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Property Market Report January 2006
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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 from 1 July 2005 to 1 January 2006. The market for farms and agricultural land continues to be subject to the effects of the EU farm subsidy reforms as set out in the new Single Payment Scheme (SPS). Although the scheme commenced on 1 January 2005, there still remains significant uncertainty concerning the actual specific financial results of the changes for individual claimants. Definitive establishment of entitlements to the new single payment by the Rural Payments Agency (RPA) has not yet taken place. At the time of writing in January 2006 this was not expected to occur until mid February 2006 and until establishment happens no payments under the scheme can be made. Consequently applicants to the SPS still have no final certainty as to what those payments will be, and furthermore no transfers of entitlements to the SPS can be made until at least six weeks after definitive establishment has occurred. The size of the administrative task facing the RPA is illustrated by the marked increase in applicants to the SPS (totalling in the order of 120,000), compared to the total number of applicants to all the previous IACS and other subsidy schemes being replaced, which amounted to around 90,000 claimants. The devolved administrations in Scotland and Wales in December made interim payments in advance of definitive establishment, but the different payment basis in England means no such interim payments have been proposed. The consequence of this uncertainty for the market for farms and agricultural land overall has been to continue to restrict the supply of property coming onto the market. Whilst more land and farms have come forward for sale, the evidence of the high prices paid during the period show that considerable demand remains unsatisfied in several regions. The picture varies between regions, in those parts of the East of England and adjacent districts of Yorkshire and Humberside where farming profits have traditionally closely influenced land prices, poorer quality properties have been difficult to sell and values are reported as showing modest falls for poorer quality lots. However, outside of these ‘commercial farming’ districts the market over the last six months has been strong, and several auction sales have realised what are thought to be record prices in their areas, particularly for bare land. The restriction on supply caused by the subsidy reforms has now been evident in the market for some two years, and the desire of farmers who are seeking to expand not to ‘miss a once in a lifetime opportunity’ to acquire adjacent land remains strong. The underlying structural change in the rural land market, with units becoming larger and overall farmer numbers falling, continues to also result in less land and farms being offered for sale, compared to the 1990s. The result of these market conditions has been to produce significant price increases and high values for bare land in a number of areas, which continue to defy the low product prices paid to producers for primary agricultural commodities. Although the consequences of the final agreement by the EU to cut sugar prices by 35% was not as severe as the 43% originally proposed and the compensation for loss of income slightly improved, overall product prices remain depressed. Although some farms offered on purely their residential merits have struggled to sell these have tended to be those in less sought after locations or with poorer houses or unrealistic asking prices. Properties without these quality defects continue to sell if priced sensibly. In the West Midlands, farms where the traditional barns have planning consent for residential conversion continue to be sought after and some impressive total prices have been paid for lotted farms of this type. Non-farming purchasers, unconcerned with the details or size of the Single Payment, remain active in significant numbers in all areas. The purchaser who seeks rural property for its attractions in providing capital growth and security, taxation advantages and the perceived more agreeable way of life offered in the countryside, continues to make up 40-50% of purchasers in most areas. The quarter point cut in interest rates by the Bank of England in August, although on its own small, has contributed to a steadying of the housing market, which was reported to have been stabilised by the year end with predictions for modest rises in 2006. The return of the large City bonus is likely to feed through in 2006 to the quality farmhouse market, particularly for those properties within any reasonable commuting distance of London. In addition, the now widespread use of information technology means that many high earners in the market for such houses are able to base themselves at ever-greater distances from the City. This in turn results in their influence on the market for quality houses and land being felt in areas not previously popular with London commuters.
North WestThis has been an unusual reporting period for the agricultural market. The ongoing saga of the subsidy reforms and, most significantly, its payment, has led to a quieter market generally, although the few sales which have taken place, particularly in the agricultural heartland of North Cumbria, have seen some significant prices being realised for primarily ‘pure’ agricultural units (see table), with the associated complications of how to deal with SPS not having any noticeable impact on value. The general opinion in the market place is that, of course, single payment entitlements (like milk and other quotas) will be traded as capital assets, and this will lead in turn to a dual market for land with/without SPS entitlements attached. The measurement of this may be more complex, given that smaller parcels of land often attract the highest bids from those not necessarily concerned about SPS. Non-agricultural purchasers continue to dominate the market for small blocks of land, and prices are firmer than twelve months ago. Some locations report that more land appears to have been brought on to the market than in recent years, in spite of the continued uncertainties concerning the single farm payment scheme. In Lancashire the market has remained fairly quiet with a small increase in the number of sales. The majority of sales are of small blocks of bare land, which continue to fetch good prices, particularly at auction. Strong demand for land to use as pony paddocks or for amenity purposes, mainly from non-farming buyers, is continuing to drive up prices. The shortage of good dairy farms coming onto the market continues and the general lack of evidence makes it difficult to determine overall trends, but it is likely that values will remain firm in the short term. In North Cumbria working farms have recently achieved sales at over £5,000 per acre. There is still a strong residential market for farmhouses with some land across the whole of the North West, which continues to drive up prices, particularly in popular residential locations, and means that if suitable for lotting, farms are being marketed as such, rather than as one unit.
Auction Sales include:
From the limited sales evidence farm prices appear to have marked time over the past six months. The increase in auction sales elsewhere in the country has not spilt over into the North East. Since the passing of the deadline for Single Farm Payments applications land is still slow in coming forward. Many farmers are possibly holding back until Entitlements are established and activated. The spring could see increased market activity. Non-farming purchasers have tended to be more selective. Only holdings with the most attractive character houses have gained their attention. Certain holdings marketed with these purchasers in mind have not achieved offers due to the perceived lack of desirability of the residence. Small lots of land where vendors cash in on high demand from equestrian and recreational users continue to sell well. Larger lots are more difficult to sell at the higher prices as the interest here tends to come from farmers who, whilst keen to purchase, are not prepared to pay inflated amounts. Durham County Council is selling off a further part of its farms estate. The 350 acre South Durham Estate is for sale by formal tender with a closing date of 27 January 2006. The guide price is in the range of £1.7m-£2m.
Yorkshire and HumbersideAlthough there may have been a slight increase in supply, the uncertainties during the ten month qualifying period for Single Farm Payment together with a rather bleak longer term future for agriculture generally has meant a reluctance to release significant amounts of land on to the market. There have been some sales, but they have often been atypical, leaving insufficient transactions to form reliable evidence. There is little doubt that agricultural profitability will continue to fall in the future. Bare land values may have eased slightly as prospective purchasers now have the option of taking land on farm business tenancies. As usual local interest plays a large part and better quality land always attracts a level of demand, but poor land is proving more difficult to move in the present climate. There may be a significant amount of land awaiting release and this could increase supply at some point in the future. If demand remains low, the effect on price could be significant. However, the limited supply currently is one of the largest contributors to price holding up. In the East Riding there have been no auction sales of equipped holdings in the last six months, though most of Towthorpe Manor released on to the market some time ago has now sold. The position is the same in South Yorkshire/Rotherham with no recent auctions, but there remains some evidence in the £5000-£6000 acre bracket. It is considered that this overage can be largely attributed to long term hope and it is therefore anticipated that price will ease in the longer term. In North/North East Lincolnshire again there have been no auction sales but values in this area have never been at the East Riding Wold levels, with demand falling well short of that associated with the north bank. Poorer land in this area is proving very difficult to sell. In the York/Harrogate farms with residential appeal, particularly in the Dales, have sold well, as evidenced by the auction details below. Auction salesinclude:
There is more agricultural property coming onto the market in this region than we have seen for some time. It seems that some vendors have now decided to “cut their losses” and move out of farming now, having applied for their SPS entitlements, but lacking confidence in the future of the industry. The submission of SPS applications has become a “life changing decision” for many farmers who are considering whether they should stay in farming or take the money and do something else, or even retire. There are also a number of people in this area who have actively pursued diversification, sometimes with help from Government Grants. Despite the increase in availability there has been no significant effect upon prices, but there is now an element of realism appearing in the market, caused by the uncertainty about the future, so some properties are staying on the market longer or being sold at lower prices than previously anticipated. However, this increased availability of agricultural property, particularly complete farms, has represented a buying opportunity for some purchasers, including several institutions and those with roll-over money to spend. The majority of properties are still being sold by private treaty, with only a few auctions and SPS historic entitlements are normally included in the sale, but the exclusion of these in some cases does not seem to have deterred potential purchasers. The impact of lower commodity prices and a slow down in residential property values is also contributing towards the continuing uncertainty in the market. This could result in more disposals with greater consolidation of large farming businesses and increased diversification. The following sales illustrate the auction prices achieved over the reporting period:-
An increase in supply of farms and land onto the market has been evident since the May 2005 SPS deadline. Several impressive auction results of bare land in the region have occurred particularly Hextons Farm, Arley, Worcs, where 205 acres made in total £3,740 per acre. This appears to be evidence of unsatisfied demand that has been building up over the last two years whilst farmers await the result of the CAP MTR reforms. The delay in definitive establishment of entitlements and making of payments continues to keep some land off the market and the overall effect has been to increase bare land values, markedly so in some cases. However, quality of lots remains important, and blocks where lack of road frontage make lotting impossible sell for significantly lower prices. There have been several reasonable sized whole farms sold by private treaty in lots at very good total figures, but in most cases these had planning consent for conversion of the traditional barns to residential or holiday use. Builders and developers remain active in competing for barns with planning consent for residential conversion, and vendors market and lot farms to target this demand accordingly. The Worcestershire/Warwickshire border was the location of the property involved in the important Antrobus 2 Lands Tribunal case, which concerned the application of Agricultural Property Relief from Inheritance Tax. The reaction of the market to the decision, which restricted relief on the farmhouse element to houses occupied by working farmers, who farm the land on a day to day basis, will be interesting. . Auction sales include:
There has been a mixed picture in the Region over the report period. In most areas a continued restriction on supply caused by the effects of the Single Payment Scheme, along with demand from non-farmers has caused values to rise. In Essex demand for smaller residential farms and from neighbouring farmers looking to achieve economies of scale continues. Sales that have been agreed are taking longer to complete due to the complications of the single farm payment. In Suffolk more land has come to the market in the last six months but completions are taking longer to achieve. There are continued uncertainties over the single payment system and farm margins continue to be squeezed. Whole farm sales of commercial units are very limited, but there is some continued interest from non-farmers that is underpinning prices. In Hertfordshire and Bedfordshire a significant total of the parcels of land that have sold show a premium to reflect long term hope value and it is understood that house developers have options over large tracts of land in strategic locations. However, in Cambridgeshire there has been an increase in the public marketing of significant blocks of bare land and farms in the county in the last six months as single payment uncertainties reduce and financial pressures continue to bite. In areas of the county where non-farming interest remains keen, or where there is long term hope, prices continue to be strong. But the impression is that commercial farmland prices, for example in the Fens, are under pressure. Whilst the region does not usually have a large number of auction sales per year, there have been two interesting ones during the report period. The sale of the tenanted land in Essex is referred to later in this report. The sale of Lot 2 at Northey & Four Chimneys Farm near Peterborough was of a substantial block of land extending to nearly 400 acres. The land is Grade 1 & 2 black fen with an abstraction licence for irrigation. A quarrying company had previously owned the land, and 50% of the mineral royalties were reserved to the former owner. Although the location of the land, close to Peterborough and the mineral potential, may have been in bidder’s minds, the sale provides a good current example of an auction of a large commercial arable block. Auction sales include:
Again the South East market is characterised by few lots of material size coming to the market but when they are offered tender and private treaty are the preferred methods of sale accompanied by careful lotting to provide maximum flexibility. The increased values established in the first half of the year appear to have been sustained due to the lack of supply, tax advantages etc. There is no apparent evidence of a two-tier market as yet to reflect the single farm subsidy entitlement. The anticipated rise in notices being served by tenants for a reduction in rent under AHA tenancies with effect from Michaelmas 2006 does not appear to have materialised. Limited sales, mainly of small lots, have generally substantially exceeded agent’s most optimistic expectations. The auction results shown in the north Oxfordshire area illustrate the strength of demand for land in the face of the restricted supply. Demand for prime country estates is reported to be strong, with the sale of the 1700 acre Edgcote House estate near Banbury being an example. Charitable organisations have agreed to purchase large areas of medium / low grade agricultural land in southern Hampshire and on the Isle of Wight to extend conservation projects and improve public access to the countryside in due course. Values range from about £ 2,000 per acre and underpin the bottom of the market. A collective auction of rural land in small parcels on the Hampshire / Wiltshire border attached significant interest. The higher prices reflected specific interest from the neighbouring owners, plus local equestrian users. Smaller parcels made up to £ 25,000 per acre. The value of the land responded to non-farming buyers seeking the rural lifestyle, or for tax management purposes and the possibility of very long-term development potential. Two example results are given below. An interesting diversification property on the market is Bury Farm, Slapton, near Leighton Buzzard, Buckinghamshire, which is run as a buffalo farm, prAuction sales held include:oducing cheese, milk and other related products. The 266 acre unit was on offer at £1.4m in the autumn.
Auctions sales include:
Farmland is still well sought after throughout the South West and the availability and supply of farmland to the market has been on the increase when compared to previous years. This is possibly a result of more understanding of the single payment regime. Whether this increase in supply to the market will continue is a matter of opinion as the effect of the single farm payment and tax planning advantages may continue to restrict supply but at the same time drive prices. The non-farming or lifestyle buyer remains in the market still competing with working farmers, especially where there is a quality farmhouse, amenity value to the land and opportunities that may be provided through diversification. Demand from the working farmers seems to be strong for larger farms particularly commercial dairy units or units with potential and bare land. Further down in the South West there is more commercial land available and the non-farming and lifestyle buyer is not so active. Sales however continue to achieve in excess of guide prices with well equipped commercial units with standard house in Devon and Cornwall making £4,000 to £5,000 per acre where farmers are able to compete. Agents report that a number of purchasers have been relocating from ‘up country’ attracted to the South West as a genuine farming area having taken advantage of the high residential values in their area and sold. Where large blocks of bare land have appeared in the market high values have been achieved especially when there is strong local demand from farmers. The non farming or lifestyle buyer is not so active in this market and the farming bids are able to compete to expand their business without having to acquire a farmhouse. The discrepancy between arable and pasture land values would appear to be narrowing following the introduction of the single payment and mid term review with good values being achieved showing values up by at least 10% whether or not the entitlements are passed with the sale.
Auction results include:-
The supply of new land and farms onto the market during the last six months has been limited, with few complete holdings coming on to the market. However, the few sales that have taken place especially of small blocks of accommodation land have met with exceptional demand, in many cases values being inflated by demand from those requiring the land for pony paddock purposes, especially when situated close to village communities. This restricted supply has resulted in higher prices being achieved. It still seems that the previous uncertainties over the Single Farm Payment are having an effect on the number of sales over the last six months. Where a viable sized block or unit has come to the market by auction they have met ready demand as shown by the following sales results. The result of the auction at Church farm, Llangwym near Usk is thought to be a record for the area. These results confirm the continuing importance of agriculture to Wales.Auction sales include.
Sales of tenanted farms 2005Since 1995, except in very limited circumstances, it has not been possible to create new tenancies in the form previously provided for under the 1986 Agricultural Holdings Act. Consequently the number of farms let on full 1986 Agricultural Holdings Act tenancies is steadily declining. As a result demand for such land and farms remains keen, as evidenced by the recent (December 2005) auction sale in Essex of a 80.53 acre block of bare arable land. The Grade 3 land, at Parsonage Farm, Wethersfield near Braintree, sold for £180,000. The land included a 3 bay Dutch barn with lean-to. The price per acre devalues to £2,235 and the yield is 2.83%. It is understood the tenant was the purchaser. The asking price for 72.25 acres of arable land near Winslow, Bucks, currently for sale by private treaty subject to tenancy, shows a similar yield of 2.96%. Lower yields are shown for those properties with any prospects for obtaining vacant possession, development potential, or locations near major urban areas. A small parcel of land in the urban area green belt at Maghull, Liverpool, extending to 10.3 acres, was auctioned in October 2005 for £81,000. The price per acre devalues to £7,864 and the yield is 1.01%. The difference in the asking prices for tenanted properties where hope of development exists is shown by two similar sized properties in Eastern England, offered this autumn by private treaty. The Briggens Estate on the Hertfordshire/Essex border on the edge of Harlow is being offered at a yield of 0.79%.It comprises 920 acres as 2 arable farms with 4 dwellings and a further block of let bare land. By contrast Keyworth House Farm, Benwick, Chatteris, Cambridgeshire is Grade 1 arable also with 4 dwellings, and extending to 950 acres. The asking price here represents a yield of 3.39%.
Agricultural Holdings Act 1986 Tenancies For many areas, there has been little evidence reported that a substantial number of tenants actually served notices in Autumn 2005 in order to trigger a rent review with effect from Autumn 2006. The repeated uncertainty over the SPS subsidy reforms continues to influence the decision whether to trigger rent reviews under existing tenancies. However, in primarily arable districts, there are reports of more reviews being triggered to take effect in Autumn 2006. Tenants in these areas by then will know their entitlement allocations and values, and economic conditions in agriculture show little sign currently of improving. In the eastern core arable areas 1986 Act rents on review are drifting downwards in recognition of declining farm profitability. The rent review provisions of the 1986 Act direct that the rental valuation should take into account the productive capacity of the holding and its related earning capacity, in contrast to the open market basis applicable under most Farm Business Tenancy agreements. The long run of poor farm product prices would otherwise indicate tenants should be seeking rent reductions, but the current level of residential rents acts to hold down prospects of a reduction. Tenants considering serving notices have to weigh up the likelihood of a reduction on farming grounds against how residential rents have moved in the area. Whilst the rental basis does not permit the farmhouse to be valued at its full, unrestricted market value, the value of the residential element of the farm still is a relevant consideration. This judgment becomes especially significant where the rent has not been reviewed for some time, where the 3 yearly review cycle has by agreement been left as a stand still for perhaps 6 years or even longer. Where the circumstances have permitted the sub-letting of cottages at full residential market rents there are reports of landlords seeking to recover 50% of that rent from the head farm tenant. Agricultural Tenancies Act 1995, Farm Business Tenancies (FBTs) Reduced FBT rents continue to be reported, as a result of the EU subsidy reforms. Those in the market who can wait until entitlements are definitively established and payment levels confirmed, continue to do so, but many others are unable to. Consequently they have to contend with the complications of the SPS rules concerning transfer of entitlements, which cannot formally happen until definitive establishment. A much clearer link between rents and the availability of SPS entitlements and their relative likely payment levels has emerged with FBTs, than is the case with land sales. Particularly in predominantly arable areas such as Cambridgeshire, land with no, or poor, SPS entitlements is letting at historically very low levels, down to below £25/acre. Generally, however, it appears based upon recent lettings in the county, that FBT tender rents in Cambridgeshire are £80 to £90 per acre for good bare land with entitlement, and mostly £25 to £40 for naked acres (i.e.land with no SPS entitlement). Although some very low figures (nil or nominal rents) have been reported for lettings of land with no SPS entitlement, where land is tendered on the open market, farmers, especially those near to the land, do seem to be taking a view and bidding up to £40 -£45 per acre to get their feet under the table. Thus, as ever, rental levels for FBTs still depend on exactly who is likely to be in the market for a specific block of land offered to let. However, the picture is far from uniform, in the West Midlands competition for mixed and stock farms offered on new FBTs during the period has been keen, and rents for equipped units have exceeded £100 per acre. It is reported that over 30 tenders were received for one mixed unit, and a block of bare pasture land made over £80 per acre and it is understood only the area element of the SPS was available. QUOTASMilk Quota Sales and Leasing (2005-2006 Season) The market for milk quota for both sale and leasing has been very quiet over the period. Milk prices, which fail to significantly exceed the cost of production (around 18p per litre), continue to result in producers leaving the industry, in turn reducing the potential demand for quota. UK milk production is currently less than last year and is below the national quota thus avoiding the likelihood of any super-levy penalty. As a result prices for sale of quota, which were in the earlier part of the Season between 7-8p per litre, by late 2005 had fallen back under 5p per litre. Prices for quota to lease similarly dropped from over 2p per litre in April 2005, down to under 0.5p per litre by December 2005. There is little prospect evident that prices will improve in the spring, because of the the weakness of the dairy farmer’s position compared to that of the processors and supermarkets. It is likely that producers will continue to leave the industry, as coming to terms with farming post the introduction of the new Single Payment Scheme will inevitably cause them to review the strength of their dairy operation.
ScotlandThe general theme of the reports from Scotland indicate that sales volumes continue to be restricted but there is still a ready demand from potential purchasers.
Scotland North East (Grampian and Tayside)
Scotland South East The wait for the implementation of the Single Farm Payment has restricted the volume of sales but there have been signs of a slight upturn in farm and land availability since May. Demand remains strong and this has held land prices up. Equipped farms show a slight increase but this is, in the main, due to increasing residential values in East Lothian.
Scotland South West (Dumfries) Farms continue to be in short supply and any that do become available for sale are achieving offers in excess of the asking price. There continues to be strong demand from Northern Ireland buyers and prices are moving forward with reports of one dairy farm selling for £4,000 per acre and poor Grade 4 land selling for £2,000 per acre. Value of equipped land with vacant possession as at 1 January 2006 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 January 2006
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