07/17/2009 Farm land untouched by housing slump as investors see a haven
WHILE the housing market slides, the reverse has been happening with agricultural land values, according to the latest rural research from the estate agents Savills.
In the second quarter of this year land values across Britain rose 10 per cent to average £4,500 per acre.
During the first three months of 2008, values increased by 17 per cent, while over the course of 2007 average values rose by no less than 30 per cent, by far the greatest rise for many years.
Farm land values may have bucked the general property trend, but in terms of profits from actual farming, they offer a low rate of return on some hefty investments. However, world food shortages, rising commodity prices and finite supply have seen farm land attracting the interest of a wider range of investors who are looking to diversify their portfolios.
Savills points out that there is a clear correlation between land values and the price of both oil and gold, two of the world's principal hedges and sought-after investments in volatile times. This linkage has been a feature of the markets for over 40 years.
The pattern of increases in land values has not been uniform. The south and west of England have witnessed the most pronounced boost in values – up by about 15 per cent compared to single-digit rises in the east in the past three months.
In Scotland, where the land market does not really move into top gear until late spring and early summer, average values have jumped by 8 per cent. However, one notable feature of the Scottish situation is the scarcity of farms coming to the market.
In the first six months of 2008 only 14,000 acres were marketed publicly, 40 per cent less than in the first half of 2007.
However, Charles Dudgeon, of Savills' Edinburgh office, told The Scotsman he sensed a change of mood: "I get a gut feeling we are about to see more farms coming on the market. Potential sellers have held back, waiting to see how both farming profits and the land market develop. They may have come to realise it is better to sell on a rising market than wait any longer, but there is clearly no great panic."
Much has been made of the quantum leap in prices on the international market for cereals and oilseeds – sometimes close to 80 per cent on the spot markets. But most arable farmers sell on forward contract, so they missed out on the peak prices of last autumn.
Savills says in its bulletin: "Our research indicates that the buying activity of farmers has been dampened by the dramatic rise of input prices, which have affected cash flows.
"It is likely that many farmers are not yet benefiting from the higher commodity prices of 2007 having sold forward, whilst already paying much higher prices for fuel and fertiliser."
With increasing liberalisation of trading in agricultural commodities, there has been much speculation that serious investors might turn to South America, especially Brazil, with its booming economy and 5 per cent annual growth in gross domestic product.
Savills has investigated this market, but Dudgeon remains cautious. He said: "It looks very good at first sight, but the problem is that investors cannot be sure of being able to get their money out. Political instability in South America is notorious."
It is more likely that serious investors will turn their attention to Eastern Europe, where the problems of who actually holds title to land in the post- Soviet era are slowly being resolved. Several Scottish farmers have already invested in Estonia, Lithuania, Poland and Hungary with considerable success. The next great leap forward may well be much further east – China.
Published Date: 11 July 2008
By Dan Buglass
|
