Agricultural Market Commentary
The Farmland Market- July 2017
During the past year, we have seen the market for farmland remain remarkably robust, albeit with a perceptible tempering of headline prices, despite the widely predicted decline in both activity and prices paid.
There have been several factors which are believed to have caused this “tempering”, as opposed to widespread decline, but we believe primarily these are centred on the UK’s 2016 decision to leave the European Union.
The consequent fall in Sterling has led to an increase in commodity prices and higher EU subsidy payments, meaning farm incomes have strengthened. This increased profitability, coupled with the sustained low interest rates, have meant that more farmers (as opposed to investors) are in a position to buy land when it is priced correctly. Additionally, in light of the government’s commitment to build one million houses by 2020, there are an increasing number of farmers with rollover funds from land sold for developments looking to reinvest in land.
With Sterling weakening against most major currencies, international buyers are also displaying renewed interest into the sector, having been absent for several years. These factors, coupled with the existing inheritance tax benefits attached to agricultural land and its continuing intrinsic attractiveness as a durable investment, have led to this “tempering” of demand rather than the full-scale market correction that many predicted.
As always during a time of relative market stability (i.e. neither rising nor falling) the land market has become increasingly selective, with levels of interest varying widely between localities and with accessibility considerations and perceived land quality playing a large part.
As the Brexit negotiations unfold we expect to see the farmland market remaining selective in terms of demand, as uncertainty over the UK’s agricultural future policy continues. However, the general view remains that land ownership continues to provide a long-term secure asset and, whilst borrowing costs remain low and providing farming is relatively profitable, the market will remain alive and in reasonable health.
The market for farmland remains remarkably robust, despite the widely predicted decline in activity and prices paid.