VOA - Publications - Property Market Report January 2005

The widely publicised difficulties with the implementation of the Single Payment Scheme (SPS) in England continued to have a significant effect on the land market, particularly in terms of holding down the supply of land and farms available.

Delays in establishment and validation of entitlements and the actual payment of the new subsidy itself all continued the uncertainty surrounding the new system, and provided a reason not to bring land to the market. Where sales were in negotiation, the late establishment of entitlements is thought to have held up the completion of a significant number of sales, particularly in the first part of the reporting period.

However, compared to 2005 an increase in supply of land and farms for sale was evident overall, as a growing number of vendors had managed to confirm their SPS position sufficiently to enable sales to be commenced. This includes an increase in the numbers of commercial farms and land parcels on the market, these being the properties of most interest to working farmers and thus where the SPS position is of greatest importance.

Yet the level of supply remains well below that seen in the period prior to the Foot and Mouth Disease outbreak and demand for land in most areas remains very strong. Demand has certainly been pent up during the period where the industry has been preoccupied by the implications of the SPS, and when land is publicly marketed in most areas it attracts strong interest. The result is reports of price rises in most areas for land and farms, and several of the auction sales in this report provide a good illustration of that perception.

However, as found in our previous report price rises are not universal throughout the country. In areas of the East of England and adjacent parts of Yorkshire and Humberside where land prices are most closely influenced by commercial farming concerns, there are reports of modest falls in value for poorer quality lots, particularly those with no amenity or other non-farming interest.

Nevertheless, the overall picture is of a market holding its value and in many locations still on the rise. The view of some commentators that the market was falling at the end of 2005 was not supported by subsequent transactions in the first half of 2006.

But the reasons for this sustained positive performance are not in the main founded upon the fundamental health of the UK farming industry. Many agricultural product prices, despite a recent pick up in cereal prices, remain relatively depressed, well below levels seen in the mid 1990s. The price paid to dairy farmers for milk is again falling, as a result of cost cutting pressure from major retailers and processors. Current low levels of farm profitability are causing those farmers who are committed long term to the industry to look to buy more land in order to spread their fixed costs and reduce their costs per acre. This expansion effect is itself driven by the current poor farming outlook. There are also consistent reports of overseas buyers in the market for commercial farms, particularly Danish buyers in the east, and Irish purchasers in the North West, West Midlands and elsewhere. UK land values look very competitive to these overseas buyers.

Otherwise land and farm values remain significantly influenced by non-farming factors.

Farmhouses, traditional farm buildings and farmland remain a popular investment. They offer a range of financial advantages including capital security and growth, and taxation advantages, whilst at the same time providing attractive country residences and a sought after quality of life. Recent falls in the stock market have again illustrated the advantages of holding land and rural property as an alternative investment. As expected the return of the large City bonus has fed through in 2006 to the quality farmhouse market, leading to sharp rises particularly for those properties within any reasonable commuting distance of London. What is noticeable is that purchasers seeking the right house will take on ever-larger areas of farmland with it, in order to secure the purchase and then protect the amenity of the house by controlling the adjacent land.

Non-farming investors are also active in the market in buying blocks of bare land situated close to the edge of existing built up areas, and vendors are increasingly targeting such purchasers, with lot sizes increasing. In many areas there is now the impression that the location of land now dominates the decisions of many purchasers, with the actual soil and farming quality of the land only a secondary factor, if it is of interest at all. The prices paid for a significant number of blocks of land now appear to bear little relation to the land’s potential to generate income from farming.

There are of course still blocks of land in open countryside with poor access and only a limited number of farmers interested in purchasing which do not achieve these impressive results. Land quality in these circumstances remains important. It is also becoming apparent in mixed farming areas since the introduction of the Single Payment Scheme that the premium value formerly attached to IACS registered arable land over pasture is disappearing, and values now are often similar.

Overall transaction levels in the land and farms market are well down on those seen in the 1990s. The small sample size makes it difficult to provide detailed analysis of movements in prices, particularly when those prices can often be influenced by specific location factors. Evidence of this trend is shown by the decision of the Royal Institution of Chartered Surveyors to reduce the publication frequency of their Rural Market Survey from quarterly to a twice-yearly basis later this year.

There is also strong anecdotal evidence that a significant amount of land is not publicly marketed. Where agents have a good idea of who the potential buyers are a satisfactory outcome can be achieved without incurring marketing expenses.

As to the future, the expectation of many commentators is that more land and farms will be offered for sale as declining subsidy returns feed through. However, countering this expectation is the fact non-farming owners will be unconcerned about returns from the SPS, and a strong trait amongst long term owners of farms to avoid selling the family home if they possibly can.

This has been another relatively quiet reporting period for the agricultural market. The ongoing Single Farm Payments, or lack of has tended to have the effect of keeping land off the market until things are more definite in terms of payment and transfers. This said, the few commercial farm sales that have taken place, most notably in the Cumbria area, the associated complications of how to deal with SPS have not appeared to have any noticeable impact on value. Good prices are still being realised for primarily ‘pure’ agricultural units (see table). It would appear that entitlements becoming a tradable asset either with or without land, has had no significant impact on agricultural sales. However this being said, the number of farms coming on to the market has been low with scarcity driving up values in some cases and smaller parcels of land often attract bids from those not necessarily bothered about SPS. Non-agricultural purchasers continue to dominate the market for small blocks of land, keeping land prices fairly stable.

There are significantly more farms coming on to the market in recent weeks and there seems to be a healthy interest in the farms, which are mainly stock farms of over 100 acres located in Cumbria. It could be assumed that these will sell as one unit to an agricultural buyer given their size, locations and commercial farm status.

In Lancashire the market continues to be strong with demand for land driving prices up with some high prices achieved even for lower quality grassland. More land is coming onto the market than has done for some time, with an increase on land advertised this time last year. Majority of sales within Lancashire continue to be small blocks of bare land, with demand still high for land to use as pony paddocks or for amenity purposes, mainly from non-farming buyers, which is keeping prices high. However a recent sale of an ex-dairy/stock farm of 126 acres with large house and buildings sold to a farmer for £8,730/acre.

Once again there is a shortage of good dairy farms coming onto the market and the lack of evidence makes it difficult to comment on overall trends, but it looks likely that values will remain steady in the short term.

As the residential market continues to be buoyant, farmhouse prices have remained high, with lotting of smaller previously commercial farms generally the norm, especially in popular locations to achieve the higher prices for the dwelling and/or traditional barns, rather than selling as one unit.

Based on very limited numbers of transactions values have appeared in the main to continue to mark time over the past six months.

The market remains extremely quiet with a dearth of farms. The SFP scheme in the past has been blamed but whilst there now appears to be no real impediment to sell uncertainty remains. There are still few holdings being marketed and it could possibly be a while before the situation changes. Demand remains high but there is a shortage of supply.

The so-called lifestyle buyers continue to be active with the most attractive properties where premium prices are offered. The less attractive holdings from a residential aspect prove more difficult to achieve sales in this sector of the market.

As before small lots continue to sell well due to equestrian and residential influences.

The downturn in agricultural profitability has continued over the last six months, with very few if any farmers in this area receiving their single farm payment by the then April deadline, corn prices relatively deflated, stock faring poorly and ever increasing costs of inputs.

In a free market, a down turn would probably have been significant, but the agricultural sector continues to be supported by the effects of subsidy payments, beneficial relief from capital taxation, together with the inflow of outside/lifestyle money and their combined effect stabilises the market.

There have not been a sufficient number of transactions of equipped holdings in the last six months to draw reliable conclusions from, but there appears little doubt that the price of smaller parcels of bare agricultural land has increased over the last six months.

There remains an absence of sizeable good quality easily worked productive land being released on to the market and it is therefore not possible to derive a robust trend. Farmers are tending to dispose of fragmented, isolated and poorer land but price depends on the demand from adjoining owners for the most part.

Investment yields have been driven down as the single subsidy basis shifts value from the Freeholder to the tenant. This movement started 2 years or so ago and there appears to be no abatement to this in the last six months.

The market in the last 6 months has seen more equipped farms and estates coming forward, as single payments have been established and decisions about the future have had to be made. This has resulted in a number of long-established farming businesses finally deciding to realise the value of their assets, including their single payment entitlements.

Although farming itself is still a “high-risk” business from a financial viewpoint, the advantages of owning land still tend to significantly outweigh the disadvantages and so there is still a strong market for most equipped farms and bare land, with purchasers coming from farming and non-farming backgrounds and also other countries, including Ireland and Denmark.

The vast majority of properties are sold by private treaty, sometimes without any public advertising taking place and most farms and land are being sold with entitlements included.

Undoubtedly there is more consolidation in the industry, with larger businesses taking over some of the smaller farms and contractors working even more land on either a whole farm basis or undertaking specific tasks, for both existing farmers and non-farming owners.

There is also evidence of some farmers taking part-time work outside farming and further moves towards diversification in an attempt to achieve an acceptable standard of living.

Currently, there is no sign of market demand declining and the still relatively favourable taxation and subsidy regimes affecting farming will continue to support interest in agricultural property, particularly whilst the national economy remains in a reasonably buoyant state.

The following sales illustrate the auction prices achieved over the reporting period:

Address and Description	Date	Acres	Price £	Price/acre
Derbyshire
Great Hucklow Grassland	April 2006	21.7	110,000	5,069
Ravenscliffe Farm, Ashbourne Grade 4 stock unit with 3 bed house requiring renovation	April 2006	62.13	552,000	8,885
Land at Dam Lane, Parwich, Ashbourne Vacant Land	May 2006	32.25	120,000	3,721
Bow Wood, Cromford, Derbyshire Hillside Grazing	May 2006	44	311,000	7,068
Leicestershire
Lodge Farm, The Fosse Way Upper Broughton, Melton Mowbray Farmhouse, Buildings & land	May 2006	70.87	675,000	9,524
Wymeswold, Loughborough Arable	April 2006	20.5	76,000	3,707
Wymeswold, Loughborough Arable	April 2006	36.7	104,000	2,834
Great Glen Pasture land with a range of modern & traditional farm buildings (AHA 86 Tenancy) rent £7,592 pa . Development clawback on part.	June 2006	120.32	355,000	2,950
Great Glen Grade 3 arable land. Entitlements available by separate negotiation.	June 2006	61.40	255,000	4,153
Lubenham, Market Harborough Predominantly Grade 3 arable land with some pasture land & mature woodland. "Potential development opportunity" Overage clause applies	June 2006	161.92	1,010,000	5,671
Lubenham, Market Harborough Predominantly Grade 3 arable land with some pasture land. "Potential development opportunity"	June 2006	91.28	580,000	6,180
Lincolnshire
Binbrook Lobby Field Lakes including site 2 x fishing lakes	March 2006	19.0	158,000	8,316
Northamptonshire
Foxhill Farm, Daventry Lot 1 - Grade 3 organic land & 3 bed house	March 2006	67.00	700,000	10,448
Foxhill Farm, Daventry Lot 2 - Grade 3 land and buildings	March 2006	12.00	102,000	8,500
Land at Walgrave Rd, Northampton Grazing Land	April 2006	7.39	142,000	19,215
Brackley Grade 3 pastureland	June 2006	27.0	192,000	7,111
Nottinghamshire
Vernon Farm, Derby Rd, Kirkby-in-Ashfield Freehold Farmhouse, Barn, Out Buildings, Arable Land	April 2006	101.6	855,000	8415
Plumtree Wolds Grade 3 arable land	April 2006	40.00	154,000	3,850
Stanton on the Wolds Grade 3 arable land	June 2006	36.00	151,000	4,194
East Bridgford 3 Farm buildings in 1.01 acres of land and yard	June 2006	1.01	220,000	-
2 Farm buildings in 1.62 acres of land and yard	June 2006	1.62	180,000	-
Grade 2 farmland	June 2006	16.96	122,000	7,193
Grade 2 farmland	June 2006	15.04	52,000	3,457
Agricultural land	June 2006	40.19	135,000	3,359
Hilltop position Mainly Grade 2 farmland	June 2006	22.83	76,000	3,329

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In this period there has been an increased supply of land and farms evident on the market, with several good sized farms on offer in Shropshire by private treaty. During the first part of the year a limited amount of land was offered by auction, but in May and June more properties were offered by this method. Overall although supply has increased it still remains well down on the position pre foot and mouth.

The long running complications of the Single Payment Scheme, particularly the notification deadline rules surrounding transfer of entitlements, overall continued to hold back supply. The delay in making payments under the SPS is also thought again to have put decisions on land sales and purchases on hold.

In general values have increased, with demand from non-farmers remaining very keen. The slow down noted in the sales of rural residential property in the autumn did not last long, and strong demand for houses with land has returned, leading to reports of increased prices for property of any decent quality. The sale of green belt urban fringe land continues to produce very strong results, as evidenced by the £26,000 per acre achieved near Solihull (see result below). The previous premium shown by IACS registered arable land appears to have disappeared with the introduction of the Single Payment Scheme, with pasture land now showing equivalent values to arable ground.

In Warwickshire there are reports of an increase in land to let, this is suggested to be on the back of non-farming unit owners not wishing to take the operational side of agriculture on themselves.

A new replacement livestock market opened for business in March at Shrewsbury on an out of town site, showing local commitment to this form of stock sales. This is despite there being strong local competition from existing long established livestock markets in Shropshire and its surroundings.

Less welcome was the news that British Sugar intend to close their Allscott, Shropshire, sugar beet factory, with effect from the end of the 2007/8 campaign. Following the closure of the Kidderminster factory several years ago, Allscott had been the last British Sugar plant located outside of their core region of East Anglia. The drop in sugar prices due to the EU subsidy changes is being put forward as the main reason for the closure. It remains to be seen how the loss of this facility will impact on land values as locally sugar beet was valued as a useful break crop in arable rotations.

A community land initiative succeeded in securing the purchase of a formerly let farm unit near Market Drayton in Shropshire which had been earmarked for development. The 140 acre livestock farm had been run on a chemical free basis for the previous 65 years. The reported £800,000 purchase price was raised in part by selling over 5,000 shares in the farm.

Since the January 2006 report the agricultural land market in the East has continued to show a wide variety of prices. The overall impression has been that more land including some whole farms has been coming to the market but not all lots are readily finding purchasers.

The continuing problems surrounding Single Farm Payments have been affecting the market, though the house element and once in a lifetime purchasing opportunities are probably more significant. Danish and Irish buyers are active in the region, with the Danes in particular interested in both arable farms and well-equipped pig units.

It is suspected that overall, prices are drifting up with Grade 3 bare land hovering around an average of £3,000 per acre, but obviously significant variations occur from that norm.

A diversified conservation property was offered in Norfolk by informal tender as a whole or in 2 lots in June 2006. Longmoor Farm and Grimes Farm at Stalham on the Norfolk Broads includes Sutton Broad and Fen, organic pasture, top and soft fruit, greenhouses and a part built farm shop. The whole extended to an area of 419 acres and the guide price was £1,000,000.

The uncertainties relating to the Common Agricultural Policy appear to be diminishing. The realisation is now widespread that the grant and subsidy systems are to be reduced by 2012, leaving the value of land to be determined by market forces alone.

Lifestyle and Investment buyers continue to inflate the value of land up to 100 acres distorting the average values of this sector of the market. Collective auctions of rural land are well supported and figures of up to £25,000 per acre are being paid for small parcels of bare land. Smaller farms with dwellings are being purchased at a premium irrespective of whether the farmhouses have been modernised or have potential for renovation and extensions. The land attached to some of these smaller farms is being under-utilised.

The indications are that there are more properties on the market seeking to take advantage of the stronger market.

Large farming businesses continue to acquire additional land in their locality to spread overheads and to adapt to the changing product market situation. Generally, the majority of product markets are depressed and profits can only be achieved by economies of scale and stringent cost controls.

The number of sales remains low and can only serve to indicate a trend of the market rather than statistical averages.

Perhaps the best example of the “private sale” was the sale of the Edgecote Estate near Banbury, 1690 acres for about £27 million. This property was never formally marketed. This suggests most agents have a list of well-funded clients looking for the right sort of amenity property.

Farmland prices have continued to rise across the Southwest with the number of individual farmer purchases rising, but still the majority of the buyers are non-farmer purchasers that increasingly influence the market ahead of the commercial farmers, who are constrained by the concerns of the Single Farm Payments and issues of cash flow with delayed payments.

The continued rise in values may be placed down to the increase in demand from the residential and non-residential sectors, commercial land values remain stable with the increase in values being driven elsewhere. Small residential farms and farms with alternative use and diversification potential for equestrian or holiday use are particularly sought after by the non-farming and residential purchasers.

The resolution of the Single Farm Payment is bringing more land and equipped holdings to the market that will test the strong demand for farms and estates. This is expected to stabilise or lead to a two tier market that might depress prices in the future for commercial farmland as fewer buyers will result, the buyers being given more opportunity.

Agricultural Values remain strong across the region with a number of farms exchanging hands privately. Agents report strong demand for fully equipped commercial holdings, but have a lack of property on their books to meet demand. Results from auctions of bare land show values increasing with no measurable effect on value as to whether historic SPS entitlements are attached or not. Values of land under 10 acres are particularly strong with non farming buyers still outbidding farmers, with larger blocks selling at more realistic values to local farmers.

Generally levels of sales are limited in relation to the number of buyers known to be looking for land. At the start of the period, SPS uncertainty restricted the volume of sales but prices appeared to rise due to the restricted supply. It appears that larger blocks of land (with or without buildings/dwellings) also attract interest from buyers primarily motivated by taxation objectives and/or land speculation reasons which continues to further widen the gap between values for purely agricultural occupation and overall market values reflecting the bid of all types of purchasers.

The last few months has seen an improvement in the market with an increase in supply and more sales taking place. Demand is still high and prices are considered to have risen, fuelled to a large extent by non-agricultural purchasers, especially in respect of small parcels of land. With the Single Farm Payments now being paid (at least in Wales) vendors seem to be more optimistic about the prospects of a successful sale and this has no doubt had an influence on the volume of sales taking place.

Although the overall perception of farm product prices, particularly milk, remains that they are depressed, the prices paid at auction for the relatively large blocks in Powys near Newtown and Llanidloes (see below) indicate farmers are still prepared to pay significant sums to secure more land.

Prices in excess of £4,000 per acre are historically towards the upper end of the range and possibly indicate a more optimistic view of the future prospects for beef and sheep production, with prices for finished cattle initially up on 2005.

The ending of the 10 year world wide ban on the export of British Beef this Spring has reopened opportunities for farmers, particularly on the continent.

A 776 acre mountain livestock farm was brought to the market by private treaty this spring. Ffridd Uchaf, Rhyd Ddu, near Caernarfon includes a part of the southern slopes of Snowdon. It is being marketed on its diversification potential, being in the centre of the National Park and on the route of the Welsh Highland Railway which is currently undergoing restoration.

England and Wales

This report covers the six-month period between 1 January 2006 and 1 July 2006.