part of the conveyance process, a Bulgarian company to own the land will be set up on your behalf (you own the company which owns the land). This is standard procedure in Bulgaria and, in fact, nearly all house purchasers by non residents use this company route.

A deposit of only 1500 Euros secures the land and the whole process will only take about a month to 6 weeks.

After purchase, you have the option of letting your land to local farmers as being good quality land it will be desirable to farm. Local agents, Blackseavillas.net, have been established for many years and have a specialist property management division who will manage the of leasing your land for a modest fee. You are always welcome to drop into their large offices in Balchik on the sunny Bulgarian coast near Varna any time to see how your investment is getting on.

The time is now

Profits come from investing early in a strong trend, such as growing populations creating food shortages and rising farmland prices. And getting the timing right in your investment  is likely to increase profits even more.  With recession still depressing sellers of land in Bulgaria and the majority of EU subsidies temporarily on hold, now is the moment to enter the market.

Leaving investing for another 6 months or so could see the end of recession in Bulgaria and the announcement that the EU is satisfied with the Bulgarian government’s clean up. At that moment, farmers will price in the improved conditions and up their prices or, more likely, just not sell. Local farmers in Bulgaria can be a stubborn lot and only the twin levers of recession and no easy EU money is loosening their instinctive desire to hold on to their good quality land.

To enquire about what plots are available at the moment or for further information, please contact Lora at the Blackseavillas office on balchik@blackseavillas.net or call 00 359 5797 7055.