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Property Market Report July 2008
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Property Market Report | Agricultural land and property |
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Agricultural land and property Contents Value of equipped land with vacant possession Value of equipped land subject to tenancy Value of unequipped land with vacant possession Comparative values by region- arable farms Comparative values by region- dairy farms Comparative values by region- mixed farms Comparative values by region- hill farms Vacant possession value trends England and WalesThis report covers the six-month period between 31 December 2007 and 1 July 2008.
Significantly rising land values remained the principal feature of the market in the first part 2008. Increased farmer confidence generated by rising product prices, plus continuing strong interest from overseas buyers appeared to outweigh the bad news coming from elsewhere in the UK economy. Reports from our local offices showed average rises of 20-25 percent in bare land values being sustained in the first six-months of 2008. Rates of increase in value of this order have not been seen for many many years, and similar conclusions have been expressed in the other published surveys. Once again the lack of supply of land and farms onto the market has been a principal factor in driving prices upwards. The Government decision to alter the rate of Capital Gains Tax from April 2008 did bring a greater number of properties onto the market, although not as many as some commentators had predicted. This suggests landowners were balancing possible tax savings against the possible capital losses in selling too early on a sharply rising market. The underlying downwards trend in the amount of property being offered for sale again appears to be evidence of an inclination amongst vendors not to sell land, unless it is absolutely necessary to do so. The extra supply of land that came onto the market as a result of the Capital Gains Tax changes did not affect values at all and they continued to rise across the UK. However, the Farmland Market was not immune during the report period from the problems affecting the rest of the property market and in particular the housing market. Properties targeted at the residential and amenity market were in some cases beginning to struggle to find buyers. By June 2008 clear evidence of residential lots failing at auction was becoming apparent. Examples were the smaller farms referred to in the Wales report below which had a substantial part of their value tied up in the house. These auction failures were also repeated in the southwest where a house and buildings and 45 acres in Cornwall did not sell at auction, whereas two other substantial blocks of pasture land from the same farm did find buyers at the same auction. A pattern of failures at auction for residential parts of lotted farms, and smaller units previously targeted at residential purchases was beginning to be apparent. The report period was also subject to continuing volatility in farm product prices. The price of cereals and oil seed rape began to fall from a peak in March 2008. Whilst feed wheat was trading at £180 per ton in March 2008 it had fallen back to around £145 per ton in late June 2008. This fall has continued subsequently and at the time of writing in mid September 2008 feed wheat has fallen back below the £100 per ton mark. The rise in farmers costs that began to show in 2007 has continued unabated during the report period. Anglia Farmers Limited, the Uk’s largest agricultural purchasing group reported overall costs on a mixed arable and livestock farm since September 2007 had risen by a weighted 35.5%. Fertiliser had increased by 17%, feed costs by 44% and machinery costs by 15%-20%. The rises in oil and other material prices such as steel seen in the first half of 2008 all acted directly upon farmer’s profit margins. Therefore whilst the farmland market appeared very strong during the report period gathering negative factors inevitably will impact upon it during the second part of 2008. The serious volatility in the financial markets seen in recent weeks will impact upon the confidence of land buyers. The substantial problems in the Financial Services sector will inevitably have a negative impact upon values of rural residential property. This will be particularly so for those properties whose values were substantially increased in recent previous years as a result of city bonus bids. It would therefore seem likely that in the coming months the market will draw back from the peak seen during the report period. There is some evidence at the time of writing of an increase supply of farm and land coming on to the market and probably some of these properties will include land owned by some vendors feeling the effect of the credit crunch. It can be expected the poorer quality properties will begin to come under pressure for a price reduction. Land of moderate quality lacking competitive bids from neighbours will be expected to show signs of downwards pressure on values. However the top end of the market for the best quality land or best-equipped units should be able to weather the storm without any extensive fall in value. Farmland also retains its historic attraction as a secure capital asset in times of volatility. Its benefits of resistance to inflation and tangible nature should continue to stand it in good stead. Indeed some commentators have indicated in their opinion there is a strong correlation between the value of UK farmland and and gold, one of the world’s principal defensive hedges sought after as an investment in times of economic volatility.
North WestIn Cumbria local agents report that prices realised for whole farms sold at auction, have exceeded all expectations. At recent auctions, there has been a huge amount of interest, from both local farmers and outside investors, particularly from Northern Ireland. This represents further evidence of a continued optimism in the farming industry, and a buoyant agricultural property market, in spite of the current pressure on farm incomes and profit margins from rising input costs. There is very strong demand for blocks of accommodation land with prices achieving £5,500 an acre. In Cheshire the report period showed strong demand from both the farming and non-farming sectors was continuing to drive up farmland prices, with even some larger commercial blocks of bare land fetching over £6,000 per acre. Small parcels of bare were still commanding high prices up to £15,000 per acre, depending on location. However, sales of good dairy farms are still few and far between. The ‘credit crunch’ is likely to have an affect the price of farmhouses in cases where farms are lotted for sale. In Lancashire demand for agricultural land remained high with values of up to £7,000 per acre for commercial arable land reported. With demand outstripping supply this looks to be a strong trend. However the residential element of farms where they have been lotted, and some barns with planning permission to convert, are sticking with the credit crunch and uncertainty in the market evidently filtering through into the agricultural market. This has been evident where farms have been lotted for sale, the land has sold easily but the farmhouse/barn for conversion has not. Although where priced reasonably properties are still being bought. As ever pony paddock or smaller parcels of land continue to attract a lot of interest and high prices are achieved, generally in the region of £8,000 to £10,000 per acre depending on location.
Auction Sales include:
Despite the slow-down in the residential market and on the Stock Market the positive feeling remains in the rural market with more investors now preferring to invest in land. There may now be fewer so called lifestyle buyers but interest from farmers and investors remains strong and growing. Prices for vacant farms and land have increased over the period covered by this report. Very substantial sums continue to be paid for smaller lots, especially so where there is equestrian interest. The higher prices have resulted in more farms being marketed. Whilst there was some increase in market activity prior to the April deadline for CGT it was not as dramatic as some had predicted. The portfolio of tenanted farms marketed by the Northumberland Estate have it is believed been sold to two investors from out of the area who it is understood bid well in excess of the bids from interested tenants. Such was the level of interest the eventual sale prices, ranging from £1,561 per acre to £3,039 per acre, are claimed to be close to the vacant possession values. It will be interesting to see if Thrunton Farm, Whittingham, a 595 acre tenanted farm being marketed by the same selling agents follows this trend. This is being marketed as having Inheritance Tax benefits as it was let after 1 September 1995 as a First Succession Tenancy. The Sporting Estate of Bowes Moor in County Durham is understood to have sold for £6,290,000. This is a renowned three day driven grouse moor covering 11,200 acres (10 year average 1301.5 brace). The sale also included three keepers’ houses, 83 acres of pasture, 41 acres of let freehold pasture, & 935 sheep stints on Bowes Moor. The auction sale result of Low Burn Hall Durham given below illustrates the strength of the market during the report period.
Yorkshire and HumbersideIncreased values for arable land especially have been experienced over the last six months. The increase in cereal prices though benefiting the arable sector continues to hit the livestock /mixed farmers and particularly the non subsidised Pig Industry, which has suffered an unhealthy decline late last year and continues to struggle to retain profit margins. Dairy continues to show an upturn, but increasing feed costs and fixed costs filtering through now have had an effect in the last six months. Upland and dairy have not performed as well as purely arable. “Soft”commodity prices remain very much the weather vein in relation to the price of land for the agricultural sector but not for “new money” invested in to agriculture in return for tax benefits, increased capital and rental value expectations, long term aspirations and lifestyle needs. The Danes and the Irish continued to show strong interest in UK agriculture on the back of high land values at home, resulting in increased demand on a limited supply. Increased optimism continued from the region's own cereal growers to add to the trend of the second half of 2007, and this along with “new money” and input from the Danes and the Irish has translated into increased values for arable land particularly. Strong demand in the last six months is, in part, derived from future expectations within the market place. Auction sales include:
The farmland market in the East Midlands has surprised many people by its recent confidence and significantly higher prices, in the face of “doom and gloom” in other property and financial investments. The prices achieved have been remarkable, compared with those being paid only a short time ago. However, there are very good reasons for this turnaround namely:- much higher commodity prices (with arable products being particularly valuable); continuing interest from foreign buyers (particularly from Ireland and Denmark),competing with local farmers who are still very active in the market; non-farming purchasers buying as an investment or to provide a “rural retreat” and a still relatively benign taxation regime, despite the recent changes in Capital Gains Tax, which led to a flurry of activity before April. Demand has continued to exceed supply, especially for well-equipped commercial holdings, which are of particular interest to foreign purchasers. Until recently, there have still been people wanting to roll-over development gains into large agricultural units, but these funds could soon disappear, as developers withdraw from the land market following the “credit crunch”, which is having a very serious impact on their trading activities. Similarly, the residential element in the total value of any equipped farm has been particularly significant until recently, but the general reduction in residential values may ultimately impact on even the value of farmhouses and cottages. Farmers are also reporting serious increases in input costs, especially diesel and fertiliser although, historically, changes in farming incomes have not tended to have much of a direct effect upon the land market. Nevertheless, there are beginning to be signs that even the farmland market is not immune from the national financial downturn. Quality properties remain in short supply and so still attract considerable interest, but more run-of-the-mill farms and land are becoming less sought after and may, ultimately, prove difficult to sell. Anyone requiring finance is also finding that they are not getting any special treatment, as the “credit crunch” is affecting all classes of borrowers. As is always the case, the cash purchasers with plenty of disposable income are going to be in high demand! It is also interesting to note that far more rent review notices have been served than for many years, as landlords seek to obtain part of the increased farming margins, in the form of higher rents. However, as input costs increase, the proportion of farming income available for rent will become the subject of much discussion and, possibly, a number of arbitrations.
The following sales illustrate the auction prices achieved over the reporting period:-
The West Midlands agricultural land market remained very strong during the report period, with the rate of price rises accelerating. Demand for land and farms remains very competitive, with larger blocks and units being keenly sought after by working farmers. The rate of increase in the price paid for significant sized blocks of bare commercial farmland was surprising, details of several auction sales in excess of £8,000 per acre in North Warwickshire are given below. There is some evidence of investors buying commercial farmland in the region, presumably to participate in the growth in land values generated by rising food prices. However, the resurgence in farmer confidence on the back of increased cereal and milk prices is a notable feature of the market. Whole farms also remain in strong demand, with details of two farms selling by auction in excess of £2.5m being given below. Demand continues to outstrip supply for both land and farms, and the desire to not miss out on the 'Once in a lifetime opportunity' to buy seems as strong as ever. Whilst more land and notably whole farms were offered by auction in March in advance of the Capital Gains Tax changes deadline, overall the increase in supply for this reason was only modest. The problems in the wider property market began to show themselves, residential lots with small areas of land failed to sell at auction, as did a number of small blocks of bare land targeted at the amenity purchaser. This led in some cases to larger blocks of land in demand from commercial farmers fetching more per acre than smaller ones, an interesting reversal of valuation orthodoxy. Time will tell if the peak of this farmland market has yet been reached, confidence remains high, but the stream of negative news concerning the rest of the market must start to have some effect.
Auction sales include:
In Norfolk over the past six months there continues to be a very substantial rise in the price of agricultural land, due partly to very strong grain prices. This period is the first for many years when farmers have money to invest in machinery and land. There is also evidence for fairly small acreages, depending on locality and competing local demand, of up to £8,000 per acre being paid. Pig farming which has suffered from negative prices recently is now also showing signs of recovery, which will again feed through to demand.
In North Essex and Suffolk there has been a substantial surge in prices since the January report. It is not yet clear how the residential element will affect prices when set against the high prices for grain and other crops. Those crop prices have eased back and must be viewed in the light of significantly higher input costs for fuel, fertilisers etc. However improved new machinery sales appeared to reflect farmer confidence that good times are here for a while as global demand buoys up higher commodity prices. Despite the credit squeeze the availability of finance for deals does not appear to be a problem at the moment.
A similar market applied in Cambridgeshire during the report period. In the Fens Danes in particular were still very active in pushing up prices, which show no signs yet of levelling off in spite of fall back in grain prices and the surge in input costs. In the Fens, £5000 per acre seems the bench mark for good blocks of average land, but smaller areas or individual fields are entirely dependent on local demand, and some such land is often still changing hands for under £4000 per acre. In the Huntingdon “uplands” prices seem to be somewhat higher and the credit crunch does not seem to have impacted yet on residential/lifestyle farm prices there, with a large residential farming estate in Huntingdonshire reputedly selling for a very good price. Auction sales include:
In Kent the last 6 months has seen a steady supply of offerings of bare land coming to the market including about 116.08 acres GII arable at Aylesford in 2 lots guided by private treaty in the overall range £3,230 to £3,877/acre, 103 acres adjoining the river at Yalding by private treaty, 27 acres GI marsh pasture near Sandwich sold at auction for £3,555/acre, and about 78 acres GIII arable, set aside and woods near Tenterden guided in the range £2,885 to £3,205/acre and sold prior to auction. Ready buyers have been found in all cases. Offers in excess of the range £1,510,000 to £1,610,000 (£6,400 to £6,800/acre) have been sought for Odiam Farm, Tenterden with GII listed house, farm buildings and a total of 236.42 acres in four lots, or £1.75m as a whole. It is understood that an offer for the whole in the region of the guide has been accepted. Private treaty and informal tender remain the preferred methods of sale to provide maximum flexibility, particularly with regard to lotting. In West Sussex the agricultural land market was increasingly buoyant. A combination of short supply, high commodity prices, and continued interest from European buyers, were underpinning the market.
Rural Property auctions have shown a strong demand for smaller parcels of bare agricultural land up to £ 18,000 per acre and deciduous woodland ( 30 + acres ) to £ 6,500 per acre. However the level of non farming interest in such lots was dropping towards the end of the report period. In Oxfordshire the sale of Blandys Farm near Wantage was another example of a high price being paid for let farmland. Auctions sales include:
A good range of agricultural property has been available on the market during the report period across the south west. However larger commercial farms have been conspicuous by their relative absence from the market and if one did appear on the market it met with strong demand and interest. The supply of land increased up to 5 April as a consequence of the Capital Gains Tax changes, and was matched by an increase in values. The rising market experienced in 2007 continued with quality bare land values at £5000-£7000 per acre, and where met with strong competition and demand, capable of exceeding £8500 per acre. Subsequent to 5 April the market appeared a little quieter regarding the amount of new property being bought to the market, but by the end of the report period supply had increased again. However, looking to the immediate future the effect of falling cereal prices and increasing input costs, in conjunction with the downturn in the residential property market, will take their toll. Where the house makes up 50% of the value of the property, the market is seen to be tougher than has been experienced in the last 2 years. At the end of the report period there are suggestions the trend of increasing values is slowing, and there are rumours that a number of purchasers are waiting for a fall back in values and sitting tight for the time being. Whilst quality will always make the best value where there is a demand, these negative factors will quite possibly affect general values towards the end of the year.
Auction results include:-
The agricultural land market in Wales continues to be very strong. Property offered on the market during the period of this report met with stiff demand and inceasing land prices were the result. Larger blocks of land of interest to commercial farmers were keenly sought after, with prices in excess of £5,000 per acre being frequently achieved, and up to £8,000 per acre where competition was strong. The focus of the Assembly Government upon agriculture appears to have supported farming confidence in Wales, which bolstered by improved product prices has fed through into decisions to invest in land. High demand meeting a relatively low level of supply resulted in the fastest rate of land price rises seen in modern times. However just at the end of the report period in the second half of June, two smaller units failed to sell at auction. A 64 acre stock unit in Powys near Knighton and an 82 acre farm at Aberaeron Ceredigion both failed to find buyers. These showed the non-farming bid was dropping in Wales, and that Wales was not immune from the serious problems afflicting other parts of the property market. Auction results include:-
Sales of tenanted farms 2008 Land and farms let on 1986 Agricultural Holdings Act tenancies continue to be in strong demand Several farms have sold at auction. Details are given above of sales of farms in Cumbria and Leicestershire, the Cumbrian unit sale showed a yield of 2.29%, but the property included substantial parts of the Hadrians Wall ancient monument site. The sale of the land at Blandys Farm near Wantage in Oxfordshire, for £5,128 per acre shows little difference from its expected vacant possession value. Yields of around 1% or below remain common, even for blocks of bare land, such as the land at Heath Lane Navenby Lincoln, which sold for a yield of 1.42%. The current crop of rent reviews should, if rents increase, push yields out a bit, but purchasers bidding these sort of sums are presumably not making these levels of investment just to receive the 1986 Act rent. The gathering problems in the rest of the property market did not seem to have yet fed through into this part of the market, but if buyers have been influenced by the residential potential of let farms, this may well happen in the near future. The remainder of 2008 going into 2009 should be an interesting time for this class of land.
Agricultural Holdings Act 1986 Tenancies The results of the notices to review rents served following the long period of inactivity in this sector are now beginning to filter through. Rent reviews due to take effect in spring 2007 are reported in the commercial eastern arable areas to have moved upwards in the region of 15% - 25%. However, reviews effective from 2008 have been required to reflect the substantial rises in costs that tenants had been faced with. The recent steep rise in the price of oil has caused steep increases in all products and services dependent upon it. Fuel costs have climbed steeply as have fertilizer and other chemical costs. The price of steel for new farm buildings and equipment has risen sharply. The rises in the price of cereals has fed through to sharply increased feed costs for livestock farmers. These factors all bear upon the assessment of the rent in accordance with the provisions of the 1986 Act. As a result the level of rent rise for reviews effective in 2008 is thought to be significantly less than the previous year, in the range of 10% - 15%, in the commercial eastern arable areas. In addition, those reviews due for Autumn 2008 are likely to be coloured, at least from the tenant’s perspective, by the appalling harvest conditions caused by the wet weather affecting all the UK during the Summer of 2008. The price of cereals was also falling steadily from its peak in March 2008 and by the time of writing in September 2008 had dipped below £100 per ton. Therefore, bearing upon the current reviews from the tenants' viewpoint are a number of negative factors to set against a proposal for an increased rent. Agents acting for landlords will rightly argue that without a realistic level of rent tenants will be unable to expect any substantial investment in let farms. The results of the Autumn 2008 negotiations will indicate whether the opportunity to substantially increase rents after their long static period has passed, or whether there still are grounds for significant rises.
Agricultural Tenancies Act 1995, Farm Business Tenancies (FBTs) The rise in Farm Business Tenancy rents is reported to have continued during the report period. Typical rents in the commercial arable areas of the east are in the range of £120-£130 per acre. Where farmers keen to secure land for expansion face strong competition, bids of £200 per acre are reported having been made. However, the double digit rises in input and other farming costs referred to above will act to restrain rent levels, and the fall in wheat prices from their peak in March 2008 suggest the rate of increase is likely to markedly slow in the second half of the year. The market has remained flat with prices generally less than one pence per litre for sale. The decision by the EU to add 2% to milk quotas from 1 April 2008 has ensured supply totally outweighs demand. The EU plan to phase out milk quotas by 2015, and thus any significant value being paid for this asset now currently looks unlikely. This is further compounded by a continuing trend of fall in production figures, making it highly unlikely that UK dairy production will exceed the national quota for the remaining period of the scheme’s existence. SINGLE FARM PAYMENT ENTITLEMENT SALES
In England the market remains subdued with only limited irregular trading taking place. The wide availability of English entitlements separate from land means the market continues to substantially favour the buyer. This asset is usually valued as a multiplier of the annual earnings of the entitlement. The current English value for lowland entitlements remains at about 1.2 x earnings. Severely disadvantaged area entitlements are in shorter supply and command a higher value in the region of 1.5 - 1.8 x its annual earnings. In Wales and Scotland the annual payment is based only upon historic subsidy receipts and multipliers are higher. In Wales multipliers of between 1.5 and 2 x annual earnings are being paid in the market and in Scotland multipliers can reach as high as 2.5 x annual earnings. Reports indicate the supply of farms and land has decreased even further than previously reported. There is limited evidence available but demand remains high and values are clearly increasing substantially. The sharp rise in prices for oil seed rape and grain coupled with year on year reductions in the supply of land coming to market have acted to force land values upwards. Scottish land values are now coming more into line with neighbouring English areas particularly the North East of England. Scottish values remain behind Scandinavia and Ireland, the Danes in particular see Scottish farmland as 'cheap’ and this suggestes an upward trend until such times as land values equalise across the EU.
In South East Scotland Calroust, near Yetholm in the Borders was advertised in May and comprised 1,734 acres hill and 174 acres inbye land. The asking price was £2,250,000 and the sale price is rumoured to be well in excess of this figure. 200 acres of bare land at Easter Clatto in Fife was advertised with a guide price of £4,420/acre although it did have planning permission for a new house. Other properties advertised are understood to have attracted a lot of interest and were “under offer” quickly. As the summer has continued there have been suggestions that the market has now peaked, possibly due to the credit crunch and farms currently on the market appear to be attracting slightly less interest. High costs, especially fertiliser, are also starting to have an effect on profitability and commodity prices have recently been falling. In the North East demand for arable and mixed farms remains buoyed by the high level of grain prices in this part of the country, and this combined with a lower than normal level of supply has resulted in a substantial increase in value of both equipped land and bare land across the Grampian and Tayside areas. In South West Scotland high demand and low supply have led to significant increases in land values with demand particularly strong for good quality dairy land. Irish buyers are still a force in the market but possibly less so than in recent years. In the North of Scotland values continue to be supported by significant non-farming money particularly for property with sporting and amenity attractions. It remains to be seen if this can be maintained in the light of recent events in the financial sector.
Value of equipped land with vacant possession as at 1 July 2008 The table below shows average values for different types of equipped land in each region with values expressed in terms of £s per acre and per hectare. Dairy farm values exclude the value of milk quota. Where there is no entry the land type is not typical within the area.
Value of equipped land subject to tenancy as at 1 July 2008
Value of unequipped land with vacant possession as at 1 July 2008 The table below shows average values for different types of bare land in each region with values expressed in terms of £s per acre and per hectare. Dairy farm values exclude the value of milk quota. Where there is no entry the land type is not typical within the area.
The average values as at 1 July 2008 are presented in a graphical form for each of the four types of equipped farm with vacant posession. Comparative values by region- arable farms 
Comparative values by region- dairy farms  Comparative values by region- mixed farms 
Comparative values by region- hill farms Vacant possession value trends The graphs below indicate the trend of average vacant posession values reported by District Valuers since Spring 1988. From 1st April 2002 the series are based on slightly amended datapoints details of which are provided at the end of the report. England and Wales - equipped land
Scotland - equipped land
England and Wales - unequipped land
Scotland - unequipped land
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